While it is clear that this change affects the settlement of real estate tax, since the Act on Local Taxes and Fees (Ustawa o.o.l.) refers to the Construction Law Act, it is less clear what scale of tax consequences we can expect as a result of these modifications.

Until 28 June this year, the description of the construction work in the U.S.p.o.l. assumed that it is:

-building with installations and technical equipment,

-a structure constituting a technical-utility whole together with installations and technical equipment,

-a small architectural object.

According to this definition, real estate tax until June 28th was calculated on the basis of the area occupied by the object. On the other hand, technical equipment and installations located inside the building were not subject to taxation separate from the building. Only construction equipment not forming part of the building, i.e. those outside the building, was subject to it, including, for example, equipment for the collection and treatment of waste water.

New definition - new rules

According to the definition contained in the amended act, a building should be understood as a building, structure or small architectural object, together with installations ensuring the possibility of using the object in accordance with its intended use, erected with the use of construction products.

What's changed?

-technical devices are excluded from the definition of a construction work,

-the installations used must ensure that the building can be used for its intended purpose,

construction works must be created using so-called 'construction products'.

Due to the fact that construction equipment and installations are not part of buildings or structures, potentially since the introduction of the amendment, also those located inside the building or structures may be considered as subject to property tax. This includes, for example, industrial furnaces and boilers, production facilities, water supply systems, transformers and a computer for servicing technical networks. If, in the light of the new regulations, these devices and installations are classified as separate structures, then, assuming that their value may reach millions of zlotys, the amount of real estate tax charges may be significant / critical, especially for the owners of industrial assets.

Currently, despite the Ministry of Finance's assurances that the change in the definition of a construction object will not mean additional taxation of installations and equipment, it is difficult to determine how the new regulations will ultimately be interpreted by tax authorities and what jurisprudence of administrative courts will be adopted in this respect. Until then, the line of the Ministry of Finance should be treated as an exponential one.

Proper interpretation

Apart from the ambiguity of tax consequences resulting from the change in the definition of a construction work, the issue of including only those construction works which were built with the use of construction products is also problematic. The interpretation of the term "construction products", which does not appear in the act in question, is disputed here.

The Construction Law Act refers to Regulation (EU) No. 305/2011 of the European Parliament and of the Council on harmonised conditions for the marketing of construction products. Article 2 contained therein, for the purposes of the Regulation itself, provides, inter alia, a definition of 'construction product'. However, it is not clear whether this term can be treated as binding for the purposes of the Real Estate Tax Act. The explanations provided in this respect are not of a general interpretation nature and only partially resolve this ambiguity.

According to the justification of the Ministry of Finance, it is still possible to erect construction works using materials other than construction products. What is important in this case is that the work has been erected using construction products, which means that it is permissible to use different types of materials at the same time.

There is a risk of changes

As long as the interpretation of the new regulations remains ambiguous, there is a risk of increasing tax liabilities. First, at the level resulting from the change in the definition of a construction work, the separate taxation of installations which do not ensure that the work can be used for its intended purpose. As u.p.o.l. stresses, the value of the property tax may reach as much as 2%. However, what installations are concerned exactly and whether they may include technical equipment still requires interpretation by the tax authorities.

Secondly, the level of exclusion of technical equipment from the definition of a work. The new rules provide that only parts of the rules (e.g. industrial furnaces and wind turbines) and foundations for machinery and equipment should be recognised as meeting the new definition. It is therefore difficult to clearly identify the appropriate way to tax them, even if they are located inside the construction work.

Economic consequences

The position of experts on the consequences of the amendment is very polarised. Some believe that it may have a direct impact on increasing tax liabilities, while others, citing the justification of the Ministry of Finance, reassure that such changes are not possible. Regardless of the final shape of the interpretative line of the tax authorities, it should be ensured that the presence and functions of the installation in the building structure are justified as precisely as possible. This will prevent them from being taxed separately.

The chances for at least a partial explanation of the concerns of both experts and taxpayers can be seen in the subsequent changes announced by the Ministry of Finance. They are to concern the taxation of real estate tax on buildings by separating them from the construction law regulations. What can the taxpayers expect? It remains to be hoped that subsequent amendments will effectively resolve the ambiguities that have arisen so far, while maintaining their transparency so as not to cause interpretation gaps at other levels.

Author: Paweł Jabłonowski, a licensed tax advisor to Professional Services, has been providing legal and tax services to entrepreneurs for over a dozen years. He specializes in the implementation of tax planning projects and assessment of consequences resulting from legal and factual actions taken on the grounds of all taxes in force in Poland.