A natural person who is a VAT taxable person when selling immovable property — circumstances proving the professional nature of the action taken in the light of the latest rulings

The recognition of a natural person disposing of the property as a VAT taxable person for years has been a subject of controversy — such a statement should be considered a truism.

However, the complexity of the circumstances surrounding such activities, which are the subject of each analysis and which often give rise to disputes with tax authorities, has resulted in increasingly rich case-law.

The purpose of this publication is to indicate the factors which imply that the activities of the sale of immovable property by a natural person are considered to have been carried out in the course of their business and that the person who carries them out is a VAT taxable person.

1. Natural person selling the property as a taxable person

As per content Article 15(1) Act on 11 March 2004 tax on goods and services 1 (Next: 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.

Economic activity – according to Article 15(2) the VAT Act – shall cover all activities of producers, traders or service providers, including natural resources and farmers, as well as the activities of free trade operators.

Economic activities include, in particular, activities involving the use of goods or intangible assets on a continuous basis for commercial purposes.

The definition of economic activity contained in the Act is universal in nature, allowing the concept of ‘taxable person’ to be included in all those entities which carry out certain activities in professional business.

It should be noted, when examining the above provisions, that the supply of goods will be subject to tax on goods and services only if it is made by an entity having the status of taxable person and acting in such a way in respect of the transaction in question.

It is important to determine that, in relation to a particular supply, the taxable person for the goods and services is to establish that he is engaged in an economic activity within the meaning of the VAT Act

Therefore, given the content of the legislation in question, it is certainly appropriate to exclude from the list of entities having the status of "taxable person" individuals who have their personal/private property, i.e. assets not acquired for resale or other business activities.

1. What's a private property?

In order to consider the property concerned to be private, it is important to use it and the nature of the actions taken for it throughout the period of ownership of the entity. In order to be able to regard the property as private, it must be used exclusively for private purposes throughout the holding period.

This was confirmed by the Court of Justice of the European Union in its ruling. 2 , which dealt with the issue of the taxation of sales by a taxable person of value added tax, of a part of the assets not used for business activity and serving it solely for private purposes.

The judgment states that “private property” is a part of the property of a natural person that is not intended or used by him or her for the purposes of his or her business.

In principle, if a natural person sells his or her personal property and the act is carried out on an occasional basis and does not aim to give it a permanent character, this does not mean that he or she engages in an economic activity within the meaning of Article 15(2) the VAT Act It is not a VAT taxable person who, as a natural person, conducts one-off or occasional transactions for which a strictly regular payment is not foreseen and does not carry out organized or registered business. Nor does the pursuit of certain activities outside the scope of the economic activity allow the entity concerned to be regarded as a taxable person in respect of those activities.

Taking into account that an entity selling land acts as a taxable person conducting a commercial activity (as a trader) requires the determination of whether its activity in this respect takes a professional, professional form[3].

3. The professional nature of the action

The problem with whether the sale of plots is a sale of personal assets or a sale made by a taxable person carrying out an economic activity in this respect was also the subject of a judgment of the Court of Justice of the European Union of 15 September 2011 (Joined Cases C-180 Jarosław Weak against Minister of Finance and C-181/10 Emilian Kuć and Halina Jeziorska-Kuć against the Director of the Tax Chamber in Warsaw).

It follows from those judgments that a taxable person must be regarded as a taxable person who, for the purpose of selling land, engages in similar measures, showing the activity in the sale of immovable property comparable to the activities of entities engaged in such professional turnover, i.e.

activities outside the scope of the ordinary management of private property.

This includes, for example, the acquisition of a site for construction, its armaments, the separation of internal roads, marketing activities undertaken to sell plots, going beyond the usual forms of notice, obtaining a decision on the terms of the site, or requesting the development of a spatial planning plan for the area sold, conducting business activities in the field of development services or other similar services. This type of ‘trade’ activity must be indicated by a string above, for example, the circumstances cited above, rather than merely a statement of the existence of individual ones.

1. Important circumstances in connection with the divestment and not the acquisition of immovable property

For the purpose of recognising a natural person selling the property as a VAT taxable person, it is irrelevant, for example, that the acquisition of the property which was subsequently divided into smaller plots occurred for agricultural purposes and thus the acquisition of the land was not carried out by a natural person with the intention of selling it. Important are the circumstances surrounding not the acquisition of the property but its sale[4].

Chief Administrative Court in its decisions 5 he repeatedly pointed out that if private assets are ultimately intended to carry out business activities, they are thus transformed, in effect, from a normal owner's management to its professional (professional) use for commercial or service purposes. The intention originally accompanying its acquisition does not preclude any subsequent different treatment.

5. Right to deduct taxes and to obtain decisions on building conditions

The issues related to the deduction of input tax do not determine the classification of the activities concerned for the business activity, but demonstrate the involvement of resources to prepare the land for sale, i.e. expenditure on preparing land for sale. As mentioned above, as a sales operation taking the professional (professional) form and as a consequence organised in the light of decisions of the courts, e.g. obtaining a land use decision (building)[6].

6. No profit

It is also irrelevant to the qualification of the natural person's activities, whether at the time of the acquisition of the property the owner intended to sell it at a profit. The most important is to assess whether the taxpayer has taken continuous, structured actions aimed at obtaining a profit from the sale of the property.

As far as possible, an entity, when purchasing land for private purposes, will later change its use, involving forces and measures similar to those that involve professional entities involved in real estate trading.

Splitting the opposite position would mean that the acquisition of land for personal, private purposes would have to be, only because of the intention at the time of the acquisition, qualified as a sale of private property, despite taking a number of activities characteristic of professional economic turnover, which cannot be accepted[7].

7. Summary

The content of these judgments, both national courts and the EU Courts, certainly leads to one basic conclusion. The determination of whether an entity acts as a VAT taxable person in relation to a particular activity shall each time require an assessment relating to the entire facts of the case.

When analysing the scope of activities performed by a person, the scope of the measures involved should be examined. If the sale of the property is preceded by several other preparatory activities, such activities may be considered to be organised.

However, this qualification should not be carried out through the prism only one activities (e.g. real estate division) but in the light of the steps taken.

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[1] i.e. Journal of Laws of 2020, item 106 as amended

3 Cf. judgment of the WSA in Warsaw 26 April 2019, reference no. III SA/Wa 2798/18.

4 Cf. judgment of the WSA in Bydgoszcz 5 February 2020, reference no. I SA/Bd 732/19.