Judgment of the Constitutional Tribunal on real estate tax (SK 39/19)

The fact that the entrepreneur owns land, building or construction must not prejudge the connection of these properties to the business activity, and thus the higher burden in the property tax – so in a nutshell, it is possible to summarise the position of the TK, which 24 February 2021 issued the judgment in question (SK 39/19, Legalis).

The fact that the entrepreneur owns land, building or construction must not prejudge the connection of these properties to the business activity, and thus the higher burden in the property tax – so in a nutshell, it is possible to summarise the position of the TK, which 24 February 2021 issued the judgment in question (SK 39/19, Legalis).

The sentence examined here is another in recent years 1 the position of the Constitutional Tribunal concerning the property tax. The tax, which was supposed to be a simple, uncomplicated fiscal commitment in the assumptions, in which, as you can see, the Constitutional Tribunal must resolve new interpretation doubts over the years.

In the future years, the next practical problems that entrepreneurs will face on a daily basis will probably be resolved, trying to settle the tax burden. It appears that the judgment of the Constitutional Tribunal examined below is another argument that the property tax regulations should be regulated completely again.

Reason for the dispute

At this point, it should be pointed out that the content of the dispute resolved by the Constitutional Tribunal was precisely the subject of the Article 1a(1)(3) with regard to Article 5(1)(1) point (a) and Article 5(1)(2) point (b) Sub-LokU, which is a provision in force to 31 December 2015 it made the classification of land, buildings and structures subject to tax on immovable property into categories of land, buildings and structures related to the pursuit of business activity only and only on the very fact that the owner is an entrepreneur and the subject of taxation can be used in its business activity.

Provision Article 1a(1)(3) Sub-LokU as to 31 December 2015 provided that: land, buildings and structures relating to the conduct of business activities were land, buildings and structures held by an entrepreneur or other economic operator, except for residential buildings and land related to those buildings, as well as the land in question under Article 5(1)(1) point (b) Sub-LokU, unless the subject-matter of taxation is not and cannot be used to conduct this activity for technical reasons.

Thus, literally, the legal status resulting from the Sub-LokU applicable to 31 December 2015 increased the financial burden on the natural person conducting business activity (by requiring a higher rate of property tax, i.e. the rate foreseen for land and buildings related to business activities) regardless of whether the land, buildings and structures actually owned by it were in general related to the undertaking being run.

In other words, the cause of the problem was the unfortunate design of the PodLokU regulations, i.e.

Article 1a(1)(3) The LokU, which, for the purposes of property tax, did not take into account at all whether the property is actually or even whether it could be used in the future for the purpose of conducting business activities, merely clearly indicated that the mere fact of having it results in the binding of this land, building or building with the pursuit of business activity (i.e.

the requirement to apply a higher rate in property tax).

Conduct of the dispute

The JST Executive Body, Mayor, as the tax authority competent on property tax, issued a decision to the taxpayer on this tax for 2015, in which he established to the taxable person (a natural person conducting an economic activity) the amount of the property tax on the basis of data from land and building records and the information on the properties and construction works held by the trader.

The taxpayer disagreed with the mechanism for calculating the amount of the property tax receivable, contesting in the contested appeal the application of a higher rate of tax to the property which he did not use in his business.

The entrepreneur specifically accused the body, among others, of the violation Article 187(1) OrdPU in conjunction with Article 191 OrdPU, by selective collection and consideration of evidence and, consequently, incorrect recognition that the properties in question are related to the economic activity of the taxpayer, and Article 2(1)(1-3) in conjunction with Article 5(1)(1) point (a) and Article 5(1)(2) point (b) ed Article 1a(1)(3) The sub-LokU, by misinterpretation of the provisions consisting of taking the position that all land, buildings and structures acquired by a natural person simultaneously conducting business activities, should be taxed at the rate provided for in the land, buildings and structures related to the business activity, even if the property is not part of an undertaking operated by a natural person and constitute a separate private property of a natural person (i.e. not used in the business activity of that person).

