VAT treatment of supplies of real estate for consideration

Where a particular entity sells and therefore supplies the goods in question, in the case in question (ground, building, premises), perpetual use, cooperative ownership rights or their participation, i.e.

transfers the rights to dispose of those components, such as the owner and performs that activity in the course of its business activity, i.e.

as a producer or a trader or a service provider or as a person exercising a free profession, and the activity is carried out for commercial purposes, it shall be subject to VAT (if it is not exempt from VAT and VAT rules apply to that activity).

While the determination of whether a property is acquired and disposed of under the VAT taxed economic activity of a VAT taxable person does not currently give rise to particular doubts, there is still a lively discussion when the entity concerned does not act as a VAT taxable person, that is, when VAT is not added to the sale price of the property, which means that the purchaser of that property will then pay tax on such sales on civil acts.

1 (Further: PCC). The author of the article discusses the issue of the sale of real estate in the light of the legislation on the tax on goods and services, citing the important judgments of administrative courts and the case law of the TEU.

1. Tax payers on goods and services on the payment of the supply of immovable property

According to Article 5 and Article 7 Act on 11 March 2004 on tax on goods and services 2 (Next: the VAT Act), This tax applies, inter alia, to the payment of goods in the territory of the Republic of Poland, and this activity is subject to VAT regardless of whether it has been carried out in accordance with the conditions and forms laid down in the applicable law.

The supply of goods under VAT rules means the transfer of the right to dispose of goods as the owner, including the establishment of a cooperative right, the surrender of land to perpetual use, and the disposal of such rights.

However, goods within the meaning of the VAT Act are, among others, goods and parts thereof, and the sale is understood to mean the delivery of these goods for consideration.

The following analysis concerns the circumstances and grounds for recognising or failing to recognise a natural person as a VAT taxable person when selling the property.

In an orderly and synthetic way of summing up the interpretation arguments, the Provincial Administrative Court in Bydgoszcz made a statement of the judgment with 22 January 2020 3 , concerning a dispute between a natural person and a tax authority over the taxation of the sale of land by a natural person.

In its statement of reasons, the Court of First Instance held that: ‘It must also be borne in mind that the use of the property in question and the nature of the actions taken in respect of it during the whole period of possession of the entity is essential for the recognition of the property concerned.

To be considered private, the property 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 4 , which dealt with the issue of the taxation of sales by a person who is a taxable person of value added tax, of a part of the property not used for business activity and serving it solely for private purposes.

“Private property” is therefore 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 In the context of the above, it is not a 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 conduct organized 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.

The fact that a given operator, when selling land, acts as a taxable person who carries on a commercial activity (as a trader) requires the determination of whether its activity takes on a professional - professional form 5 ”.

The Provincial Administrative Court in Bydgoszcz further stated: ‘The problem relating to the determination of whether the sale of plots is a sale of personal property or a sale made by a taxable person conducting an economic activity in this respect was the subject of a judgment of the TEU of 15 September 2011 6 in joined cases Jarosław Weak v Minister of Finance and Emilian Kuć and Halina Jeziorska-Kuć v 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 the site to be built, its armaments, the separation of internal roads, marketing activities undertaken to sell plots that go beyond the usual form of notice, the obtaining of a decision on the terms of the site, or the request to develop a spatial planning plan for the area to be sold, to conduct economic activities in the field of development services or other similar services.

Such “trade” activity must be indicated by a string above, for example, the above mentioned circumstances, rather than merely stating the existence of individual ones.

In this respect, it is also appropriate to follow the provisions of the compositional judgment 7 Judges of the Supreme Administrative Court of 29 October 2007 7 , and subsequent judgments of that Court (e.g.

judgment of 27 October 2009 8 ) specifying the criteria to be followed when determining that in such cases we are dealing with economic activity rather than private property.

The determination of whether an entity acts as a VAT taxable person in relation to a particular activity shall be subject to an assessment relating each time to the facts of the case.’

The development of this argument can be found in the grounds for the judgment of the Provincial Administrative Court in Gdańsk, issued 8 November 2016 9 , according to which: ‘the subject matter of the individual interpretation in the contested area was first of all whether the applicant in the circumstances of the application and concerning the transfer of property rights of the land may be regarded as a VAT taxable person in the course of the self-execution of the economic activity in question under Article 15(2) the VAT Act, as the Minister of Finance has accepted, or it will be the sale of a private asset as an activity within the management board of private assets, which is outside the business activity, as the applicant considers.

Article 15(1) the VAT Act provides that the taxable persons are legal persons, organisational units without legal personality and natural persons carrying out the economic activity in question themselves. Under section 2, whatever the purpose or the outcome of such activities.

According to section 2 that provision covers all activities of producers, traders or service providers, including natural resources acquirers and farmers, as well as the activities of free trade operators, including where the operation has been carried out on a one-off basis in circumstances indicating the intention to perform operations on a frequent basis.

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

The sine qua non condition for the taxable person concerned to be regarded as a taxable person as a taxable person of that tax is therefore to establish that such activities are carried out in the course of his business.

However, this status is not determined by the fact that the tax is registered as an active taxable person, nor by the fact that the activity has been carried out several times or once, but with the intention of frequency, without any finding that, in relation to a particular activity, the entity acted as a taxable person for goods and services (such as the NSA judgment of 29 October 2007 10 )”.

