NEWSLETTER. May Household appliances with turnkey apartment with no right for tax preference 2

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1 NEWSLETTER May 2016 Table of content TOPICS OF THE MONTH 2 Household appliances with turnkey apartment with no right for tax preference 2 Early termination of the contract at the request of the customer is considered as a service for VAT purposes 3 The Minister of Finance General Ruling concerning the moment of tax point obligation arising in the case of construction and construction-assembling services. 4 RECENT TAX RULINGS 5 Costs of fuel for company s cars used by employees for private purposes is tax deductible 5 CSR s improve the positive image of the company 6 The consignment stock may only be carried out by the acquirer of goods 6 Utilities charged separately from the rent 6 Disclaimer 6

2 Topics of the month Household appliances with turnkey apartment with no right for tax preference According to the judgment of the Administrative Court in Gdańsk of 9 th March 2016 file I SA/Gd 45/16, the supply of household appliances even if they are build-in destined, may not exercise for reduced 8% VAT rate, because household appliances cannot be treated as permanent structural element of building construction. The case regarded to taxpayer s question to the tax office concerning applicability reduced VAT rate from turnkey refurbish apartment services (e.g painting of walls, tiling, designing produce and suppling build-in furniture and household appliances) on the basis of Article 41(12) of VAT Act (Journal of Laws from 2011, No. 177, item 1054, as amended, hereinafter: VAT Act) in which taxpayer applies 8% VAT rate for e.g building, refurbishing, modernization or rebuilding building objects or theirs parts included to Social Housing Program. According to the tax ruling as modernization - taxed 8% VAT rate, the following services should be treated: tiling, painting of walls, interior doors, lighting and fitting installation. In the justification tax authority claimed, that the above mentioned parts of house equipment meet the definition of apartment component parts, and any disengagement one of them may cause damage or relevant modification of all construction (apartment) or will cause damage or modification excluded part. Court in Gdańsk went step further than tax authority and pronounced that enunciated activities of producing build-in furniture for kitchen or bathroom, meet definition of modernization of building object or theirs parts and with respect to those activities taxpayer is able to apply reduced 8% VAT rate providing that installation of furniture parts is performed by the use of structural elements of building. On the other hand in the same judgment Administrative Court confirmed that supply and installation of household appliances (fridge, washer, washing machine or oven) cannot be treated as modernization, because replacement of damage of old household appliances, even if are build-in, is possible without constructional modification in a building. 2

3 Arguments used in the above described judgment are in line with current uniform ruling, which began with Supreme Administrative Court resolution from 24th June 2013 (I FPS 2/13). In accordance with SAC judgment, on 31st March 2014 Minister of Finance issued general tax ruling regarding permanent build-in furniture. (PT10/033/5/133/WLI/14/RD30577). To sum up, taxpayer is able to treat as modernization which means right to apply 8% VAT rate, all scope of works inside buildings or theirs parts included to Social Housing Program only if installation of particular parts - eg. build-in furniture, doors or floor panels, with constructional parts of the building is activity interfering in the construction of the building in that way that there is not possible to disassembly these parts with no damage of components or building construction. In the result, installation of elements to which will not be used in significant way constructional part of a building, cannot apply reduce VAT rate described in Article 43(12) VAT Act. For this reason supply and installation of household appliances although permanent connection with a build-in furniture is not meeting above mentioned condition, consequently taxpayer has no right to apply 8% VAT rate. Early termination of the contract at the request of the customer is considered as a service for VAT purposes Termination of the contract by mutual consent of the both parties, constitutes a service and, consequently, is subject to VAT. Yet, a fee for unilateral termination of the agreement is treated as compensation and as such is not subject to VAT. The above was confirmed by the Director of the Tax Chamber in Warsaw in individual tax ruling issued on 10 March 2016 No. IPPP1 / / 15-2 / BS. Applying for a ruling taxpayer explained that he operates in the field of rent and leasing cars, and so called care for cars. As a part of his business the taxpayer acquired cars, resold them or let them on the basis of lease or other agreements of a similar nature. Besides the above also the various fees were collected from customers, including the one concerning earlier termination of the contract. In view of doubts about the nature of charged fees the taxpayer applied to the Tax Chamber Director with two questions. The first concerned the question whether the fee for early termination at the request of the customer will be subject to VAT, and should be documented with a VAT invoice. The second one concerned early termination of the contract resulting from the client's fault. 3