The taxpayer, arguing in the appeal his position, first of all pointed out that part of the property he owned is not only not actually used in connection with his business activity, but does not have the slightest connection with that activity, i.e. they are only private assets.

The entrepreneur pointed out that the mayor had incorrectly interpreted the regulations of the Sub-LokU, as a result of which he accepted that the mere fact that the natural person carrying out a single-person economic activity was a sufficient reason to classify the property in question as an object of taxation with an economic activity-related property tax.

According to the taxpayer, the application of a higher tax rate to property tax cannot be decided solely by the entity (i.e. the fact that the entrepreneur owns the property), while not paying attention to the property in question (i.e., what is the link between this property and the economic activity pursued by the taxpayer).

The entrepreneur stressed that compliance with the interpretation of the Sub-LokU rules made by the Authority would result in excessive taxation of individuals carrying on individual business activities, which are also property holders used in private property.

The Local Board of Appeal did not split the arguments set out in the appeal and stated[2] , that in the light Article 1a(1)(3) Sub-LokU land, buildings and structures related to the conduct of business activities are land, buildings and structures owned by an entrepreneur or other economic operator, with the exception of residential buildings and land related to those buildings, as well as the land in question under Article 5(1)(1) point (b) Sub-LokU, unless the subject-matter of taxation is not and cannot be used to conduct this activity for technical reasons.

The SKO consistently issued a decision confirming the mayor's position, i.e.

that the mere possession of land, building or construction by a natural person conducting an individual business activity results in them being linked to the pursuit of business activity and thus the Board of Appeal held that a higher rate of property tax was correctly applied in the case.

According to the SKO, private property ownership remains irrelevant since the properties not used at the time by the taxpayer for purposes related to its business or where it carries out activities other than economic activities will always be linked to economic activities by the fact that they are held.

The College, arguing in favour of the decision taken, pointed out that the provisions of the Sub-LokU do not specify that the nature of the use of the property determines its connection with economic activity – the literal content of the provision Article 1a(1)(3) The sub-LokU indicates that it is sufficient that the entrepreneur owns them (except that the exception is residential buildings and land related to these buildings and land under lakes and occupied with water reservoirs or hydroelectric plants, as well as land, building or building which are not and cannot be used for business purposes for technical reasons).

In its decision, the SKO also pointed out that the property tax is a property tax (the subject of taxation is charged on the holding rather than on the income generated by the taxpayer through the ownership of the property) and that it is correct to say that the fact that the property will be taxed at a higher rate is determined solely by the fact that it is held by a natural person conducting an individual economic activity and not by the way in which the property is actually used by the owner.

The Board of Appeal pointed out in its decision that the SKO and the Mayor’s position in the case was also justified by the Sub-LokU interpretative line created by administrative courts, which also indicate that only the fact that the natural person conducting the business activity is in favour of the property’s association with the business activity is in favour of it.[3].

In conclusion, the SKO’s position in that decision indicated that, in the light of its analysis, Article 1a(1)(3) The sub-LokU should also include land and buildings which, although not used by the taxpayer for its business activity, are in private property, but their characteristics and the type of business they carry out make it possible (although they do not have to) to be used for this purpose.

The taxpayer who brought the complaint to the WSA in Krakow did not agree with such a decision.

Position of the administrative courts in the dispute

In the complaint to the WSA, the entrepreneur reiterated the previous allegations concerning, inter alia, the misinterpretation of the provisions of the Sub-LokU made by the SKO, which means that all land, buildings and buildings acquired by a natural person conducting an economic activity must be taxed at the rate provided for land, buildings and structures related to the conduct of business, even if the property is not part of an undertaking run by a natural person and is a separate private property.

The complaint also states that, for the purposes of the property tax, the tax authority should consider whether the land, building or building can be considered to be linked to the pursuit of an economic activity (i.e.

consequently taxed at a higher rate of property tax), whether that particular property is owned by an entrepreneur or by another operator.

At the same time, the taxpayer pointed out that it was in the case of individuals carrying on an individual economic activity that the problem arises with this finding, as this group of entrepreneurs has a dual role as the owner, as mentioned below.