In this judgment, the WSA in Gdańsk indicated that ‘Assessing whether a given entity acts as a trader, i.e. whether it takes measures specific to the manufacturer, trader or service provider, and therefore whether its activities are specific to professional economic turnover, the definition of taxable person as defined should be taken into account under Article 15(1) and 2 the VAT Act and that there is no regulation in this law which clearly and precisely indicates that the possibility (options) of a specific law is being transposed under Article 12(1) and (3) Directive 2006/112 Council 28 November 2006 on the common system of value added tax 11 , Next: VAT Directive (previously: Article 4(3) VI Directive), as to the recognition as a taxable person of anyone who occasionally conducts transactions related to business activity, in terms of a single supply of construction site, which does not allow to conclude that Poland has exercised this option.’ He further pointed out: “For the purpose of determining whether a person who sells a plot acts as a merchant, a judgment of the Court of Justice of the European Union of 15 September 2011 in the Joined Cases Jarosław Weak v Minister of Finance and Emilian Kuć, Halina Jeziorska-Kuć v Director of the Tax Chamber in Warsaw[12].

In that judgment, the Court held that a natural person who has been engaged in agricultural activities on land acquired with VAT exemption and converted as a result of a change in the spatial planning plan which is independent of the person’s will to be built-up cannot be regarded as a VAT taxable person within the meaning of Articles 9(1) and 12(1) VAT Directive when it sells this land, if this sale takes place within the management of the private property of that person.

On the other hand, if the person in question is active in the sale of real estate, including measures similar to those used by manufacturers, traders and service providers within the meaning of Article 9(1) paragraph second The VAT Directives should be regarded as an entity carrying out “economic activities” within the meaning of that provision, i.e.

as a VAT taxable person”.

The Provincial Administrative Court in Gdańsk, assessing this ruling of the TEU, also stated: “The Court’s view that activities relating to the ordinary exercise of the right of ownership cannot be regarded as carrying out an economic activity on its own, that the number and extent of sales transactions carried out is not decisive.

The scope of sales transactions cannot be a criterion of distinction between private activities which are outside the scope of the Directive and those which are economic activities.

Similarly, according to the Court, the fact that, before the sale, the interested party split the land into plots in order to achieve a higher total price is not of itself decisive. Neither is the length of the period during which these transactions took place or the amount of the revenue obtained from them.

The whole of these elements may refer to the management of the private property of the person concerned.

It is not the case in the Court’s view where the person concerned takes active action in the field of property trading, involving measures similar to those used by manufacturers, traders and service providers within the meaning of Article 9(1) paragraph second VAT Directives.

Therefore, taking actions such as land armaments, the separation of internal roads and marketing activities undertaken to sell parcels, going beyond the usual forms of notice, constitute such activity in the field of the sale of real estate, which may indicate that the activities of the seller take the professional (professional) and consequently organised form (as in the light of the last case law of the Supreme Administrative Court in judgments: from 11 June 2015 13 , 22 April 2015 14 , 10 April 2015 15 or 30 December 2014 16 )”.

In the context of the analysis of the above doubts, the question arises whether the action aimed at preparing the property for the planned sale is not carried out by the seller but by the future buyer will result in the seller being considered a VAT taxable person for that sale. Since ownership of the property until the sale is due to the seller, in such a situation the buyer must act on behalf of the seller in relation to the activity concerning the property.

In the justification of the judgment of the Provincial Administrative Court in Bydgoszcz from 22 January 2020 17 stated that: ‘Despite the fact that the actions described were not directly taken by the Applicant, but by persons third does not mean that they are without prejudice to the legal situation of the Applicant.

After the power of attorney has been given, acts performed by persons third They have effects directly in the legal sphere of the Applicant as a power-giver. Individuals third In doing so, these plots, which are still owned by the Applicant, will make them attractive.

These activities, with the full consent of the owner, contributed to the attractiveness of the property as a commodity and the increase in its value. All of these activities from the point of view of the tax on goods and services have been “executed” in the legal area of the Applicant.

In this context, the fact that the abovementioned activities are carried out by the future purchaser remains irrelevant. As a result, the supply operations carried out were subject to real estate of a very different nature than at the time of the pre-contractual conclusion.

Therefore, the Authority concluded that, in connection with the sale, the Applicant had undertaken a number of activities (through a proxy – a future buyer) that were characteristic of entities engaged in professional real estate trading to make land attractive and prepare for sale.’

These doubts are of great importance for civil law trade. Since VAT is of a price-setting nature, when the tax authority qualifies the activity as subject to VAT, it will charge VAT on such sales and charge it to the seller. In the event of the refusal to classify a given sale as a VAT-taxed activity, the tax authority is not enough to charge the buyer with the relevant PCC tax, it will still challenge the VAT settlements of such sales.

Attention should also be paid to Article 6(1)) the VAT Act, According to which the law does not apply to the sale of an undertaking or an organised part of an undertaking. If we find a definition of a company under Article 551 Act on 23 April 1964 Civil Code 18 ((c) according to which an undertaking is an organised set of tangible and intangible components intended for the pursuit of business activities (with examples of components listed in the CCE), Article 2(27e)) the VAT Act defines an organised part of an undertaking as organisationally and financially isolated in an existing undertaking a set of material and intangible components, including liabilities, intended to carry out specific economic tasks, which could at the same time constitute an independent undertaking carrying out these tasks itself.

