The entrepreneur will not always pay more
In the case of a part of a newly constructed building, even one intended for business use, prior to the completion of its construction or the commencement of its use in the absence of meeting the premise of being connected with the conduct of business or occupation for such, this part should be subject to the so-called residual real estate tax rate, writes Rzeczpospolita, describing the NSA ruling.
Paweł Wyporski, tax advisor, senior consultant at Thedy & Partners was asked by the editors to comment on this ruling. He stressed that, in the aforementioned judgment, the NSA admittedly considered a case concerning a liability for 2014, in which – in accordance with the then wording of Article 1a(1)(3) of the Local Taxes and Fees Act – the exclusion from taxation at the highest rate was subject to, inter alia, buildings that could not be used for business activity for technical reasons, but the justification of the judgment is also valid under the current legislation.
This is because the judging panel rightly took into account, referring to the judgment of the Constitutional Tribunal of 24 February 2021, ref. SK 39/19, that entrepreneurs cannot be charged with the highest tax rate only due to the possession of real estate which does not serve them and potentially cannot serve them to conduct business activity.
Although one may argue with the position of the NSA, according to which in the event of commencement of use of a part of a building, the real estate tax obligation arises from the entire building, the court’s breaking the unfavourable for taxpayers line of rulings, according to which the mere fact of possession of a real estate by an entrepreneur is decisive for taxation at the highest rates, deserves approval. In fact, the justification of the judgment indicates that the connection of the real estate in question with the conduct of business activity or its occupation for the purpose of business activity is important. Thus, if the tax authorities, in their proceedings, are unable to demonstrate such a connection, then land and buildings will be subject to the lower rate as for other land and buildings, while structures will not be subject to taxation at all.
The approach presented by the NSA should be appropriately applied not only to the parts of newly constructed buildings which are not connected with conducting business activity or are occupied for business activity, but also to buildings and structures which, for various reasons (inter alia, due to restrictions introduced during the COVID-19 pandemic or their poor technical condition), are not used in any way for conducting business activity and thus, cannot be subject to taxation at the highest rates.
The entire article can be read in Rzeczpospolita of 26 September 2023, page H7