Poland
Języki

Reproduced with permission from International Tax Monitor, 49 ITM (March 15, 2017). Copyright 2017 by The Bureau of National Affairs, Inc. (800-372-1033) <https://www.bna.com>

 

By Jan Stojaspal

 


Snapshot

  • Court rulings block efforts to classify simple transfers of assets as transfers of going concerns
  • Rulings expected to help ongoing litigation, boost investor confidence

 

Three recent court rulings have challenged Polish tax authorities on what appears to be an effort to squeeze additional tax revenue from the sale of commercial real estate by classifying simple transfers of immovable assets as transfers of going concerns.

The rulings—two by the Supreme Administrative Court in Warsaw and one by the Voivodeship Administrative Court in Wroclaw—are expected to speed the resolution of ongoing disputes, local tax practitioners said.

They are also expected to help restore investor confidence, whose decline has contributed to the value of commercial real estate transactions falling from around 4 billion euro ($4.26 billion) in 2015 to 2.8 billion euro in 2016, according to local tax practitioners.

While simple transfers of immovable assets are revenue neutral in their effect on the national budget, transfers of assets classified as going concerns carry a socalled civil law activities tax of 2 percent. The tax is paid by the buyer on the fair market value of the property.

Rulings Block Widespread Practice

The Supreme Administrative Court rulings—one involving the sale of a gas station, the other involving the sale of several plots of land and a service building—are significant because they are the first final decisions to block what has in recent years become a widespread practice of Polish tax authorities trying to classify simple transfers of immovable assets as transfers of going concerns, Przemyslaw Powierza, a tax partner and tax adviser at RSM Poland, told Bloomberg BNA in a March 8 telephone interview.

They relate to cases number I FSK 999/15 and I FSK 1316/15, in which verdicts were issued on Feb. 1, 2017, and Nov. 24, 2016, respectively. 

Meanwhile, the Feb. 9, 2017, Voivodship Administrative Court ruling in case number I SA/Wr 972/16, while not final, is significant because it revokes the decision of tax authorities to reclassify the sale of a substantially larger asset—an unidentified shopping mall—a scenario that is far more typical for commercial real estate transactions in Poland, Marta Pabianska, a senior manager and tax adviser with PwC Poland in Warsaw, told Bloomberg BNA in a March 9 telephone interview.

“I would say the message is, don't be afraid,” Powierza said. “It is really a very rare case that you have an independent business being transferred. Instead, in almost every case you have an immovable property, probably extended by some equipment, but it's not as easy as it seems to say that it could be an independent business.”

Moreover, the Supreme Administrative Court has said it is not enough that “it could be a business,” Powierza added. “It needs to be a business at the moment of transferring the assets, and the tax authorities need to have clear evidence that this totality of assets is able to act fully independently.”

Pabianska also welcomed the court rulings, which she believes will shape future decision making by both tax authorities and lowerlevel courts.

‘Very Helpful.’

The verdicts “are very helpful, and we are using them as the defense with tax authorities, because the courts made very vital arguments in these verdicts, saying, for instance, that in order for the complex of assets being classified as” a going concern, “it must be ready to operate at the moment of the transaction. It cannot require additional actions, additional agreements, additional efforts of the buyer to continue the operation.”

However, it does not mean that investors will go back to structuring their transactions as simple transfers of immovable assets any time soon, she added.

“Generally, the market went in two directions,” she said. “I either see transactions structured as a purchase of a going concern,” where the parties involved “simply agree to pay this 2 percent.”

“Of course, this increases the cost of transaction and [delays] return on investment,” she explained.

“The other route is a share deal,” she said. The problem with share deals, according to Pabianska, is that they only protect buyers from questioning by tax authorities if the commercial property was developed by the company whose shares are being sold.

And even if structuring a transaction as the transfer of a going concern, Pabianska recommends securing it with an advance tax ruling, a common practice already.

“I would say that if the transaction is structured as a going concern, it still is confirmed with a ruling, because the risk—even if a theoretical one—still exists with the seller,” she said. “He is transferring something without VAT, so the risk is with him that he has not accounted for VAT.”

To contact the reporter on this story: Jan Stojaspal in Prague at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com