The development of this definition can be found in the justification of the judgment of the Provincial Administrative Court in Poznań from 11 December 2019 19 , according to which: ‘to use the exemption provided for under Article 6(1) the VAT Act, according to which the provisions of the Act do not apply to divestment transactions of an undertaking or an organised part of an undertaking (hereinafter: ZCP), the principal requirement is that the ZCP constitute a combination of material and intangible components, and another condition is to separate that team into third the organisational, financial and functional levels.

[...] The divestment of an undertaking or an independent part of it occurs when the over-resourced assets allow independent business.

The purchaser of all or part of the assets of the taxable person should have the intention to operate with the participation of the acquired undertaking or part of it, and not to act only to immediately liquidate the activity and sell any stocks.’

The rationale for this solution is that, while VAT-taxed activities are carried on within the undertaking concerned, the same divestment of the undertaking or its organised part should not be taxed as it does not occur within the company’s activities.

In addition to the above-mentioned justification, the WSA in Poznań can be found in the justification of the sentence of the Provincial Administrative Court in Rzeszów from 26 November 2019 20 , According to the French authorities, ‘It is therefore important for an undertaking to exist under civil law that the material and intangible components of the undertaking should remain in a relationship with each other in such a way that they can be referred to as a team rather than a set of elements.

It is therefore important that functional relationships between the individual components be preserved in the divested company so that the transferred mass can continue to serve a certain economic activity.

[...] In themselves, real estate (built-up property) does not constitute a whole capable of doing its own business and therefore does not constitute an ZCP, even if it was used by the seller also for the business activity of renting these properties or parts of them, or their construction works or parts thereof.

Sales of single or even all properties cannot be considered to be sales of ZCP. Without a whole structure consisting of real estate rental activities – it is still just a sale of real estate as assets.

The fact that, in the course of its activities, the acquirer of previously rented properties also uses these properties for the rental of immovable property (as a rental property) does not mean that the properties at the time of their sale were ZCP, which is a condition for use Article 6(1) the VAT Act […] Such a separation implies a situation where it is possible to allocate revenues and costs and receivables and liabilities to the ZCP through appropriate records of economic events.

In the event of a financial separation, it should be possible to separate the company's finances from the finances of its organised part, without the need for analyses or calculations."

2. Tax base on goods and services

As mentioned above, in so far as 9 September 2000 on tax on civil law acts 21 (hereinafter: u.p.c.c.) applies conceptually the assumptions adopted under civil law, i.e. the VAT Act, In accordance with the principle of autonomy of tax law, it introduces its own principles of defining tax-related phenomena.

This was highlighted by the Supreme Administrative Court in the justification of the judgment of 17 April 2012 22 , according to which: “Tax on goods and services is a harmonised tax.

Therefore, in the post-accession period, the interpretation methods of Union law have changed since the need to apply Union law and as a result of the interpretation of that law by the TEU.

In place of the prevailing linguistic interpretation in the previous state of the law, the directive should now be given primacy in favour of a special interpretation.’

According to Article 46 and Article 47 k.c., buildings permanently connected with the land are part of the land, which means that each act of transfer of land ownership results in, as a rule, automatic transfer of property of the building planted on the ground. Therefore, in such a case, notarial acts relating to real estate sales contracts document the sale of built-in land, often without the detailed description in those acts of the parameters placed on the ground of the buildings, as notaries emerge from the legitimate civil law assumption that, together with the ownership of the land to the purchaser automatically, by law, as part of a legal act documented by the notarial act, the property of the buildings on that land is transferred.

The Goods and Services Tax Act imposes a VAT clearance obligation in the case of, inter alia, the VAT-related supply of goods which, within the meaning of that Act, include goods or parts thereof.

However, according to Article 29 a section 8 the VAT Act, in the case of the supply of buildings or structures permanently linked to the land or parts of such buildings or structures, the value of the land shall not be distinguished from the tax base.

This means the reverse recognition of the sale of the built-in property in the VAT Act than civil law rules for the sale of such built-up property.

According to the content Article 29a(8) the VAT Act the subject of the sale is a building, a building or part thereof, while the disposal of the land is, in effect, accompanied only by the sale of the building, the building or its parts, except as described above.

Under section 9 that Article, according to which this principle does not apply to the perpetual land-use activity carried out with the simultaneous supply of buildings or structures permanently linked to the land or parts of such buildings.

This means, in practice, that at the level of the tax on goods and services, the supply of land is taxed in the same way and at the same rate as the supply of buildings, buildings or parts thereof on the ground, and it is the situation of buildings, structures or parts thereof that is decisive for the VAT issue of the disposal of the property of the entire built land.

Consequently, the amount to be considered as a net price, i.e.

the amount to which VAT is to be added, calculated at the appropriate rate, is the amount to be paid for all the land disposed of, without the need to separate the value of the land from that amount and tax the supply of the land on a basis other than the taxation of the buildings, buildings or parts thereof.

According to Article 29a(1) the VAT Act, The taxable amount shall be all that constitutes the payment which the supplier of the goods has received or is to receive for sale from the buyer.

However, since the characteristics of buildings, structures or parts of buildings placed on the ground determine VAT rates, the question arises as to what is the VAT calculation methodology when more than one a building to which different rates apply, i.e.

how to establish the tax base for the supply of land, some of which meets the VAT conditions and the rest does not meet those conditions.

The answer to this question can be found in the individual interpretation of the Director of the Tax Chamber in Warsaw from 29 April 2014 23 , according to which: ‘Provisions the VAT Act neither the implementing provisions of that Act contain a provision on how the land is divided in order to calculate the VAT base, where the land in part is taxed at the basic VAT rate, but partly meets the conditions for benefiting from the tax exemption.