In other words, according to the taxpayer, for the purposes of property tax, it is necessary to determine whether the taxpayer, a natural person, holds the property as an entrepreneur or as a personal property (i.e. as a ‘private person’).

In its response to the complaint, the Authority requested that it be dismissed, in its entirety maintaining its existing position and arguments, as set out in the contested decision.

WSA in Kraków did not divide the position of entrepreneur and issued the sentence[4] stating that all land, buildings and buildings acquired by a natural person, at the same time conducting an economic activity, should be taxed at the rate provided for in respect of land, buildings and structures, linked to the conduct of economic activity.

The Court of First Instance based its opinion on the interpretation Article 1a(1)(3) The sub-LokU, whose literal content indicates that the mere fact that the entrepreneur owns the land, building or building results in them being linked to the business activity and prejudging the application of a higher tax rate.

Therefore, since the content of the rule of law is – according to the WSA in Krakow – so unambiguous, all properties owned by the entrepreneur (whether they are only unused at a given time or even used for non-economic activities), should be considered to be related to economic activity. As has been pointed out several times in the explanatory memorandum of the judgment in question, there is no condition in the legal definition for the use of such real estate for business purposes, which means that a higher rate of property tax will be sufficient only and only for an entrepreneur to possess it.

According to the Court of First Instance, the taxpayer rightly argued in the complaint that, as a result of the interpretation of the Sub-LokU, a natural person conducting an individual economic activity acts in two ways (as a private person in the field of his personal property and at the same time as an entrepreneur), however, this is only due to the specificity of the property held, which is at the same time linked to the economic activity carried out by the taxpayer, but is also a property serving the personal life needs of the taxpayer or his family.

Despite pointing to the right assessment of the situation of entrepreneurs in this respect, WSA in Krakow stressed that the property related to conducting business activity should also include those land and buildings which are temporarily not used in the business, but their characteristics and the type of activity they carry out make it possible for them to be used for this purpose.

In its judgment, the WSA took a different view from the administrative courts’ so far that language interpretation was applicable Article 1a(1)(3) Sub-LokU, according to which the property is subject to higher tax rates, i.e.

as a business property (in conjunction with Article 5(1)(1) point (a) and point 2 point (b) SubLokU), determines the fact that the entity owns it about the status of the entrepreneur, entered in the register of entrepreneurs, rather than the way it is actually used. However, the judgment was unfavourable for the complainant.

Consistently, since the above-mentioned judgment of the WSA in Krakow, the entrepreneur filed a cassation complaint with the NSA, which the court of higher instance considered not worthy of taking into account[5].

In the justification of the complaint, the taxpayer reiterated, inter alia, the plea of infringement of the Sub-LokU by considering that the application of the higher tax rate in the property tax may be decided only by an individual question (i.e. only the possession of the property by the entrepreneur), while not referring to the property in question (i.e., what is the link between this property and the economic activity pursued by the taxpayer).

On the other hand, the NSA claimed that if the property is held by a natural person conducting an individual business activity, it is whether or not it is connected to it within the meaning of Article 1a(1)(3) The sub-LokU decides whether it is used to any extent in the course of its business activity or whether it can be used for that purpose (taking into account at the same time the actual characteristics of the property and the type of business carried out by the entrepreneur concerned).

According to the court, the economic use of the property (i.e. the application of a higher rate of property tax to it) should be decided, among other things, by the inclusion of this property in the records of fixed assets held by a natural person, by making depreciation write-offs or by including expenditure relating to that property in the CUP.

However, in the judgement of the NSA, as previously the WSA in Krakow, he pointed out that these are not the exclusive conditions that determine the eligibility of real estate for property tax purposes. According to the court, the property relating to the business activity should also include those properties which are even temporarily not used by the entrepreneur in his business activity, but their characteristics and their nature make it possible for them to be used for this purpose in the future.

Thus, referring to the position of mayor, the SKO and the WSA in Krakow, the NSA pointed out that since the taxpayer in the case in question had real estate which, according to the facts, could only serve its future possible industrial and economic purposes, since there is a strong likelihood of using these properties for the purposes of the business activity carried out by the taxpayer, the previous decisions were correct.

