skip to Main Content

Newsletter KR Group 05/2017

In this edition:




The extensive specialization in today’s economy means that subcontractors are used for providing many services. These costs are often passed on directly to the service recipient. For VAT purposes, this is known as re-invoicing.

Under Art. 8(2a) of the Polish VAT Act, if a VAT payer acting on its own account but on behalf of a third party takes part in the performance of services, it is assumed that the taxpayer itself has both received and rendered the service.

For this reason, since the VAT Act was amended effective 1 January 2017 to introduce the reverse-charge mechanism for certain construction services (listed in Annex 14 to the VAT Act), many doubts have arisen surrounding the issue of re-invoicing of these services. Under the amendment, the reverse-charge mechanism will apply if (i) the service is listed in Annex 14 and (ii) the service is performed by a subcontractor.

Under the new rules, the general contractor charges the investor VAT on the general contractor’s services according to the standard VAT scheme, but for services rendered to the general contractor by a subcontractor, VAT is settled by the general contractor under the reverse-charge mechanism. This mechanism may be illustrated as follows:

General rulesReverse charge
General rulesReverse charge


In connection with these newly introduced regulations, doubts arose when a construction service was received by the investor from the general contractor and then re-invoiced (e.g. to tenants occupying units in the investor’s building). The problem was whether due to the re-invoicing, the investor loses that status and enters into the role of the general contractor, and the general contractor becomes a subcontractor. The regulations in the VAT Act do not expressly resolve this issue, and neither did a general interpretation released by the Ministry of Finance.

However, looked at the from the perspective of the overall VAT regulations governing re-invoicing of construction services, and the clarifications issued by the Minister of Finance, it should be concluded that the fact that the investor re-invoices construction services to another entity does cause the investor to assume the role of a general contractor.

As stated in the explanations issued by the Minister of Finance, a “subcontractor” should be understood to mean “a firm of individual performing work at the commission of the main contractor.” It is further stated that “if the ‘general/main contractor’ commissions performance of services within its contract with the investor by a further taxpayer, then that taxpayer becomes its subcontractor.”

From this it should be concluded that any re-invoicing of construction services extends the chain of entities performing the contract, and thus increases the number of entities assuming the role of a subcontractor.

Therefore, in the case of re-invoicing of construction services, the entities issuing invoices should be alerted that the services will be re-invoiced and consequently the recipient of the invoice will assume the role of a subcontractor.

Re-invoicing of construction services carries a number of risks. The general contractor may not be aware that the service will be re-invoiced, which could result in erroneous issuance of the invoice, and the investor receiving such an invoice will then be exposed to the risk of being unable to deduct the input VAT under such an erroneously issued invoice. Thus it is vital that early on, at the stage of negotiations between the general contractor and the investor, the parties are kept aware on an ongoing basis (so far as possible) whether the construction services will be re-invoiced, so that all parties to the transaction issue invoices in the correct manner, in compliance with the newly introduced rules.


Under Poland’s Act on Local Taxes and Fees, the subject of real estate tax includes “buildings” and “structures” (important: structures or parts of structures connected with the conduct of business activity). Even though these types of constructions are defined in the act, taxpayers have trouble classifying whether a given construction is a “building” or a “structure.”

This is crucial for determining the tax basis and tax rate, as the basis for real estate tax on structures is their value (the annual tax cannot exceed 2% of their initial value as referred to in income-tax regulations), while the basis for real estate tax on buildings is their surface area, and the tax rate is specified per square metre.

Under the Act on Local Taxes and Fees, a structure (budowla) is a construction that is neither a building nor a minor architectural feature (obiekt małej architektury, such as “street furniture”), while a building (budynek) is a construction that:

  • Is permanently attached to the ground
  • Has foundations and a roof, and
  • Is separated from the area by barriers (przegrody).

The reference to “barriers” presents problems of interpretation. The statutory definition indicates that a building must be separated from the area around it, and the separation must be made using construction barriers. The term “construction barrier” is not defined, but under the principle of linguistic interpretation may be understood to mean an element of a structure separating the interior section from the exterior surroundings. A similar interpretation was adopted by the Supreme Administrative Court in its ruling of 12 April 2011 (Case II FSK 2014/09), where the court held that the walls of a structure should be regarded as the sort of “construction barriers” distinguishing a building from other structures or minor architectural features.

Recently there has been a noticeable departure from a strict linguistic interpretation, leaning toward a functional interpretation. In the judgment of 21 February 2017 (Case II FSK 150/15), the Supreme Administrative Court found that a construction enclosed with fibreglass webbing rather than walls could function as a building. Similarly, the court took the view in the judgment of 11 May 2016 (Case II FSK 1581/15) that the notion of “construction barrier” is not limited to walls, but can also include elements like pillars, posts or columns performing a function similar to walls.

