Legal grounds

Under Art. 27 (1e) of the Corporate Income Tax Act, real-estate companies and taxpayers holding, whether directly or indirectly, shares (stock) in a real-estate company entitling to a minimum of 5% voting rights or totality of rights and obligations entitling to a minimum of 5% of profit in an partnership not being a legal entity, or a minimum of 5% of the total number of participation titles or rights of similar nature are required to submit to the Head of National Revenue Administration, by the end of the third month following the end of a real-estate company’s fiscal year, or - where a real-estate company is not a CIT payer - by the end of the third month following the end of the real-estate partnership’s financial year, the following information:

• on entities holding in that company, whether directly or indirectly,  shares, totality of rights and obligations, participation titles or rights of similar nature, together with the number of such right held by each – where such information is provided by real-estate companies,
• on the number of shares, totality of rights and obligations, participation titles or rights of similar nature held, whether directly or indirectly,  in such real-estate company – where such information is submitted by taxpayers being members of real-estate companies

- as at the last day of the real estate company’s fiscal year, or - where a real-estate partnership is not a CIT payer – as at the end of its financial year.

Analogous regulations have been introduced to the Personal Income Tax Act.

The background to the problem

The specification of entities required to report the information on ownership structure gives rise to a number of doubts. Upon a literal construction of the provisions in question, real-estate companies are required to report every entity which holds, even if indirectly, any share in a real-estate company. An obligation so understood may be difficult to comply with in practice. Entities holding ownership titles in real-estate companies often include companies with foreign capital, individual investors and listed companies with a dispersed ownership structure. Consequently, real-estate companies may not have all the data necessary to produce such reports.

Another doubt concerns the determination of entities exceeding a 5% share in the rights in a real-estate company which are required to submit the reports. The provision in questions uses the term ‘taxpayer’, which may be interpreted narrowly – as payer of an income tax, or broadly – as every entity having, directly or indirectly, a 5% share, including non-residents.

Official construction by representatives of the Ministry of Finance

According to the reasons for the Regulation of the Minister of Finance on the submission of reports concerning real-estate companies with respect to corporate income tax of 8 April 2022, the legislator’s intention was for real-estate companies to only report information on entities which hold a minimum of 5% shares in a real-estate company.

The reasons state, inter alia, that: “Under Art. 27 (1e) of the Corporate Income Tax Act, real-estate companies are required to submit information on entities holding, whether directly or indirectly, shares (stock) in such real-estate company entitling to a minimum of 5% voting rights or totality of rights and obligations entitling to a minimum of 5% of profit in an partnership not being a legal entity, or a minimum of 5% of the total number of participation titles or rights of similar nature, including the numbers of such rights held by each. Whereas taxpayers holding rights in real-estate companies are required to submit information on the numbers of shares held, whether directly or indirectly, in a real-estate company entitling them to a minimum of 5% voting rights or totality of rights and obligations entitling to a minimum of 5% of profit in an partnership not being a legal entity, or a minimum of 5% of the total number of participation titles or rights of similar nature.”

A similar position was presented in a response of the Head of Income Tax Department, Jan Szatański, acting on behalf of the Minister of Finance, to a petition concerning reporting requirements of real-estate companies (case no. DD5. 056. 1. 2022). According to that document: “An assumption for the norm in question was that the information be only reported by the entities in which taxpayers holding, directly or indirectly, a minimum of 5% rights in a real-estate company. (...) By taxpayer required to report the information one should understand an entity (regardless of its legal form) which is subject to an obligation in corporate or personal income tax on account of a sale of the rights held in a real-estate company.”

According to the official construction by representatives of the Ministry of Finance:

• the reports submitted by real-estate companies must only disclose the entities which hold, directly or indirectly, 5% rights in the company,
• a real-estate company is required to submit information on entities, including taxpayers,
• by taxpayer required to submit reports one should understand an entity that is subject to a tax obligation on account of disposal of its rights in a real-estate company.

The interpretation by the Ministry of Finance does not seem to be borne out by the literal wording of the provisions in questions, which undoubtedly need to be made more precise. Works are currently underway on the development of a logical structure for submission of the reports and on appointing the authorities responsible for collecting and processing the documents. The first large-scale ownership structure reporting action will take place by 30 September 2022.

It remains to be hoped that the numerous practical problems relating to the reporting requirement will have been solved by then.

Katarzyna Czerwińska-Sabała, Tax Consultant, ATA Tax Sp. z o.o.

Interested in the subject?

katarzyna.czerwinska-sabala@atatax.pl