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Amendments to the Real Estate Tax Legislation: Significant Changes for Businesses Planned as of 2025

Amendments to the Real Estate Tax Legislation: Significant Changes for Businesses Planned as of 2025

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On 17 June 2024 the Ministry of Finance published a draft law amending the Polish real estate tax (RET) regulations. The amendment is primarily aimed at adjusting Polish RET regulations to last year's verdicts of the Constitutional Tribunal (ref. SK 14/21 and SK 23/19) questioning the constitutionality of the existing regulations and repealing them with effect from the beginning of 2025. However, the proposed changes may also significantly affect the RET burden for entities from a wide range of business industries.

The draft law is currently in the public consultation phase, which will last until 8 July 2024, so the wording of the provisions of the draft under review may still change.

The most important changes include:

1) introduction of a new definition of a structure, according to which structures are:

  • the facilities listed in (new) Annex 4 to the RET Act, as well as installations and devices, provided that they constitute, together with such a facility, a technical and functional entirety,
  • building parts of devices which do not form part of the structures referred to in point a,
  • the building parts of wind and nuclear power plants,
  • foundations for machinery and devices, technically separate from such machinery and devices,
  • connectors to building facilities
    – made with use of construction products.

It is worth mentioning that the cited definition does not include the building parts of photovoltaic power plants.

2) introduction of a catalogue of structures taxed with RET in the annex 4 to the RET Act. The annex lists as structures, among others: containers in the form of silos and other containers intended for the storage of loose, liquid or gaseous materials, container facilities permanently attached to the ground, water pipes, gas pipes, heat pipes and pipelines, power grids, utility networks, power lines and tractions, free-standing technical facilities permanently attached to the ground, underground or above-ground cable ducts and conduits, with the exception of cables installed therein, and other conduits whose characteristic parameter is their length.

3) reinstatement of the "technical-functional entirety" concept. As follows from the aforementioned definition of a structure, installations and devices constituting, with the structures listed in the new annex 4 to the RET Act, a technical and functional entirety are also to be subject to RET taxation. The draft regulation introduces a definition of the technical and functional entirety as "a set of elements that are necessary for the realization of a specific economic purpose, interconnected in such a way that none of them can realize that purpose independently, and the absence of any of these elements makes its realization impossible". The explanatory memorandum to the draft regulation explicitly refers in this context to “transformers, switchgear equipment and battery banks, which may constitute a technical-functional entirety together with the electricity network fulfilling a specific purpose, such as, inter alia, the transmission of energy”.

4) introduction of a definition of "permanent attachment to the ground", i.e., the attachment of a building facility to the ground which ensures its stability and ability to withstand external factors likely to damage it, cause it to move or displace it.

5) introduction of an amended definition of a building: "a facility, including installations ensuring use of the facility for its intended purpose, made with the use of construction products, which is permanently attached to the ground, separated from the space by building partitions and has foundations and a roof, also in the case where it is part of a structure listed in items 1-6 of Annex 4 to the Act".

6) taxation at a reduced RET rate (intended for residential properties) of multi-space garages in residential buildings.

In our opinion, the proposed changes - contrary to earlier announcements made by representatives of the Ministry of Finance (moreover, repeated in the explanatory memorandum to the draft regulation) - will not result in the maintenance of the status quo. On the contrary, the planned amendment to the RET regulations, if adopted, may lead to a significant increase in the RET burden on the part of certain entrepreneurs, including those from both conventional and renewable energy sector. Moreover, although the Constitutional Tribunal has repeatedly emphasized that the RET regulations are unclear and raise several doubts (unequivocally and repeatedly pointing to the urgent need to simplify the rules of RET taxation), the currently proposed amendment does not eliminate these ambiguities or doubts but further multiplies them. Hence, if the proposed amendments enter into force in their current form, further disputes with the tax authorities in this respect are to be expected.

As a general rule, the amended provisions should enter into force on 1 January 2025. We will continuously monitor the progress of work in this regard and submit proposals for changes counteracting the increase in tax risks and tax burden for entrepreneurs.

Taking into account the potential timing of the work on the draft regulation (including at the parliamentary stage), its final shape should be known at the earliest around September 2024, and thus, taxpayers will be left with little time to prepare for the new reality and assess to what extent these changes will affect the current RET settlements.

Thus, we suggest already at this stage to identify the most important changes that may affect your business, estimate their impact on your RET accounts and closely follow the legislative works in this area. It is also worth reviewing the individual tax rulings obtained so far and assessing whether they will continue to protect against RET risks once the planned changes come into force.

By Cezary Przygodzki and Dariusz Stolarek, Partners, Marcin Czajkowski, Counsel, and Lukasz Kopec, Associate, Dentons

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