On 11 December 2018 the Polish Ministry of Finance published the much-awaited guidelines on the VAT treatment of supply of commercial real estate.

The guidelines seek to increase legal certainty for VAT taxpayers by reducing the risk of VAT settlements being challenged by the tax authorities. Under Polish tax regulations, acting in line with official tax guidelines affords the same level of protection as acting in compliance with individual tax rulings.

Dentons is proud to say that it actively took part in the Ministry of Finance's formal consultations on the guidelines as they were drawn up. We supported the Ministry of Finance with our market knowledge and tax expertise during the formal consultation process. Many aspects and issues raised by us are reflected in the guidelines.

The guidelines point out that generally the sale of commercial real estate constitutes a supply of goods subject to VAT and only in exceptional circumstances are such transactions not subject to VAT, i.e., if the conditions are met for classifying commercial real estate (being the subject of the transaction) as an enterprise or an organized part of an enterprise. When assessing whether a given transaction should be considered as sale of an enterprise or sale of 'an organized part of an enterprise' (a standalone division), the following circumstances should be taken into account:

  1. the intention of the buyer to continue the activities carried out to date by the seller using the assets being the subject of the transaction, and
  2. the actual possibility of continuing this activity based on the components being the subject of the transaction.

This assessment should be made at the time of the transaction. This means that if the buyer intending to continue the existing business of the seller must engage other assets that are not transferred by the seller or must take additional actions, it is impossible to state that the transaction may be classified as sale of an enterprise or an organized part of an enterprise.

The guidelines clarify that in order to determine whether the set of components transferred to the buyer allows the buyer to continue the existing business of the seller, it should be determined whether in addition to the transfer of standard elements typical for real estate transactions subject to VAT all the following elements are transferred to the buyer:

  • rights and obligations under the agreements on the basis of which the seller obtained financing for the implementation, acquisition, modernization, adaptation or reconstruction of the transferred real estate, if the seller has used such financing and is a party to such agreements;
  • property management agreement;
  • asset management agreements;
  • cash receivables related to the transferred assets.

This means that under the guidelines, the vast majority of new deals should be considered as subject to VAT.

For further clarification, the Ministry presents some practical examples of applicability of the guidelines to transactions involving real estate.

The guidelines point out that the criteria for classifying transactions for VAT purposes set out in these guidelines may also be applied in an instructive manner to transactions that took place before the guidelines were issued.

The guidelines also point out that they do not call into question the protection resulting from taxpayers' compliance with tax rulings obtained prior to the issuance of these guidelines. This could therefore be interpreted, a contrario, that tax rulings issued after 10 December 2018 which are contrary to the guidelines will not protect taxpayers. Such an interpretation, however, is incorrect, because the guidelines generally may not prevail over protection resulting from an individual ruling. Still, such situations should be analyzed on a case-by-case basis.

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