In conclusion, in the light of the interpretation of the provisions of the NSA, it concluded that property related to the pursuit of business activities should also include land and buildings which are temporarily not used by the taxpayer in the course of its business activity, but their characteristics make it realistic that they can be used for this purpose. In other words, for the property in dispute, the application, in the opinion of the court, should find the rate that the Sub-LokU provides for for land and buildings related to business activity.

However, according to the NSA, immovable property not used at a given moment or property in which activities are other than economic activities should be considered to be related to economic activity, since the legislation does not provide for the use of immovable property for business purposes. For taxation, a higher rate of property tax is sufficient to justify the existence of a likelihood of using these properties for business purposes.

Complaint to the CCC and the position of the applicant

In view of the exhaustion of the remedies available to the taxpayer (no appeal is available from the NSA judgment, so the judgment is final and final), the entrepreneur lodged a constitutional action with the Constitutional Court. The complainant specifically requested a finding of non-compliance Article 1a(1)(3) with regard to Article 5(1)(1) point (a) and Article 5(1)(2) point (b) Sub-LokU (of course in the version applicable to 31 December 2015), to the extent that ,,depends on the classification of land, buildings and buildings subject to property tax to the category of land, buildings and structures relating to the pursuit of business activity (which results in an obligation to pay the property tax at a higher rate) solely on the fact that the natural person (owner of the property) conducts business activity, and whether the land, buildings and structures are actually linked to the conduct of business by the natural person’, Article 64(1)(3) with regard to Article 2 the Constitution of the Republic of Poland and Article 64(1)(3) with regard to Article 2, Article 31(3), Article 84 and Article 217 Constitution of the Republic of Poland.

In the assessment of the taxpayer, the relevant regulations of the Sub-LokU infringe Article 64(1)(3) with regard to Article 2 The Constitution of the Republic of Poland, because they constitute unauthorised interference in constitutionally protected property rights, because they impose a tax on the taxpayer (the natural person) on the property of a sanctioning nature only because, while being the owner of the property, he simultaneously conducts business activities, even though the properties held by the taxpayer are not actually related to the company being run.

At the same time, in a constitutional complaint, the taxpayer indicated that the provisions of the Sub-LokU infringe Article 64(1)(3) with regard to Article 2, Article 31(3), Article 84 and Article 217 The Constitution of the Republic of Poland because they constitute unauthorised interference in constitutionally protected property rights, because they impose a tax on a taxable person conducting economic activity calculated at a higher rate, only because he is the owner of a property which is simultaneously engaged in economic activity (although the properties held by him are not actually related to his business activity).

In the case, the Attorney General stated that, in the present complaint, there was an attempt by the taxpayer to challenge the judgment of the NSA, and that, within the scope of the competence of the Constitutional Tribunal, there was no assessment and verification of the merits of the decisions taken in specific cases.

On behalf of the legislature, however, the Marshal of the Sejm, who requested the statement that Article 1a(1)(3) The sub-LokU, in so far as it relates to industrial land, buildings and structures owned by the entrepreneur, is compatible with Article 64(3) The Constitution of the Republic of Poland in connection with the principle of specificity of tax legislation, brought about by Article 84 and Article 217 Constitution of the Republic of Poland.

Interestingly, the Ombudsman did not comment on the case, who did not report his participation in the proceedings.

Position of the Constitutional Court

The Constitutional Court took the view that it was essential to assess whether the contested provision of the Sub-LokU complies with the constitutional principle of proportionality (Article 31(3) Constitution of the Republic of Poland) between the right of the entity to property (Article 64(1) The Constitution of the Republic of Poland) and the obligation to bear public burdens (Article 84 Constitution of the Republic of Poland).

In the opinion of the Constitutional Tribunal, traders should not be charged a higher rate of property tax solely because they are in possession of real estate which, after all, do not serve to conduct their business. According to the Constitutional Tribunal, taxation at a higher rate of land or buildings – not used and not potentially used for business activity – solely because of the fact that an entrepreneur or other entity operating an economic activity is incompatible with Article 64(1) Constitution of the Republic of Poland.