Nor do the abovementioned provisions indicate that the VAT parcel cannot be shared. Therefore, for the purposes of calculating the taxable amount for the sale of such immovable property (partly exempt and taxed at a rate) 23%) different solutions can be adopted, e.g.

the use of a surface key (the share of the land area subject to specific taxation regulations in the total area of the property to be supplied) or according to a value key (the share of the value of the property to be subject to specific tax regulations in the total value of the property to be supplied).

Any method, whether based on a value key or surface key, if it reflects the actual state, is appropriate. It should be indicated that the choice of this key should be made by the applicant himself, taking into account the characteristics and characteristics of the property.’

It should be pointed out that, since a building or a building or part of a building or a building, under the ground, lays down rules for the VAT treatment of the supply of such land, it is not possible for buildings or structures to be planted on the ground, even if they serve as buildings or structures.

As stated in the statement of reasons for the judgment of the Provincial Administrative Court in Gdańsk 8 November 2016 24 : „the cottages described in the application and the farm house, which are not permanently linked to the land, are neither buildings nor structures within the meaning of the provisions laid down; such items have been qualified as movables by the Court of First Instance.

Similarly to the land under delivery within the meaning of the provisions the VAT Act construction equipment which according to Article 3(9) Act on 7 July 1994 Construction law 25 ((b) there are technical equipment related to the construction site, ensuring that the facility can be used as intended, such as connections and installation equipment, including for the treatment or collection of sewage, as well as for the journeys, fences, parking spaces and dumpsters, do not affect the taxation of the supply of this land, as stated in the judgment of the Supreme Administrative Court of 17 April 2012 26 : the sale of land parcels, fenced with grid on concrete posts for obvious reasons cannot be considered as the supply of structures within the meaning of Article 43(1)(10a) the VAT Act After all, the economic point of this activity is to sell land, not fences.

The fence grid, as the Court pointed out first instances, does not perform stand-alone construction functions. Its aim is to separate the boundaries of the plot and secure it."

Except as otherwise specified under Article 29a(8) the VAT Act, establishing that, in the case of the supply of buildings or structures permanently linked to the land or parts of such buildings or structures, the value of the land is not distinguished from the tax base, a solution adopted under Article 29a(9) the VAT Act, from which the cited section 8 does not apply to land-use activities carried out simultaneously with the supply of buildings or structures permanently linked to the land or parts of such buildings or structures.

According to the content Article 31 Act on 21 August 1997 on real estate management 27 (hereinafter: u.g.n.), the dedication to the use of perpetual land-based property is carried out with simultaneous sale of buildings and other facilities located on this property. According to Article 238 k.c.

the perpetual user pays an annual fee for the duration of his or her right, and according to the content Article 71(1) u.g.n. for the transfer of land to perpetual use shall be charged first the annual fee and fees.

Therefore, in the case of giving up a built-up land in perpetual use, this must occur with simultaneous sale (i.e. delivery) of land-planted buildings, therefore: 1) the situation of the buildings will determine the rules and the rate of VAT on the supply of those buildings, 2) first the perpetual usage fee will be VATed and, in the absence of a change in buildings on land dedicated to perpetual use, the subsequent annual charges will be taxed.

3. Tax liability for the supply of immovable property

According to Article 4 Act on 29 August 1997 – Tax Ordinance 28 ((p) the tax obligation is the non-concrete obligation of a compulsory cash benefit arising from the occurrence of an event specified in those laws.

According to Article 19a the VAT Act the tax obligation arises when the goods are delivered, which is a supply within the meaning of Article 7(1) the VAT Act is to transfer the right to dispose of goods as the owner. According to Article 158 k.c.

a contract requiring the transfer of property should be concluded in the form of a notarial act; the same applies to a transfer of property contract which is concluded in order to comply with an existing obligation to transfer property. However, according to Article 157(1) c.

property ownership may not be transferred subject to or subject to a time limit. Similar rules apply to the transfer of perpetual use rights (Article 234 with regard to Article 237 k.c.), and the transfer of cooperative property rights (Article 172(4)(6) Act on 15 December 2000 about housing cooperatives 29 ).

Consequently, it is only the conclusion of the relevant agreement in the form of a notarial act that the right to dispose of certain goods as the owner is transferred to the purchaser, which in turn gives rise to a tax obligation within the meaning of the VAT Act Exception specified under Article 19a(8) the VAT Act, according to which, if all or part of the payment was received prior to the delivery of the goods, in particular advance payment, advance payment, deposit, instalment, construction or housing contributions before the establishment of a cooperative right to the premises or premises of another purpose, the tax liability arises when it is received in respect of the amount received (previously, the matter was regulated Article 19(11) VAT Act).

This means that if the supply operation is covered by the provisions the VAT Act, the amount received by the seller should be increased by the VAT due in case of any payment under the sale contract.

This also means in practice that where individual payments are made which are or will be credited to the seller's claims, they must relate specifically to the transaction in question.

It is good if, prior to the conclusion of the sale agreement, the contract is preceded by an appropriate pre-accession agreement or a development agreement or other agreement indicating the possibility of making certain pre-contractual payments and on the basis of which both the accounts of the seller and the buyer and the tax authority can allocate the payment concerned to the acquisition of a particular property within the transaction. This also has the effect that, in the event of the failure of the relevant contract of the promised benefit cannot be regarded as a price.

