Recognition as tax deductible costs depreciation write-offs regarding real estate which is not a fixed asset
On April 25, 2022 the Head of the National Revenue Information Service (hereinafter: the KIS Head) issued a private tax ruling, ref. no. 0111-KDIB1-1.4010.107.2022.2.MF, concerning the possibility for real estate companies of inclusion in tax deductible costs real-estate depreciation write-offs.
In the case in question, the company, being a real estate company within the meaning of the CIT Act, considered the real estate in its possession as an investment property. For balance-sheet purposes, therefore, the real estate did not constitute a fixed asset, and, consequently, the company did not make any depreciation write-offs with respect to it. Nevertheless, the situation seemed different in light of tax regulations. Pursuant to the CIT Act, the company treated the real estate held as a fixed asset and made depreciation deductions accordingly, which it recognised as tax deductible costs.
Following the amendment to the legislation introduced by the Act amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts of October 29, 2021 (hereinafter: the "Polish Deal"), the company became doubtful whether, from January 1, 2022 on, it would still be entitled to recognise as a deductible cost the depreciation write-offs in relation to its real estate.
For the Polish Deal, amended the wording of Art. 15 (6) of the CIT Act. Under that provision, as of the beginning of 2022, the amount of depreciation write-offs made by real estate companies with respect to their real estate for tax purposes may not be higher than the amount of write-offs made with respect of such real estate for balance-sheet purposes.
The Company was of the opinion that the restriction in question would not apply to it, because if the real estate is not recognised as a fixed asset on the balance sheet, the provision does not apply.
The KIS Head, nonetheless, challenged the company's position, stating that if a company fails to make depreciation write-downs on its real estate under the Accounting Act, their value is zero and, as a result, the company is not entitled to recognise deductible costs on account of depreciation write-downs made under the CIT Act in any part.
The decision of the tax authority may prove very unfavourable both for the applicant company in the case and for many other real estate companies, as due to the fact that they will not be able to recognise tax depreciation write-offs on their real estate as tax deductible costs, as a rule they will be forced to settle their CIT liability not on the net income obtained, but on the gross revenue.
Natalia Szymocha, Tax Consultant, ATA Tax Sp. z o.o.
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