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Payments under rent guarantee and the issue of VAT

On 29 December 2017 the Head of the National Revenue Information (hereinafter: NRI) issued an individual ruling on payments made under a guarantee for a property owner to generate a predetermined amount of operating income (0114-KDIP1-3.4012.372.2017.2.MT). In the ruling the authority deemed such transactions not to be subject to VAT.

In the description of the factual state of affairs the property owner (hereinafter: the Petitioner) indicated that he had concluded a contingent rent guarantee agreement with a former shareholder. Pursuant to the contract, the former shareholder undertook to pay a sum of money should a lease agreement entered into by the Petitioner expire and the relevant part of the property prove impossible to lease again. The amount to be paid was calculated on the basis of rental and maintenance fees relating to the parts of the property leased (hereinafter: Fees). The rental fees were to be annually indexed while maintenance fees were to be settled following the end of each calendar year. In addition, the fees were to be duly owed to the property owner until finding tenants for the part of the property that had not been let.

Furthermore, as provided by the rental guarantee agreement, the former shareholder was entitled to suggest new tenants whose profile was stipulated in the contract. Should a new tenant and the property owner finalize a transaction, the former shareholder was to be exempt from rental and maintenance fees relating to the newly-leased parts of the property.

The Petitioner enquired whether the Fees that were to be paid to him by the former shareholder would be subject to VAT.

In his individual ruling, The Head of the NRI concurred with the position taken by the property owner, according to which payment of the Fees was not subject to VAT as it was not a form of remuneration for any kind of service provided by the Petitioner (absence of obligation to perform a service or to refrain from performing certain activities or to tolerate certain activities or situations). Instead it was a form of indemnification (compensatory in nature).

The individual ruling in question seems to be in line with the established jurisprudence on the issue (IPPP3/443-431/14-2/IG of 2014, 1462-IPPP3.4512.838.2016.1.JŻ of 2016,  0114- KDIP1 – 1.4012.92.2017.1.RR of2017).

It is also worth noting that that a rental guarantee agreement can be concluded between entities performing purchase and sale transactions related to properties with the same legal and tax consequences. The primary purpose of concluding agreements containing such provisions is usually to compensate for the Buyers’ shortfall in income which has arisen due to unleased spaces, rent-free periods or periods of reduced rent applicable as of the day of executing an ownership transfer agreement.

In light of the rationale behind the ruling, payments made under rental guarantee agreements are not classified as provision of services according to the VAT ACT, as they are not a form of remuneration for any service performed for the payer by the property owner. The payments are only to indemnify the property owner for uncollected payments for unleased spaces.

Monika Smaga
Senior tax specialist

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