Tax on revenue from buildings – only arm’s length settlements allow a tax refund
Tax on revenue from buildings (commonly known as the “minimum tax”), was introduced to the Polish CIT Act and PIT Act starting from 1 January 2018. Tax rate amounts monthly to 0,035 % of the buildings’ value used in full or in part for leasing or another agreement of a similar nature. The tax base can be decreased by PLN 10 000 000 in total.
The tax might be deducted from CIT calculated on other sources of income. Taxpayer may also apply for a refund of undeducted tax. Tax authorities are to refund the tax if they do not identify any incorrectness regarding the amount of tax liability, tax loss or the amount of the tax on revenue from buildings itself. In particular, tax authorities verify whether revenues or costs (including debt-financing costs) are arm’s length.
What is important, the legislator does not specify how broadly the verification of arm’s length character should be understood – i.e. whether it only concerns the revenues or costs related to the building or relates also to other intra-group transactions of the taxpayer. The scope of potential exposure is therefore wide, especially if we take into consideration a typical investment practice that owners of the buildings most frequently receive financing from related investors and benefit from a range of intragroup support services.
According to the Ministry of Finance’s standpoint (presented as the justification for the introduced changes), the main goal of the new regulations is to “counteract tax optimization of taxpayers”. Therefore, it can be expected that the refund procedure will be yet one more temptation to use transfer pricing control tools against groups operating in the real estate industry.
Consequently, it would be a good practice to verify and confirm the compliance of intra-group settlements (in particular the financing and other transactions related to buildings which are subject to the new tax) with the arm’s length principle, prior to submitting the application for the tax refund. Even if a taxpayer receives the tax refund without TP verification, a future TP audit may still result in an obligation to pay back the refunded tax together with late interest.
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