It follows that the wording used in the act does not indicate specific types of materials that must be used, but instead refers to the function performed by construction barriers.
In light of these recent rulings by the Supreme Administrative Court, taxpayers may consider whether constructions treated as “structures” and thus subject to real-estate tax at the annual rate of 2% of their initial value should instead be regarded as “buildings,” taxed more advantageously on the basis of their usable area. An example might be parking garages-constructions in urban areas using webbing, pillars or the like, instead of walls, as construction barriers.


Companies that lease commercial premises often offer various types of abatements and promotions to encourage potential tenants to rent space in their building. One of the incentives landlords offer is to cover all or part of the costs of fit-out works to adapt the space to the tenant’s needs.

During negotiations with tenants, landlords have several options for settling fit-out incentives. Each of the approaches discussed below entails a different treatment for purposes of VAT and corporate income tax.

Under the turnkey approach, the landlord may agree to conduct all of the fit-out work in the premises and then deliver the completed space to the tenant. This generally raises the least doubt concerning the tax treatment. But the landlord must establish which cost category the expenditures fall under, whether improvement of a fixed asset, renovation, or acquisition of a new fixed asset. If the expenditures are treated as improvement of a fixed asset (the building), the costs incurred will be settled by amortization at the rate applicable for the building. If they are treated as a renovation, they should be settled as an indirect cost included within revenue-earning costs. But if the fit-out works are treated as a new fixed asset, the expenditures should be amortized at the rate applicable to the given fixed asset.

Fit-out can also be settled in the form of a lump sum paid by the tenant. This situation occurs if the landlord conducts all of the necessary fit-out works and the tenant agrees to pay a fee covering a portion of the costs. From a tax point of view, costs incurred in conducting the fit-out works will increase the basis of the fixed asset (the building), but the amortization deductions corresponding to the amount of the fee paid by the tenant will not constitute a tax cost for the landlord. The costs that are reimbursed in the fee paid by the tenant should be treated as the landlord’s income not subject to corporate income tax (Art. 12(4)(6a) of the CIT Act). This method of settlement was confirmed in an interpretation issued by the director of the Katowice Tax Chamber on 29 December 2014 (no. IBPBI/1/423-33/14/ZK).

Fit-out works can also be conducted by the tenant. In that case, the landlord may agree to reimburse a portion of the tenant’s costs or have an option to buy out a portion of the costs. In the former situation, the landlord should recognize the expense as a revenue-earning cost and deduct it in full on the date the cost is incurred. But if the landlord buys out the costs incurred by the tenant, it should recognize the cost as an increase in the basis of the fixed asset (the building) or book it as a new fixed asset. Then the cost will be settled through amortization deductions in the amount appropriate to that fixed asset.


After a wave of rulings against taxpayers (in Supreme Administrative Court cases I FSK 1298/14, 19.11.2015, and I FSK 1338/15, 17.02. 2017; Warsaw Administrative Court, III SA/Wa 2118/15, 14.09.2016), light has again appeared at the end of the tunnel in the ruling by the Gliwice Administrative Court of 23 March 2017 (Case III SA/Gl 1411/16).

According to the Gliwice ruling, taxpayers can correct the taxable amount and output VAT to reflect the amount of uncollectible receivables after more than two years, as the panel of judges found that Poland’s two-year limitation on taking relief for bad debts violates European Union law.

Under Art. 89a(2)(5) of the Polish VAT Act, the taxpayer may claim relief for bad debt when (among other conditions) less than two years has passed since the end of the year in which the invoice issuing the uncollectible receivable was issued.

Under Art. 90 of the EU’s VAT Directive (2006/112/EC), “In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.” And under Art. 273 of the VAT Directive, “Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion.” However, these provisions are interpreted by the Court of Justice (C 337/13 Almos Agrárkülkereskedelmi; Joined Cases C 80/11 Mahagében and C 142/11 Dávid) to mean that additional obligations imposed by the member states must not be excessively restrictive or formal, or go further than is necessary to attain the objectives identified in the directive.

Consequently, taxpayers planning to correct the taxable amount for VAT purposes and their output VAT to reflect uncollectible receivables after the end of the two-year period provided for in the Polish VAT Act should rely directly on the VAT Directive.

In short, this is yet another ruling, alongside the judgment by the Wrocław Administrative Court (Case I SA/Wr 2484/14), holding the provisions of the Polish VAT Act on bad-debt relief to be too restrictive. As we write, the judgment is not yet legally final.

Back To Top