In the July 2024 edition of our blog series, we bring you selected news on recent changes in law, key tax rulings, and important court verdicts affecting the real estate sector in Poland.
Change in the Law: appeal procedure for VAT Binding Rate Informations
From July 1, 2024, second-instance procedure regarding Binding Rate Information (WIS) are handled exclusively electronically.
Since the beginning of the year, applications for WIS can only be submitted electronically through the taxpayer’s account in the e-Urząd Skarbowy (e-Tax Office). Starting July 1, 2024, the same method must be used for other WIS-related matters, including filing appeals, complaints, and all other documents in the WIS proceedings.
Submitting appeal documents in any other way will not be effective.
Planned Supreme Administrative Court resolution: determining the definitive language version of the double taxation treaty (DTT)
The Supreme Administrative Court will issue a resolution to decide whether a Polish tax remitter making payments abroad subject to withholding tax (WHT) in Poland should follow the English version of the DTT or adhere to the Polish version in case of discrepancies.
This concerns situations where, due to incorrect translation, the Polish version of a DTT differs from the definitive version (most often in English). Such errors are corrected by the Minister of Foreign Affairs through an official announcement, but this often happens only after years of uncertainty and disputes with the tax authorities.
Decision of the Supreme Administrative Court dated June 20, 2024, ref. II FSK 1173/21
Tax ruling: construction site as a permanent establishment (PE) for taxation purposes
Overview
A recent individual tax ruling confirms that a foreign entrepreneur conducting construction activities in Poland for longer than specified in the applicable Double Taxation Treaty (DTT) will be liable to pay Polish tax for the entire duration of the construction works.
Key details
According to a typical DTT, profits derived from a PE owned by a foreign taxpayer may be taxed in the country where the PE is located.
The definition of a PE is usually found in Article 5 of DTTs, and includes construction sites located abroad if construction activities exceed a certain specified period. Typically, this is 12 months, though this period is shorter in some DTTs.
Tax authority’s approach
The discussed case involved a Dutch company overseeing a construction project conducted by another entity in Poland. According to Article 5(3) of the DTT between Poland and the Netherlands, a construction site PE arises when “a construction site, building, or installation project (…) lasts for more than twelve months.”
The Director of the National Tax Information confirmed the applicant’s position that overseeing a construction project constitutes having a PE in Poland. Importantly, the authority also indicated that once a PE is established due to the construction activities exceeding 12 months, the company must settle taxes in Poland from the first day of the construction work. Therefore, the establishment of a PE due to prolonged construction activities imposes an obligation to settle taxes in Poland from the outset of the investment.
Article [in Polish, paywall]
NSA Judgment: advance payments subject to immediate VAT taxation, regardless of transaction outcome
Overview
In accordance with the Supreme Administrative Court’s (NSA) judgment of June 20, 2024, ref. I FSK 1199/20, VAT taxation of advance payments is immediate and does not depend on a 100% certainty that the future transaction to which such payment relates will actually take place.
Key details
The case concerned liabilities related to property development activities. In a joint application for tax ruling, the company sought clarification on whether advance payments towards the property sale price are subject to VAT at the time of payment. The company presented the standpoint that the advance payment should not be taxable upon receipt but only as part of the price upon completion of the sale.
Outcome
The National Tax Information and administrative courts did not share the applicants’ position. NSA pointed out that according to Article 19a(8) of the VAT Act, the amount of the advance payment is subject to immediate taxation. The key consideration is whether there is a direct link between the deposit, advance payment, or installment and the service/goods to which it pertains. This determination does not require absolute certainty that the future transaction or delivery will definitely occur.
The written justification for the judgment has not yet been published.
Article [in Polish, paywall]
WSA judgment: family foundation allowed to conduct short-term lease of premises under CIT exemption
In its judgment dated June 19, 2024, ref. I SA/Gd 219/24, the Provincial Administrative Court in Gdańsk considered the issue of permissible scope of activities under CIT exemption for family foundations. The judgment followed an appeal against an individual tax ruling.
Key details
In the tax ruling issued in this case, the National Tax Information (KIS) stated that short-term lease does not fall within the permissible scope of tax-exempt activities for family foundations. Although Article 5(1)(2) of the Family Foundations Act generally mentions “lease” as one of the permitted business activities of family foundations, it does not specify the type of lease intended. According to KIS, such a general mention refers to a lease formalized by an agreement specifying the rights and obligations of both parties (typical long-term lease). Payments for such leases are usually settled periodically.
Court’s approach
However, the court ruled that restricting the scope of a family foundation’s activities and CIT exemption is not legally justified. According to the justification of the judgment, short-term leases have not been comprehensively regulated under Polish law, and they are subject to general provisions of the civil code regarding leases. The court found that differences in the lease period are not significant in this context. Therefore, a family foundation can conduct short-term lease of premises under CIT exemption.
Conclusions
The cited judgment is the first to rule in favor of the taxpayer in relation to short-term leases, following a series of negative tax rulings issued by KIS.
Article [in Polish, paywall]
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