The Regional Administrative Court in Olsztyn referred to the issues raised, which in the justification of the judgment of 14 November 2019 30 stated that: ‘Article 65 states from the VAT Directives that if payment is made before the supply of goods or services, the tax becomes chargeable in relation to the amount of that payment upon receipt.

It is, however, problematic to tax this payment when the contract under which the pre-delivery payment was made has not been implemented.

Court of Justice of the EU in judgment of 18 July 2007 31 expressed the view that, if a pre-contractual arrangement has not been implemented, the amounts paid in respect of the claim resulting from the contract are not taxable. The tax liability for obtaining an advance payment for the supply resulting from an unexecuted contract expired.

Such advances should not be treated as compensation for services but as a form of compensation not subject to VAT if they have not been reimbursed.

The Supreme Administrative Court, in its judgment of 5 February 2015 32 on the taxation of advances received for the supply of immovable property, stated that ‘the tax obligation on the basis of Article 19(11) the VAT Act only arises if the payment made before the performance of the supply or the provision of the service takes place where any circumstances relevant to the occurrence of a tax occurrence, i.e.

the future supply or supply of the service, are clearly and invariably determined in terms of the entity and the subject matter, and it is not merely a safeguarding performance of a not yet specified taxed operation.’ Therefore, pre-contractual payment of the supply of the goods in question generates a tax liability for the payment in question, provided that it can be placed within the specific supply transaction in question.

In addition, VAT may also be levied if the actual delivery of the goods occurred before the conclusion of the agreement.

According to the reasons for the judgment of the Provincial Administrative Court in Białystok from 3 November 2010 33 : „from the point of view of taxation, it is not so important to transfer ownership but to transfer the right to dispose of the goods as the owner.

It is therefore a factual aspect which boils down to the transfer of the actual possibility to dispose of the goods rather than to dispose of them in a legal sense.

The Supreme Administrative Court has indicated that, when performing the qualification of a VAT activity, it is necessary to break away from its civil conditions and to focus on the factual aspect, with particular reference to whether the VAT turnover has been carried out within the activity concerned.

In the assessment of the NSA, the economic aspect of economic events creating a tax obligation in VAT is particularly clearly reflected in the rules governing the formation of a tax obligation.

[...] since it is not essential for the taxation of a given VAT activity to maintain any conditions imposed by civil law, but the economic effect: the performance of the service or the passage of actual power over the thing, the Act consistently makes the moment of the tax obligation not dependent on the time when the transfer took place, but on the moment when the goods were actually issued to the recipient.

[...] The issue of housing, garages and parking spaces to purchasers gives rise to a VAT tax obligation, even if this is not accompanied by a notarial act. The general rule of Article 19(10) the VAT Act, according to which the issue of the premises should be regarded as a factual activity which is autonomous of civil law.

The subject matter of the taxable activity shall be issued within the meaning of Article 19 the VAT Act where the purchaser is given the opportunity to actually dispose of the thing.’

While the above rules for the formation of a tax obligation apply to the disposal (translatively) of land devoted to perpetual use, in the case of the transfer of land to perpetual use (constitutional activity — which lays down that law) the tax obligation on payments first the annual fee will arise with the conclusion of the agreement and, in the case of annual charges, the tax liability will arise upon receipt of the annual fee (Article 19a(8) the VAT Act), Whereas, as regards charges not received within the time limit, the tax obligation arises at the end of each period to which the annual fee relates (Article 19a(1) with regard to section 2 and section 3 the VAT Act).

4. Tax rates on goods and services in the supply of immovable property

According to Article 41(1) the VAT Act the tax rate is 22%, and according to section 2 This Article for goods and services listed In Annex 3 to this law, the rate is 7%, based on Article 146aa the rates indicated are increased according to 23% and to 8% – therefore, according to the legal condition in force In February 2021 the rates of tax due on the supply of immovable property are respectively 23% or 8%, if, of course, the provisions apply to the delivery concerned the VAT Act and unless the supply concerned has been exempt from VAT.

According to Article 41(12)(12a)(12b)(12c) the VAT Act tax rate 8% applies to the supply of buildings or parts thereof included in buildings covered by the social housing programme, by which, inter alia, buildings or parts thereof, excluding commercial premises, and dwellings in non-residential buildings classified in the Polish Classification of Buildings (hereinafter PKOB) in section 12, However, buildings covered by the social housing scheme do not include single-family dwellings whose useful area exceeds 300 m2, as well as dwellings whose useful area exceeds 150 m2, Where these limits are exceeded, the rate indicated 8% only applies to the part of the tax base corresponding to the share of the useful area eligible for the social housing programme in the total useful area.

In addition, according to Article 2(12)) the VAT Act as residential buildings, permanent housing is understood as being classified in PKOB in section 11, such as: single-family housing, buildings with two dwellings and multi-housing and collective residence buildings.

In conclusion, the current rate is 8% the supply of construction works or parts thereof included in the construction of the social housing programme, but not exceeding 300 m2 the useful area of single-family dwellings and 150 m2 the useful area of residential premises and in part exceeding that area, as well as the supply of other non-VAT-exempted properties, that rate shall be 23%.

As long as the supply of construction land is taxed at the rate 23%, the delivery of construction land with the construction of the residential building started will not be taxed at a reduced rate 8%, because this rate is due to the supply of residential buildings, and the building will only become the building when it is completed.

