It is 18 October 2021. We invite you to the next episode of the “Weekly Tax Review” prepared in cooperation with tax experts in KPMG in Poland.
In today's episode:
- Statement on Global CIT on the largest multinational enterprises
- General ruling of the Minister of Finance concerning VAT on renting real estate for residential purposes
- Positive judgments of courts on tax on advances paid by limited partnerships towards the general partner's profit
- New information obligations for some real estate companies already in 2021
- The suspension of time limits introduced in connection with the pandemic included tax law
- Changes to the law on voluntary disclosure
Statement on Global CIT on the largest multinational enterprises
On 8 October 2021 136 countries, including Poland, issued a joint document titled “Statement on Two-Pillar Solution to Address the Tax Challenges Arising from Digitalization of the Economy”. The document endorses introduction of solutions for global taxation of large corporates benefiting from progressing globalization and digitization. These solutions are to be based on two pillars. Pillar 1 concerns the reallocation of certain profits from large multinational enterprises to market jurisdiction, while Pillar 2 concerns the introduction of a global minimum tax for such enterprises, the rate of which will be 15%. The main objective of the project is to hinder the transfer of untaxed income from countries where it was generated to countries applying unfair tax competition. The solutions indicated in the document are planned to enter into force in 2023 and 2024.
General ruling of the Minister of Finance concerning VAT on renting real estate for residential purposes
In the general ruling of 8 October 2021 the Minister of Finance stated that renting a flat to a company for the needs of its employees is subject to a 23% VAT rate. The general ruling concerns the interpretation of the provision of the VAT Act, according to which the rental service for residential purposes is tax-exempt. This provision had raised considerable doubts for years, and the dispute concerned whether it could also be applied if an intermediary entity existed between the entity renting the property and the final beneficiary who is a natural person residing in the property. For example, this applies to a situation where the owner of an apartment (who is himself a VAT taxpayer) rents it to a company that gives it to the needs of its employees. Until now, it was uncertain whether such a service is exempt from tax or should be taxed at the 23% VAT rate. The Minister of Finance decided that the owner of a residential property must add 23% VAT not only when he rents it to a company that then sublets it to a third party, but also when the rental company makes the property available to its employees (for a fee or free of charge). The general ruling is consistent with the prevailing position presented in the judgments of administrative courts.
Positive judgments of courts on tax on advances paid by limited partnerships towards the general partner's profit
In many limited partnerships, profit for partners is paid during the year in the form of advances. The tax settlement of such advance payments is questionable. The tax authorities claim that the limited partnership, which acts as a taxpayer, must deduct tax from the advance and pay it to the tax office. However, in the recently issued judgments (e.g. the judgment of the Voivodeship Administrative Court in Cracow of 13 July 2021, I SA/Kr 792/21 or the judgment of the Voivodeship Administrative Court in Gliwice of 31 August 2021, I SA/GL 881/21), the administrative courts found that a limited partnership paying general partners with advances on profit does not have to withhold tax from them during the year. In the opinion of the courts, if in order to calculate the tax on the general partner's income it is necessary to know the amount of the limited partnership's CIT, the tax liability will arise only after the end of the year. It should be noted however, that to this date the position of the tax authorities with regard to the above issue has been different.
New information obligations for some real estate companies already in 2021
In accordance with Art. 27(1e) of the Corporate Income Tax Act, real estate companies are obliged to provide the Head of National Revenue Administration (KAS) with information about entities holding their shares (stocks) directly or indirectly and all rights and obligations, participation units or rights of a similar nature, together with the number of such rights held by each of them. The Ministry of Finance, in response to a press question, confirmed that this information should be submitted by the end of the third month after the end of the real estate company's tax year, and if the real estate company is not a taxpayer of income tax - by the end of the third month after the end of the real estate company's fiscal year. This means that a real estate company whose tax year is different from the calendar year and ended e.g. on 31 March 2021, must submit the information by 30 June 2021, i.e. within three months after the end of its tax year. In 2022, information about shareholders will be submitted only by those real estate companies whose financial year ends after 30 September 2021.
The suspension of time limits introduced in connection with the pandemic included tax law
In the judgment of 15 September 2021 (I SA/Kr 831/21), the Voivodeship Administrative Court in Kraków decided that the provision of the so-called “Covid act”, on the basis of which during the pandemic the time limits provided for in administrative law were suspended, also applies to tax regulations. In the opinion of the court, in a situation where due to health protection restrictions were introduced in the operation of public institutions, the solutions contained in the covid act were aimed at ensuring more effective legal protection of citizens. Therefore, its provisions cannot be interpreted narrowly. The provision on the suspension of the running of time limits should therefore apply to regulations contained in administrative law in a broad sense, including tax law.
Changes to the law on voluntary disclosure
One of the solutions included in the Polish Deal is the modification of the regulations concerning the so-called voluntary disclosure, allowing to waive the penalty for a tax crime or tax offence. According to the new wording of the regulations, the exclusion of criminal liability will cover not only the submission of a correction of the declaration, but also sending the tax authority the correction of the accounting book, what is intended to extend the material scope of the regulation to acts related to the submission of a correction to the VAT record in connection with the entry into force on October 1 2020 of the new electronic Standard Audit File structure, regarding the submission of the VAT return together with VAT records in one file. However, the possibility of applying voluntary disclosure was excluded if, prior to the submission of a correction to the declaration or book, preparatory proceedings for a tax crime or a tax offense were initiated or were revealed in the course of pending preparatory proceedings. On 13 October 2021, the Ministry of Finance also issued a statement in which it confirmed that the amendments to the Fiscal Penal Code, which entered into force on 5 October 2021, do not exclude the possibility of submitting voluntary disclosure electronically. In the opinion of the Ministry, although in accordance with Article 16 § 4 of the Fiscal Penal Code: "the notification must be submitted in writing or orally to the protocol", this change is only of an adaptive nature, without any modification of the current rule, and consequently does not exclude the possibility of submitting voluntary disclosure electronically.