In the assessment of the TK, the provision Article 1a(1)(3) The LokU sub-location introduced a mechanism which is a disproportionate tax burden consisting of an indistinguishable case where:

• 1) the taxable person is in possession of the property, but does not use it or cannot use it in the course of his business,
• 2) taxable persons using their property to conduct their business.

According to the CCI, a condition which introduces taxation based only on the fact that the entrepreneur owns the property does not meet only the fiscal objective which should result from the provisions of the Sub-LokU, thus leading to an unjustified constitutional infringement of the right to property to which the complainant’s taxpayer pointed out.

At the same time, the CCC indicated that Article 1a(1)(3) The sub-LokU does not fulfil the conditions of proportionality (defined under Article 31(3) The Constitution of the Republic of Poland, which is an adequate model for controlling the regulation of the law of the Danin). That position was justified by the fact that the application of a higher tax rate to real estate related to the pursuit of business activities (Article 5(1)(1) point (a) and Article 5(1)(2) point (b) The sub-LokU) only on the basis of the criterion of the ownership of the property by the entrepreneur or any other economic operator constitutes a disproportionate interference with the right to ownership of those entities (it unduly increases their fiscal burden).

Having regard to the judgment of the Constitutional Tribunal under examination, it can be concluded that Article 1a(1)(3) The sub-LokU is understood as meaning that the binding of land, building or building with the pursuit of business activity is solely the holding of land, building or building by an entrepreneur or other entity conducting business activity, is incompatible with Article 64(1) with regard to Article 31(3) and Article 84 Constitution of the Republic of Poland.

Conclusion

The contention of the dispute which led to the judgment of the Constitutional Tribunal examined here remains a provision Article 1a(1)(3) Sub-LokU as applicable to 31 December 2015 This regulation provided that the land, buildings and structures related to the conduct of business activities were the land, buildings and structures owned by the entrepreneur or by another economic operator, with the exception of residential buildings and land related to those buildings, as well as the land in question under Article 5(1)(1) point (b) of the Sub-LokU, unless the subject-matter of taxation is not and cannot be used for the purpose of carrying out that activity for technical reasons.

Indeed, the literal wording of the provision allowed the conclusion that the Sub-LokU wrongly leads to a higher rate of property tax applied to individuals carrying out individual economic activities, only because they have real estate (no matter that it is not used in the company).

The position presented by the Constitutional Tribunal should therefore be agreed. that the content of the Sub-LokU does not comply with the Constitution of the Republic of Poland (specifically consisting in disbalancing the constitutional obligation to bear the burden of paying taxes and other public taxes resulting from Article 84 Constitution of the Republic of Poland and violation of property rights resulting from Article 64(1) Constitution of the Republic of Poland.

As can be seen in the case law, the judgment of the Constitutional Tribunal has already contributed to the change of positions of administrative courts, such as the NSA judgment of 18 March 2021 III FSK 2595/21, which makes it possible to establish that, in cases where a property is not linked to an undertaking's business, it is not, and may not even be used, the tax authority is obliged to consider the taxpayer's position and, if necessary, carry out additional evidence and to address this issue in the judgment taken; and another judgment of the NSA, which is directly below.

However, it appears that the relationship, in addition to the ownership of the property by the entrepreneur or any other entity active in the business, should be based on the actual or even potential use of the property in its business.

Lands, buildings and structures, which, at least indirectly or to a limited extent, serve to conduct business, should be recognised for this activity.

In determining the existence of a property relationship with its business activities, for example, circumstances such as the introduction of the property in the register of fixed assets, the inclusion of expenditure on acquisition or production and the maintenance of business costs may be useful.

The existence of such a relationship may also be demonstrated by the nature of things (e.g. structures), indicating their economic purpose.

In any event, the determination of the relationship of the property to the business activity of an entity which also carries on another activity must not be limited to demonstrating the ownership of the property (excl. NSA with 4 March 2021, III FSK 899/21).