This position was confirmed in the statement of reasons for the Supreme Administrative Court’s ruling from 28 November 2019 34 : „Taking into account the provisions of the PKOB, p.b.

and the dictionary meaning, it is concluded that a building (residential) whose supply benefits from reduced taxation should be considered to be such a building, together with technical equipment and installations which is separated from the space by building partitions and has a roofing (for residential purposes).

Thus, such a building cannot be considered to be the foundation itself, or the foundation along with the erected fragment of the wall.

[...] In the light of the observations made, it should also be excluded that, in the present case, the foundation, together with a fragment of the wall, could be treated as part of a building which is the subject of a reduced rate of supply.’

1. 1. VAT exemptions for the supply of immovable property: exemption for the supply of undeveloped land other than construction land

As per content Article 43(1)(9) the VAT Act the supply of undeveloped land other than construction sites is exempt from this tax, and Article 2(33) This Act shall mean the land intended for construction in accordance with the local spatial planning plan and, in the absence of such a plan, in accordance with the decision on the conditions for the construction and development of the site referred to in the legislation on spatial planning and planning. According to Article 4 Act on 27 March 2003 on spatial planning and planning 35 the establishment of the destination of the site, the deployment of the public purpose investment and the determination of the means of development and the conditions of construction of the site are carried out in the local spatial planning plan, and in the absence of such a plan, the determination of the means of development and the conditions of construction of the site is made by decision on the conditions of construction and development of the site 36 , but according to content Article 6 the proposed law establishing the local zoning plan shall shape, together with other provisions, the way in which property ownership is exercised, provided that everyone has the right, within the limits specified by the law, to use the land to which he has the legal title, in accordance with the conditions laid down in the local zoning plan or the decision on the conditions for the construction and development of the site.

Important information in this respect can be found in the justification of the judgment of the Provincial Administrative Court in Gdańsk from 4 July 2017 37 , ‘Other documents containing information on the use of land, such as land records, or provisions included in the land use study, do not constitute grounds, on the ground the VAT Act whether the land to be sold is a construction site or not.’

On the one hand, in the statement of reasons for the judgment cited above 17 April 2012 38 The Supreme Administrative Court stated that: ‘Therefore, within the meaning of the Act of 7 July 1994 Construction law 39 The fence is not a building but a construction device.

[...] in the actual state indicated in the request for interpretation, there will be the delivery of an undeveloped fenced plot of land, not the delivery of a fenced structure. It was therefore justified that the exemption from Article 43(1)(10a) the VAT Act, relating to the supply of structures, shall not apply.

Consequently, also the provision Article 29(5) the VAT Act, which refers to the supply of buildings or structures permanently linked to the land or parts of such buildings or structures, shall not apply to the specified supply.’

On the other hand, However, the parties in the statement of reasons for the judgment 4 December 2019, issued by the Provincial Administrative Court in Łódź 40 ‘On the basis of Article 43(1)(9) the VAT Act The supply of undeveloped land other than construction land is exempt.

As it is Article 2(33) the VAT Act, Whenever the VAT Act the construction sites are referred to, the land to be built in accordance with the local spatial planning plan, and, in the absence of such a plan, in accordance with the decision on the conditions for the construction and development of the site referred to in the rules on spatial planning and planning.

The summary of these provisions leads to the conclusion that the tax exemption in question under Article 43(1)(9) the VAT Act, if applicable, if: according to the local zoning plan it appears that the plot is not intended for construction, there is no local zoning plan for the plot, and the decision on the terms and conditions of the site indicates that the plot is not intended for construction, there is neither a local zoning plan for the plot, nor a decision on the terms and conditions of the site (see General interpretation of the Minister of Finance 18 June 2013 41 ).

(...). Therefore, the supply of land located in non-constructional areas with buildings (buildings or structures) does not benefit from this exemption.

This VAT supply constitutes the supply of buildings (these supplies may also be exempt from tax, but not on the basis of Article 43(1)(9) the VAT Act, but based on Article 43(1)(10)(10a) the VAT Act – which, according to the findings of the authorities, could not have been the case), whose tax base increases the value of the land.’

The Provincial Administrative Court in Łódź also pointed out in this judgment that: “The assessment of whether the above references are a building must be taken, as indicated in the contested decision, on the basis of Article 3(3) p.b.

It should be indicated here that the calculation of the structure, carried out under Article 3(3) p.b., is not a closed catalogue. It's just an example. Thus adopted by the legislator, the formula of the structure allows for the inclusion of a number of different construction sites.

The combination of a negative definition and an example calculation shows that structures are the most diverse category of construction works (e.g. the WSA judgment with 10 August 2017 42 , available as all the CBOSA judgments cited).

The fence, as well as the hardening to prepare for parking spaces, can therefore be the object in question under Article 3(3) p.b.

The Court of First Instance agrees here with the view presented in the NSA judgment with 15 December 2016 43 , that the construction of a fence on an undeveloped plot creates the object in question under Article 3(3) p.b. The NSA's technical equipment included a fence of a built-up plot in the indicated judgment.

The nature of the “permanent bond to land” referred to in that provision is that the method of planting an object which may also result from the size of the object, its mass or its resistance to the action of natural forces (e.g.

wind) ensures the safety of use, the absence of danger of overturning or other destabilization during the period of use (e.g. the judgment of the WSA of 6 June 2019 44 ).

[…] Therefore, the acceptance that the sale of the contested plot of land with the abovementioned indications is exempt from VAT constitutes an infringement Article 43(1)(9) the VAT Act”.

