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Taxation and renewable energy January 2018

On 31 January 2018 expires the deadline for submitting tax returns in Real Estate Tax for 2018

Let us remind that, according to the Local Taxes and Fees Act, 31st January 2018l  is the deadline for submitting real estate tax returns for the tax year 2018, applicable to entities being taxpayers of that tax. This obligation also applies to owners of wind farms. Due to prolonged legislative works on potential amendment of the Renewable Energy Sources Act, still doubts exist as to what shall be considered as taxable basis in case of wind farms – the initial value of construction parts of a wind farm only, or rather the entire initial value of a wind farm.

In the case of taxation of the entire wind farm with real estate tax, the total tax burden is as a rule significant (in particular comparing to the tax due on  construction parts only). In order to decrease that burden, a taxpayer may consider submitting (together with a real estate tax declaration, or separately at a later date) an application for taxrelief on repayment of tax liabilities. Based on the Tax Code, a tax authority, at the request of a taxpayer, may, in cases justified by an important taxpayer’s or public interest:

  • postpone tax payment or spread the payment into instalments,
  • postpone or spread into instalments tax arrears with interest or interest for late payment of tax advances,
  • redeem in whole or in part tax arrears, interest for late payment.

In practice it could be considered to submit an application for redemption of a part of real estate tax due for 2018 (e.g. tax due for selected monthly instalments) or apply for postponing the deadline with respect to the due tax (or its part, e.g. by a few months).

Formally submission of such application initiates tax proceedings, which means that the tax authority would be obliged to issue a decision. Simultaneously, during the tax proceedings the company applying for such tax relief is obliged to prove (by presenting relevant documents/financial data) its important interest as a taxpayer (understood e.g. as difficult financial standing) and/or public interest. Granting a tax relief depends in practice on the tax authority’s approach in a given case.

Another unfavorable decision regarding the real estate tax on wind farms

In a judgment of 16th November 2017, case no. I SA/Po 516/17, the Voivodship Administrative Court in Poznań has confirmed a standpoint of a local tax authority regarding the real estate tax (RET) due on wind farms, stating that as from 1 January 2017 a wind farm as a whole is subject to RET.

Although formally the above-mentioned tax ruling has been repealed by the Administrative Court, in fact the content of the justification indicates unfavorable to RET taxpayers approach with regard to the scope of RET taxation. Basically, the reasons for the repeal were procedural errors committed by the authority (lack of sufficient legal justification for the position presented in the interpretation), and not a different view on the taxable basis of wind farms. What is more, in the justification of the judgment the Administrative Court unanimously confirmed that:

“it is not the subject of the dispute in the present case that as from 1  January 2017 the provisions governing the tax base of the subject matter of the contested tax ruling, namely wind farms, have changed”.

The above statement allows us to suppose that in a situation where the local authority issuing a contested tax ruling  did not commit procedural errors, the taxpayer’s appeal would have been dismissed. In consequence the commented judgment is in line with jurisdiction approach of other Voivodship Administrative Courts, according to which as from 1st January 2017 a wind farm as a whole underlies RET.

The position of the Minister of Energy concerning comments to an amendment of Renewable Energy Sources Act has been published

On 2nd January 2018, the Government Legislation Center published a document presenting the position of Minister of Energy in relation to the comments to the amendment of the Renewable Energy Sources Act and some other Acts submitted in the course of public consultations. What is important, the Minister of Energy (as the project promoter), has responded positively to some of the comments made during the consultations, including, in particular, comments on going back to previous rules regarding real estate tax on wind farms (being in force before 1 January 2017).

Let us remind that in June 2017 the draft of amendment of the Renewable Energy Sources Act and some other Acts was published on the website of the Government Legislation Center. The purpose of the amendment is, among others, to re-establish taxation rules concerning wind farms, which were in force before 2017. According to those rules, for the purposes of RET, the wind farm shall be seen as composed of separate construction and technical parts and only the first one was subject to RET. Currently, as a result of the entry into force of the Wind Farm Investments Act, a wind farm as a whole is subject to the taxation.

Nevertheless, the amendment is still at the stage of public consultations and no official information regarding timing of next steps is known.

Representatives of wind energy industry announced a fight for compensations

According to the press release, 13 investors from the wind energy sector submitted dispute notifications showing that they will seek compensation from the State Treasury in front of an international arbitration tribunal. Investors’ claims are related to losses incurred as a result of the entry into force of the Act on Wind Farms Investment (dated July 2016), resulting in changing the rules concerning the taxation of wind farms (i.e. extending the taxable basis).

According to experts, the amount of compensation in each proceeding may reach up to several hundred million of EUR.

Changes in the CIT taxation as of 1 January 2018

As of 1st January 2018, the amendment of the CIT Act, which may have an influence of tax settlements of taxpayers from renewable energy sources industry, came into force. Let us remind that the amendment introduces in particular the following changes:

  • different regime for interest/financial costs deductibility,
  • limitation of deductibility of costs of intangible services incurred on behalf of affiliated entities,
  • separation of income derived from capital gains from other sources of income (revenues and costs obtained from this source cannot be combined with the revenues and costs from the other sources).

Application of reverse charge mechanism to installation services of photovoltaic plants

The reverse charge mechanism should be applied to installation services on photovoltaic plants, classified in accordance with the Polish Classification of Goods and Services (PKWiU) code no., performed for the benefit of a contractor or a general contractor – such standpoint was confirmed by the Director of the National Tax Information in a tax ruling of 14th December 2017, case no. 0113-KDIPT1-2.4012.690.2017.2.SM.

The tax ruling concerned a taxpayer who was an active VAT taxpayer and conducted business activity consisting in the installation of photovoltaic plants. The activities of that taxpayer has been classified according to the PKWiU code no. and were, as a rule, performed for the benefit of contractors or general contractors being active VAT taxpayers. The taxpayer asked the authority what VAT rate should be applied in the case of invoices issued with respect to the provided services. According to the taxpayer standpoint he, as a subcontractor, should issue an invoice only with the net amount of the remuneration (without VAT rate and amount of the tax) in connection with the application of the reverse charge mechanism.

The taxpayer’s position was fully confirmed. According to the tax authority, in a situation where the service provider and the client are active VAT taxpayers, the taxpayer acts as a subcontractor for the contractor or general contractor, and the service provided is a service listed in annex no. 14 to the VAT Act, the reverse charge mechanism should be applied. Thus, the taxpayer is obliged to issue an invoice with only the net amount indicated (without VAT rate and amount of the tax).

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