VAT treatment of sales transactions in undeveloped plot

In practice, the sale of land is very common when the seller is a flat-rate farmer who does not conduct business and is not a registered VAT taxable person, while the buyer is a company with a limited liability – a Polish tax resident subject to corporation tax, an active VAT taxable person.

In the case of the sale of the property constituting the personal property of the seller, will it be subject to the tax on goods and services?

The tax authority examining this issue referred to, in its assessment, in the context of the power of attorney granted by the seller to a company purchasing a share in the plot, concerning the performance of certain activities after the contract was signed, inter alia, the provisions of the Act of 23 April 1964 Civil Code 1 .

As a result of these actions, the nature of the property will change, which according to the tax office has tax consequences for the seller.

1. Introduction

When selling real estate, it is worth noting all the provisions in the transaction agreement which may have a potential impact on the legal sphere of the seller and related to the taxation of the plot, even if they do not refer directly to tax matters.

On 18 February 2020 Director of National Tax Information issued an individual interpretation of tax law 2 , which concerned tax on goods and services, VAT rates, deduction rights and reimbursement of input tax when supplying the share of land.

The applicants presented a future event according to which the seller undertakes to sell an undeveloped plot of land which he acquired in the form of a donation and which constitutes his personal property, and the final buyer will be a Polish limited liability company., which on the basis of the assignment will enter into all the rights and obligations of the buyer resulting from the concluded In 2019 Pre-contractual agreement.

In the future, on this property the state, designed for rent, warehouse-logistic-production building.

Importantly, the seller established persons acting in favour of the buyer (the companies of the O.O.), authorising them to: view the files of the perpetual register; obtain certificates, information, extracts, drawings related to the actual and legal status of the property; obtain extracts from land and buildings records, and to conclude a contract for the sale of relevant certificates from the Social Security Office, municipal office, tax office; address to the relevant entities in order to obtain technical conditions for connection to the electricity, gas, electronic, water, heating, rain and sanitation networks.

The interpreters have asked two questions: 1) whether the sale of the property will not be subject to VAT as a sale which cannot be regarded as having been made by the seller in the course of his business or as a taxable person, within the meaning of Article 15(1)(2) Act on 11 March 2004 on tax on goods and services[3] (Next the VAT Act) and 2) If the authority finds the position of the interested party incorrect and the transaction is taxed on VAT, the rate of tax will be 23%, and the company will be entitled to reduce the tax due by the amount of input tax resulting from the invoice received from the seller?

1. Lack of economic activity and VAT status in the context of goods and services tax

According to the applicant’s position, ‘natural persons who sell goods forming part of their personal property must be excluded from the taxable persons’. The seller does not conduct business activities and is not a registered VAT taxable person and according to Article 15(1).

the VAT Act „taxable persons are legal persons, non-legal entities and natural persons carrying out themselves the economic activity in question Under section 2, whatever the purpose or the outcome of such activities.’ Nor did the flat-rate farmer carry out any activities (including marketing) aimed at making the property attractive, arming the plot, bringing it to electricity, or asking for a spatial planning plan for the area sold; in the past, he has made incidental sales of land under public roads, and as far as the power of attorney is concerned, are the purchasers (the company of the O.o.) and/or the persons acting for them ‘applying and seeking to obtain the necessary decisions and permits themselves and for his own benefit (...) he is therefore acting in his own interest and not in his interest and for the seller’.

The applicants also referred to the ruling of the EUSEU that ‘the conduct of ordinary exercise of ownership cannot be considered to be an economic activity by itself’ 5 and that ‘the scope of the sale transaction cannot be a criterion for distinguishing between private activities which are outside the scope of the Directive and those which constitute an economic activity’, provided that ‘otherwise, where the person concerned takes active activities in the field of the sale of immovable property, involving measures similar to those used by producers, traders and service providers within the meaning of Article 9(1) paragraph second VAT Directives’.

According to the applicants, the seller of the plot did not take such active measures and the sale of the land should not be subject to VAT.

3. Not only tax law, but also civil law

The Director of KIS, in his interpretation, divided a number of arguments put forward by applicants (including that it is not a commercial activity, i.e.

an economic sale of personal property, the exclusion of individuals from the group of VAT taxable persons when they make such a sale), however, he referred to the provisions Article 95(1)(2) k.c.

concerning the power of attorney and stated that “the type of activities undertaken by the seller in the form of the mandate granted and the activities carried out by the proxy (which serves to carry out the investment and assess the suitability of the property in terms of the company’s planned business activity – S.W.) demonstrates the organized nature of the sale and causes the sale of the property to take the professional (professional) form of the sale of the real estate.

The activities of the seller go beyond the scope of the management of private assets and should be considered as economic activities in respect of that turnover.’

The Director of KIS also noted that ‘as a result of the supply operations, a property of a very different nature is subject to delivery than at the time of the conclusion of the initial contract’ and that ‘the fact that the purchaser performs the above activities is irrelevant’. The Director of KIS therefore considered that the transaction in question would be subject to VAT, the rate would be 23%, and the company will be able to deduct the tax charged.

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1 i.e. Journal of Laws of 2019, item 1145 as amended, Next: k.c.

2 reference no. 0114-KDIP1-3.4012.602.2019.3.JF.

3 i.e. Journal of Laws of 2020, item 106.

4 Judgment of the Court of Justice of 15 September 2011 J. Weak against Minister of Finance (C-180/10) and E. Kuć and H. Jeziorska-Kuć against the Director of the Tax Chamber in Warsaw (C-181/10).