1. 2. VAT exemptions for the supply of immovable property: exemption for the supply of buildings, structures or parts thereof

According to Article 43(1)(10) the VAT Act the supply of buildings, structures or parts thereof shall be exempt from tax, except where the supply is made within the framework of first settlements before or between first settlement and delivery of buildings, structures or parts thereof have been less than two years, with first settlement, according to Article 2(14) the VAT Act is understood as putting into service, in the performance of taxable activities, first the purchaser or user of buildings, structures or parts thereof, after their construction or improvement, if the expenditure incurred for improvement, within the meaning of the income tax legislation, represented at least 30% baseline.

According to Article 22g(1)(2) Act on 26 July 1991 on personal income tax 45 (hereinafter: u.p.d.o.f.) the initial value of the fixed assets shall be: in the event of the purchase, the price of their acquisition, and in the case of self-production, the cost of production, with the production of the property according to Article 2(14a) the VAT Act the construction of a building, structure or part thereof, or their improvement within the meaning of income tax legislation, shall be understood.

According to Article 22g U.p.d.o.f.

fixed assets shall be considered to be improved when the sum of the expenses incurred for their reconstruction, extension, reconstruction, adaptation or modernisation in a given tax year exceeds 10,000 PLN and these expenditures result in an increase in the useful value in relation to the value on the date of the adoption of fixed assets for use, measured in particular by the period of use, capacity, quality of products obtained through improved fixed assets and the costs of their operation.

Therefore, the VAT Act the basic principle is that the supply of buildings, structures or parts thereof is exempt from VAT, which means that the seller does not add any tax to the selling price, and that the invoice issued by the seller and provided to the buyer will appear instead of the VAT rate, the indication ZW.

Because as quoted above Article 29a(8) the VAT Act for the supply of buildings or structures permanently linked to the land or parts thereof from the tax base, the value of the land shall not be distinguished (subject to section 9 that Article, which provides for a derogation in the case of land-laying operations in perpetual use, means that the taxation of supplies of land-planted and permanently related buildings, structures or parts thereof shall at the same time lay down the principle of VAT on all built-up property.

Therefore, the exemption of the building's supply means the automatic release of the delivery also of the land under the building. Exception to this principle is the supply of so-called ‘new’ objects, i.e. buildings, structures or parts thereof within the framework of first settlements or during the period two years first settlement.

However, understanding the concept first settlement in practice has encountered a number of interpretative problems, especially in view of the fact that many taxpayers, after building or upgrading buildings, used them for their activities, causing doubts as to whether such use for their own needs, although not included in the content Article 2(14) the VAT Act, will result in application of the exemption in question under Article 43(1)(10) the VAT Act

In support of the Supreme Administrative Court’s judgment of 26 September 2018 46 concluded that: ‘in the order of 23 February 2016, published in the case reference no. I FSK 1573/14, The NSA asked the Court of Justice of the European Union the question: ‘Did Article 135(1) point (j) Directives 112 it must be interpreted as opposing national legislation (Article 43(1)(10) the VAT Act), that the supply of buildings, structures or parts thereof, except where:

(a) delivery is made within the framework of first (b) between first settlement and delivery of buildings, structures or parts thereof have been less than 2 years to the extent that Article 2(14) the VAT Act defines that first the settlement is put into service, in the performance of taxable activities, first (a) construction or (b) improvement where the expenditure incurred for improvement, within the meaning of the income tax legislation, represented at least 30% initial value;

(b) between first settlement and delivery of buildings, structures or parts thereof have been less than two years’.

In response to the judgment of 16 November 2017 47 The Court found that Article 12(1)(2) and Article 135(1) point (j) Directives 112 it must be interpreted as contrary to national rules, such as those subject to the main proceedings, which make the value added tax exemption for the supply of buildings subject to the condition that first the settlement of these buildings takes place under a taxable activity. At the same time, these provisions of the directive do not preclude such national provisions from making this exemption conditional on the condition that, in the event of an ‘improvement’ of an existing building, the expenditure incurred must not exceed 30% the initial value of this building, in so far as the concept of ‘improvement’ in question is interpreted in the same way as the concept of ‘reconstruction’ contained under Article 12(2) Directives 112 (...).

In that judgment, the Court held that, in view of the objective of exemption from Article 135(1) point (j) Directives 112, criterion ‘first settlements’ of the building should be combined only with first the use of the building by its owner or any other entity authorised to do so, not with the performance of taxed activities. ‘By making a pro-EU interpretation based on it Article 2(14) the VAT Act it should be considered that by first settlement is understood as putting into service, first the buyer or user or use for own use, buildings, structures or parts thereof, after:

(a) the construction or

(b) an improvement where expenditure incurred for improvement, within the meaning of the income tax rules, represented at least 30% initial value’.

However, the exemption in question under Article 43(1)(10) the VAT Act it is not absolute because the parties to the supply operations may waive this exemption, resulting in such supply being subject to VAT. This is due to the content Article 43(10) the VAT Act, according to which the taxable person may waive the exemption in question under Article 43(1)(10) the VAT Act and choose to tax the supply of buildings, structures or parts thereof with VAT, provided that the supplier and buyer of the building, buildings or parts thereof are registered as active VAT payers and, furthermore, shall deposit, before the date of delivery of those facilities to their buyer the head of the tax office, in accordance with a declaration that they choose to tax the VAT supply of the building, structures or parts thereof.