4 Referring to the first question, the Director of the Tax Chamber in Warsaw stated that in the described situation, the provisions of services within the meaning of the VAT Act are fulfilled and therefore the fee charged should be documented with a VAT invoice. The ruling indicated that such compensation is not an indemnity and it is understood as remuneration for executing a service for a consent to the early termination of the contract. In such case, the receipt of payment from the customer, presents a direct relationship between the receiving payment and performing services on the basis of the casual nature of the action. In answer to the second question, it was found that the early termination by the entrepreneur due to the fault of the customer shall not constitute the provision of services and as such is not subject to VAT. In this case there is no service, and only compensation is paid for losses due to improper performance of the contract. Summarizing, it should be noted that in such cases, in each individual case, the reasons for which the termination occurred have to be analyzed. This allows to determine whether early termination of the contract is subject to VAT or not. The Minister of Finance General Ruling concerning the moment of tax point obligation arising in the case of construction and construction-assembling services. The moment of the tax obligation in the field of construction and constructionassembling services was extensively regulated by legislator ie. it was linked with the date of issuing the invoice. However, in order to recognize tax liability in a date of issuing invoice the entrepreneur was obligated to issues an invoice in a certain period ie. within 30 days from the date of rendering the service. Issuing invoice after the specified deadline or failing in issuing the invoice effected of imposing on the taxpayer bond to recognize the tax obligation on the 30th day from the date of providing a service. This means that for proper determination of the tax obligation arising on the seller who renders services it is important to determine the actual date of executing services. The Act on tax on goods and services does not contain a definition of 'services'. It is assumed that the service is considered to be executed, when service provider complete all the activities specified for the purposes of service. When it comes to the construction services essentially as the subject of contract: rendering services in accordance with the good building practice and preparation of the required technical documentation are being considered. In the terms of technical 4

5 documentation as a one of the element of the actions the work acceptance certificates [partial/final] are understood. They are regulated by the construction law. Work acceptance certificate or any other documents confirming that the services were provided, endorse commission of constructing work. Taking the above into consideration, for the VAT purpose, the common practice was to assume that the date of providing services equals to a date of signing the work acceptance certificate. Such approach was generally accepted by tax authorities. On 1 April 2016, general ruling concerning the tax point in case of construction services was released [No. PT AEW.2016.AMT.141], in which the Minister of Finance pointed out that in order to determine the tax point in case of construction services - signing the work acceptance certificate does not matter. Therefore as a date of providing service the date of actual completion of the works should be considered date in which the services were either partially or entirely completed in accordance with contractual provisions ie. works were finished and the service provider reported them to the receipt [in the opinion of the contractor, service or part of it was ready for acceptance by the buyer of the services]. The approach presented by the Minister of Finance in the interpretation once again complicate the settlement of VAT. Taking into the account the commonly used practice is to perform at least one month, or even longer-term verifications and controls and thereby approve physically completed works, it can lead to delays in invoicing, notorious adjustments of the declaration and payment of default interest. Recent tax rulings Costs of fuel for company s cars used by employees for private purposes is tax deductible Administrative Court in Warsaw stated that the employers are not obliged to withheld PIT on the value of fuel used in company s cars used by employees for private purposes. The lump sum of employee s revenue related to private use of company s cars includes costs of fuel. It results in the second issue the question is whether in such a situation, costs of fuel may by tax deductible for the employer s company. Similarly, whether other costs related to the car s usage for private purposes and financed by the employer may be tax deductible. This issue may trigger potential disputes with tax authorities. 5

6 CSR s improve the positive image of the company A company which involves in CSR programs related to health care may expense particular costs, e.g. rent for lease of sport infrastructure and coaches fees tax ruling issued by the Director of Tax Chamber in Katowice, file IBPB-1-3/ /16/TS. In the view of the tax authority CSR programs aimed at improving relationship with the local society may result in increased revenue of the company. The consignment stock may only be carried out by the acquirer of goods If the supplier rents premises from the logistic company, it does not result in having a consignment stock prescribed in the Polish VAT Act ruling issued by the Director of the Tax Chamber in Katowice on 17 th March (file IBPP4/ /16/EK). The tax authority stated that the definition provided by the Polish VAT Act is similar to the one of call-off stock, which may only be carried out by the acquirer of goods, not the supplier or the third entity. Utilities charged separately from the rent A tax environment of the taxpayers recharging costs of utilities to the lessees is becoming clear. A part of such a recharge may be taxed with the lower VAT rate. After the verdict of the Court of Justice of the European Union as well as the Polish administrative courts, tax authorities have started to approve such an approach. One of the examples is the ruling issued by the Director of the Tax Chamber in Łódź, file IPTPP1/ /15-4/ŻR. Disclaimer KR Group reserves that the presented newsletter cannot be considered for tax or legal advisory services. 6

7 KR Group is an independent, fast-growing accounting and auditing group with an international reach. Our head office is located in Warsaw. For over sixteen years we have been providing professional services in accounting, tax, audit, legal advice, payroll and human resources. At present, we have over 120 staff in the team. Our managers have gained experience in the major accounting and consulting firms. Currently, we work with international clients that are the leading players in their industries, such as real estate, retail, manufacturing, investment funds, IT, gas exploration and extraction, automotive, FMCG, in Poland and Central and Eastern Europe. We strive to ensure that our work is permeated each day with trust, understanding and a spirit of partnership. Therefore, if you are planning to start a business in Poland, or in one of the countries in the region, we can help with the complex registration procedures, or assist in acquiring an existing company. This means that you can instead focus from the very outset on managing your business. We understand the requirements of a modern business. We are here to help. Try us out! OUR OFFICES WARSAW OFFICE ul. Skaryszewska Warszawa, Polska office@krgroup.pl Tel.: (+48) Fax: (+48) GDANSK OFFICE Al. Grunwaldzka Gdańsk, Polska office@krgroup.pl Tel.: (+48) Fax: (+48)