Consequence

At this point, it should be pointed out the precise content of the operative part of the judgment of the Constitutional Tribunal in question, where the term ,,(...) by an entrepreneur or other entity conducting an economic activity (...) is used, which suggests that, despite the fact that the Constitutional Tribunal in the present case carried out considerations on the dual role of an entrepreneur who is a natural person conducting an individual economic activity, it is worth considering whether the judgment in question may also apply to other taxable persons.

What is important in this case, the content of the operative part cannot be considered to be a non-objective extension of the position of the Constitutional Tribunal, since historically, the Constitutional Tribunal, when it considered it to be justified, had already imposed a restriction on the non-constitutionality of the provision in the property tax [e.g. such restriction is found in the operative part of the judgment of the Constitutional Tribunal of 12 December 2017 (SK 13/15, Legalis), in which the Constitutional Tribunal ruled in the matter of co-ownership, and clearly indicated that it was incompatible with the Constitution of the Republic of Poland Article 1a(1)(3) with regard to Article 5(1)(1) point (a) The sub-LokU, understood that a sufficient condition for the classification of land as a category of land related to the conduct of business activity is that the natural person co-owner of the land].

Thus, since in the judgment here examined with 24 February 2021 The CCC did not add such a restriction, which means that not only natural persons operating an individual economic activity have an open path not only to reduce the charge on property tax, but that judgment of the CCC also opens the way for taxpayers (both natural and legal persons) to recover the overpayment for the last 5 years. At this point, it is worth noting that entrepreneurs do not have to wait for legislative action to change the unconstitutional provision of the SubLokU – the judgment of the Constitutional Tribunal itself provides a sufficient basis to change the charge by real estate tax and recover the tax unduly paid.

This action to enable the recovery of part of the regulated property tax may be of major importance, especially in the event of a pandemic COVID-19 A significant part of companies in Poland have ceased to use some of their properties for the purposes of their business. It happened.

In 2020 The epidemiological situation led to forced closure of many sectors of the Polish economy, which drastically reduced the revenues of entrepreneurs who, despite lockdown, had to regulate their fiscal commitments, including the property tax.

The hotel, tourism, catering and sports industries therefore have the chance to recover the unfairly paid tax at a higher rate, which, in the case of certain companies, can enable survival.

Although the judgment of the Constitutional Tribunal of 24 February 2021 (SK 39/19, Legalis), fell on the background of a case from a natural person's constitutional complaint, in the scope adopted by the Constitutional Tribunal of the interpretation Article 1a(1)(3) The sub-LokU is of universal importance.

The wording in the operative part of that judgment refers to land, buildings and structures owned by all economic operators or other entities, regardless of their legal form (excl. NSA from 4 March 2021, III FSK 895/21, Legalis).

Less than a week later, the WSA in Rzeszów took a similar position.

It must be stated that the mere fact that an entrepreneur owns a building or land is insufficient to accept that it is related to economic activity. It is likely necessary to establish that it is used in such activities.

In the present case, the authorities, without clarifying the link between the land and the building and the economic activity, violated the procedural law and the infringement could have had a significant impact on the outcome of the case.

Depending on the arrangements in this respect, the basis for taxation of these items may or may not be updated at the highest rate. It will be necessary to consider the views of the Constitutional Tribunal in the justification of that judgment.

Insufficient to accept land and building taxation, the highest rate is to base the ruling only on the information submitted by the applicant.

It refers to the concept of linking the land and the building to the economic activity to which the concept of the TK has now given new content, excluding from this definition such states, where the connection to the economic activity could determine the mere possession of the property by the entrepreneur (or WSA in Rzeszów from 11 March 2021, I SA/Rz 1/21, Legalis).

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Legal basis

Article 1a(1)(3), Article 5(1)(1) point (a), Article 5(1)(2) point (b) Sub-LokU,

Article 84 Constitution of the Republic of Poland.

The article comes from the book C.H. Beck Publishing House Changes in Taxes and Accounting 2021 including anti-crisis shields (series: Law in practice, year: 2021) + CD, under the editor-in-chief of Professor Artur Hołday - Ksiegarnia.beck.pl.