On 11 December 2018 the Minister of Finance issued tax explanations ("explanations") setting out the circumstances in which a given transaction of a commercial real estate sale should be classified as a sale of an enterprise or an organized part of an enterprise ("OPE"), i.e. as an activity not subject to the VAT Act of 11 March 2004 ("the VAT Act").
Explanations issued are intended to increase legal certainty for taxpayers by reducing the risk of the tax authorities challenging the correctness of VAT classification and taxation of commercial real estate supply and drawing the attention of VAT taxpayers conducting supplies of such real estate to factors determining the correct transactions taxation.
According to the Minister of Finance, the following factors should be taken into account when assessing whether the sale of assets constituting commercial real estate should be classified as a sale of an enterprise or an OPE:
Simultaneously, the assessment of whether assets should be considered as an enterprise or an OPE should be performed at the time of the transaction.
According to the explanations, the transfer of commercial real estate may be treated as a sale of an enterprise/OPE outside the VAT scope, if all of the following conditions are met:
In order to determine whether the set of components transferred to the purchaser allows for the continuation of the seller's business, it is necessary to determine whether, in addition to the transfer to the purchaser of standard elements typical for VAT transactions in immovable property (such as movable property, technical infrastructure and rental rights and obligations), elements such as the following are transferred to the purchaser:
However, in order to assess whether a group of assets constitutes an enterprise or an OPE, it is not necessary to transfer all of the above mentioned elements, but the minimum necessary to allow for the continuation of the seller's business activity.
For the purpose of assessing whether the purchaser of commercial real estate intends to continue the seller's business, it is necessary to take into account all the circumstances surrounding the transaction under assessment at the time of the conclusion of the transaction, and in particular the fact that the purchaser has taken action confirming its intention to continue the seller's previous business.
The explanations also include a catalogue of elements which, while forming an integral part of a commercial property sale, should not be taken into account when assessing whether a sale of a property constitutes a supply of goods subject to VAT or a sale of a business or an OPE outside of the VAT scope. These elements include:
Compliance by a taxpayer with explanations of tax law issued by the Minister of Finance on the basis of the Act of 29 August 1997, the Tax Ordinance ("Tax Ordinance") will cover the taxpayer with the protection provided for individual tax law interpretations, which means that the taxpayer should not bear the risk of being charged with tax liability in the event of a change the interpretation of regulations.
If you are interested in obtaining more information on the explanations or discuss its impact on the classification of real estate transactions under the VAT Act, both already completed and future, please contact us. In particular, we would be pleased to assist you in the following matters:
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