Fixed assets and depreciation
Depreciation is the gradual use of an asset, which involves the spread over time of the costs associated with its acquisition for subsequent months of operation. Depreciation only applies to fixed assets. By Article 16a CIT Act (as appropriate Article 22a(1) the PIT Act) the fixed assets are:
- buildings, buildings and premises owned separately;
- machinery, equipment and means of transport;
- other items.
At the same time, they should fulfil additional conditions:
- be owned or jointly owned by the taxpayer,
- be acquired or produced on its own,
- be complete and fit for use on the day of acceptance for use,
- the expected period of use should be more than one year,
- be used by the taxable person for the purposes of his economic activity or for use under a lease, lease or lease agreement.
Grouping KŚT as an element necessary to determine the rate of depreciation to determine the cost of obtaining income
In addition, each permanent measure should be attributed to a specific number of Classifications of Fixed Measures (STCs), on the basis of which, among other things, the rate of depreciation of the asset is determined.
If an entrepreneur purchases a parking space in an underground garage, he eventually acquires a share in a non-residential premises (garage hall). In principle, a parking space with its own permanent book is considered to be a separate permanent measure.
If the purchased parking space forms an integral part of the building, this means that it is a room owned by a residential or non-residential premises and therefore does not have a separate land register, the parking space shall be depreciated together with the purchased building as its integral part.
Amortisation write-offs on the property's cooperative right to a dwelling, cooperative right to a utility accommodation shall be made using an annual depreciation rate of 2.5%. However, for buildings and dwellings which are separate property, the rate is 1.5%. In turn, for buildings garages and covered parking lots the rate is 4.5%.
Depreciation is essentially the cost of obtaining revenue, as it is the cost incurred in order to generate revenue or to preserve or to secure the source of revenue. The higher the depreciation rate, the higher the cost of obtaining income, the lower the income to be taxed and, consequently, the lower the income tax payable.
Who should carry out tax classifications?
As indicated above, the proper classification of KŚT is essential to determine the correct rate of depreciation. At this point the question arises who should classify – a taxpayer, a tax authority or a statistical office?
It should be concluded that the tax authorities have provided correct tax interpretations in the subject to 2014 They subsequently changed their practice and ceased to respond to classification issues by covering themselves with the fact that it was the taxable person who had to classify in fact.
In the assessment of the authorities, they cannot carry out tax classifications as they would thus determine the facts which they cannot do, as the authorities rely on the facts presented by the taxpayer, which they cannot modify. Administrative courts generally disagree with that position.
According to the established line of case law, tax authorities should classify them as they are necessary to determine the tax consequences that fall within the competence of the authorities. See e.g. judgment of the WSA in Łódź 10 April 2019 The signature. I SA/Łed 23/19:
As a result, the court shares the applicant’s view, which consistently and rightly stated that the role of the body is to attribute the activity described by it to the appropriate position of the PKWiU (in this case, to the classification proposed by it), as its legal doubts at the starting point concern the correct position of that classification.
A different view of the body cannot be accepted. It is not a matter of fact or a future event to indicate the items of the PKWiU.
In this dispute, it is not about the activity of the Municipality that it implements or intends to implement, but how this activity qualifies tax law (VAT Act) and in its framework adopted by the tax legislature the classification of PKWiU.
According to the court, the fact that the answer to the question is dependent on the indication of the symbols of the PKWiU is a manifestation of excessive formalism, which is not based on Article 14b(3) Op.
The following is also the tax interpretation on 10 March 2014, The signature. ITPB3/423-597/13/PST issued by the Director of the Tax Chamber in Bydgoszcz, in which the authority considered the taxpayer’s position in the subject under consideration to be correct:
From the list of annual depreciation rates constituting Annex 1 to the Corporate Income Tax Act, it is clear that underground garages and covered parking lots and air traffic control buildings (towers) classified in type 102 in the Classification of Persistent Measures (hereinafter ‘STC’), the depreciation rate of the amount of 4.5%.
In view of the above, it must be concluded that if the parking spaces in the ‘underground garage hall’ grouped in item 102 KŚT, are owned (shared) by the company, their period of use is longer than one year, at the same time the parking spaces acquired are used for business purposes, are complete and usable, and can be classified as separate fixed assets and amortised by the depreciation rate 4.5%.
Transfer of the requirement to a taxable person
At present, in such a case, the authority would certainly consider the taxpayer’s position to be incorrect (unless the applicant holds the opinion of the statistical office). This is confirmed by the individual interpretation at 12 January 2021 issued by the Director of National Tax Information No.
0113-KDIPT2-1.4011.843.2020.2.AP, which, due to the above-mentioned problem of the authorities with the classification, only indirectly approves the taxpayer's point of view, while acknowledging his position as incorrect:
Therefore, if the parking space has been properly classified to 1 the groups in the Classification of Permanent Measures (without prejudging this issue in this interpretation) are owned by the Applicant, the period of its use is longer than one year, at the same time the purchased parking place is used for the purposes of the applicant's economic activity, is complete and usable, and can be classified as separate fixed assets and amortised by the depreciation rate 4.5%.
Thus, in the current approach, the tax authorities shift the risk of misuse of classification to the taxpayer. Consequently, in practice, the taxpayer should classify itself. In the event of doubt, he may make an appropriate request to the Statistical Office.
This position is confirmed by a communication from the President of the Central Statistical Office of 24 January 2005 on the procedure for providing information on classification standards. According to this communication:
„(…) the principle is that the entity concerned classifies the activities carried out, its products (products and services), goods, fixed assets and construction works in accordance with the rules laid down in the various classifications and nomenclatures, introduced by regulations of the Council of Ministers or applied directly under European Community legislation.
Where it is difficult to determine the correct grouping: the type of activity, product or service carried out, goods, fixed assets or construction works, according to:
- - Polish Activity Classification (PKD),
- - Polish Classification of Products and Services (PKWiU),
- - the combined nomenclature for foreign trade in goods (CN),
- - Classification of Persistent Measures (STC),
- - Polish Construction Object Classification (POB)
The interested party may apply to the Statistical Office in Łódź ul. Suwalska 29, 93-176 A boat which provides information on the application of the classification standards set above.’
In conclusion, it can be concluded that the transfer of the risk of misclassification of goods, services, fixed assets or construction works to the taxpayer by tax authorities is unacceptable, as the administrative courts have rightly pointed out.
The authorities should focus on the full tax consequences that concern the taxpayer in his case. In the event of an authority having problems with making the appropriate classification for tax purposes, it should report to the statistical office with an explanation of doubts.
Public authorities should cooperate to clarify the matter. The implementation of this principle is expressed, for example, in Article 7b Code of Administrative Procedure, which is true for administrative proceedings or more generally in the preamble of the Constitution of the Republic of Poland.
About the author: Mateusz Krawczyński, junior tax consultant in Russell Bedford Poland. Graduated from bachelor's degree in Logistics and Master's degree in Finance and Accounting. He is currently studying law at the Łazarski University. Previous professional experience in one of the so-called Big Four companies. He specializes in tax on goods and services, in particular with regard to VAT settlements in local government units.