If, therefore, the exemption in question under Article 43(1)(10) the VAT Act, concerning the supply of so-called "used buildings" is optional, but the exemption provided for Article 43(1)(10a) the VAT Act is mandatory[48]. In addition, if mentioned under Article 43(1)(10) point (a) and point (b) the circumstances may exist as an alternative, but the circumstances given under Article 43(1)(10a) point (a) and point (b) they must appear together.

Indicated Article 43(1)(10a) the VAT Act provides that the supply of buildings, structures or parts thereof not covered by the exemption in question is exempt from tax Under point 10 provided that, in respect of these facilities, the person making the delivery of them was not entitled to a reduction in the amount of tax due by the amount of input tax and, furthermore, the person making the delivery of them did not incur expenditure for their improvement, for which he was entitled to a reduction in the amount of input tax due by the amount of input tax, and if he incurred such expenditure, they were lower than 30% initial values of these objects; according to which Article 43(7a) the VAT Act the condition in question under Article 43(1)(10a) the VAT Act does not apply if buildings, structures or parts of buildings in improved condition have been used by the taxable person for activities taxed by at least five years.

Therefore, unless, in principle, the supply of ‘new buildings’ is VAT-taxed and the supply of ‘used buildings’ exempt from VAT, if it was not possible to waive the exemption and the taxable persons did not benefit from this exemption, the supply of buildings acquired under VAT-exempt or non-taxed VAT-exempted activities, which were not further improved by the seller beyond the specified amount under Article 43(1)(10a) point (b) the VAT Act, and, however, if they have been improved beyond that amount, if the period has passed since the improvement five years.

5. Summary

As per content Article 2(4) u.p.c.c. is not subject to this tax to the extent that they are taxed on goods and services or if at least one party is exempt from VAT for the purpose of carrying out this activity, with the exception of sales and replacement contracts the subject of which is the property or part thereof, or the right of perpetual use, the cooperative property right to the premises, the right to a single-family house in a housing cooperative, or the right to a parking space in a multi-station garage or to participate in those rights.

Both taxes, covering the disposal of real estate from a historical and technical point of view, are extremely different, which does not prevent their coexistence in charging the effects of the sale of real estate to taxpayers, although it completely prevents the use of analogy in their use.

It is also a very large number of interpretations and rulings issued in the framework of the above-mentioned issues, which certainly does not pay attention to the so-called legal certainty, but it must be borne in mind that these issues are governed at the level of public law, the priority of which is the State interest, which, by its nature, remains in a permanent discussion of private interest, resulting in the indicated interpretations and judgments of the courts. Perhaps further integration within the European Union will result in some simplification of the tax currently being torn between the traditional national private law system and harmonised under European rules on taxation of supplies of goods and services.

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Tax Chamber in Warsaw, C-181/10.

7 And the FPS. 3/07.

8 reference no. I FSK 1043/08.

9 reference no. I SA/Gd 986/16, LEX No. 2172966.

10 reference no. I FPS 3/07.

11 Directive 2006/112 Council 28 November 2006 on the common system of value added tax, Official Journal of the European Union L, No. 347/1.

12 Judgment of the Court of Justice of 15 September 2011 in Joined Cases J. Weak v Minister of Finance, op. cit.

13 reference no. I FSK 716/14.

14 reference no. I FSK 475/14.

15 reference no. I FSK 368/14.

16 reference no. I FSK 2106/13.

17 reference no. I SA/Bd 725/19, op.cit.

19 reference no. I SA/Po 747/19.

20 reference no. I SA/Rz 730/19, LEX No. 2758823.

22 reference no. I FSK 918/11, LEX No. 1167862.

23 reference no. IPPP1/443-263/14-2/JL.

24 reference no. I SA/Gd 986/16, op. cit.

26 reference no. I FSK 918/11, LEX No. 1167862.

30 reference no. I SA/Ol 475/19, LEX No. 2755147.

31 Judgment of the Court of Justice of 18 July 2007, Société thermale d’Eugénie-les-Bains v. Ministère de l’Économie, des Finances et de l’Industrie, C-277/05.

32 reference no. I FSK 1910/13, CBois Base.

33 reference no. I SA/Bk 526/10, LEX No. 747731.

34 reference no. I FSK 1235/17, LEX No. 2778099.

36 So Z. Unknown, New law on spatial planning and development, Warsaw 2003, p. 20.

37 reference no. I SA/Gd 555/17, LEX No. 2332770.

38 reference no. I FSK 918/11, LEX No. 1167862, op. cit.

39 Associated in this study.

40 reference no. I SA/Łed 516/19, LEX No. 2761222.

41 General Interpretation No PT10/033/12/207/WLI/13/RD 58639 Minister of Finance from 14 June 2013 on the taxation of taxes on goods and services for the supply of undeveloped land in the absence of a land use plan and decisions on the conditions for the construction and development of the site, Official Journal of the Ministry of Finance of 18 June 2013, item 14.

42 reference no. II SA/Łódź 241/17.

43 reference no. II OSK 1463/16, LEX No. 2205402.

44 reference no. II SA/Bk 130/19.

45 Act of 26 July 1991 on income tax on individuals, i.e. Journal of Laws of 2020, item 1426 as amended

46 reference no. I FSK 1854/16, LEX No. 2582465.

47 Judgment of the Court (second Chamber) from 16 November 2017, Kozuba Premium Selection sp. z o.o. v. Director of the Tax Chamber in Warsaw, C-308/16.

The above study contains extensive fragments of the diploma work of Bartłomiej Jabłoński, written at the Postgraduate Tax and Tax Law Studies, on Faculty of Law and Administration of Warsaw University.