Tax Alert: General ruling on disclosure obligation of real estate companies

The Act of 28 November 2020 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Act on Flat-Rate Income Tax on Certain Revenues Generated by Natural Persons and certain other acts brought a raft of sealing amendments to facilitate, inter alia, pursuit of tax claims in the case of income from the sale of shares in real estate companies by non-residents. Such transactions are difficult to detect and even if finally identified, the recovery process is a long and strenuous one.

To improve the process of recovering taxes from non-residents, pursuant to the amended provisions of Article 27(1e) of the CIT Act and Article 45(3f) of the PIT Act, in force as of 01 January 2021, real estate companies are now obliged to provide the Head of the National Revenue Administration (NRA) by the end of the third month after the end of the taxable year, and if the real estate company is not an income tax payer - by the end of the third month after the end of the financial year, information on entities holding, directly or indirectly, shares, all rights and obligations, units and similar rights in the real property company, as at the last day of the taxable or financial year, respectively. Moreover, in tax groups, the disclosure obligation rests with each and every real estate company being part thereof. Finally, the obligation must also be performed by taxpayers holding, directly or indirectly, shares or rights in real estate companies.

The content of Article 27(1e) of the CIT Act and Article 45(3f) of the PIT Act brings important interpretation doubts as to which entities exactly are obliged to provide the Head of NRA with relevant information. In particular, doubts arise as to whether the disclosure obligation is triggered solely by the fact of holding shares or other interest in a real estate company, or whether the entity must be also subject to tax obligation in Poland for any reason in the taxable year to which the information relates.

To resolve the interpretation doubts related to Article 27(1e) of the CIT Act and Article 45(3f) of the PIT Act, the Minister of Finance stated, inter alia, that entities holding rights in real estate companies had to provide information on the number of shares held, directly or indirectly, all rights and obligations, units and similar rights therein. The disclosure obligation rests both with Polish tax residents and non-Polish tax residents, i.e., entities without a place of residence or registered office or place of management in the territory of Poland.

According to the Minister of Finance, a “taxpayer holding (directly or indirectly) rights in a real estate company” shall be understood as:

1. partner of a real estate company belonging to one of the categories of entities listed in Article 1 of the CIT Act,
2. entity listed in Article 1 of the CIT Act, holding rights in a real estate company indirectly, where the said rights are exercised by a partner or subsequent entities, i.e., fiscally transparent entities.
3. partner of a real estate company being a natural person or an inherited business,
4. natural person or an inherited business holding rights in a real estate company indirectly, where the said rights are exercised by a partner or subsequent entities, i.e., fiscally transparent entities.

In the context of the minimum threshold of rights (shares, participation titles or other rights) of 5%, the Minister of Finance explained that in order to calculate it, the rights held in a real estate company indirectly should be added to the rights held directly.

Importantly, the disclosure obligation of taxpayers holding rights in real estate companies arises regardless of whether in the given taxable year, at the end of which the information is provided, any revenue (income) on this account was earned. This category covers:

1. legal persons, companies in the process of formation, organizational units without legal personality, with the exceptions indicated in the act; limited partnerships and limited joint-stock partnerships having their registered office or a place of management in the territory of the Republic of Poland;
2. general partnerships having their registered office or a place of management in the territory of the Republic of Poland, if partnered not exclusively by natural persons and where the general partnership does not submit a declaration on partners within the stipulated deadline;
3. entities without legal personality having their registered office or a place of management outside Poland, if, in accordance with the tax law of that other state, they are treated as legal persons and are subject to taxation in that state on their worldwide income, regardless of the place it is earned.

The Minister of Finance also noted that the disclosure obligation incumbent on taxpayers holding rights in real estate companies does not cover CIT-exempt taxpayers, referred to in Article 6 of the CIT Act. This is because entities covered by a subjective exemption enjoy it regardless of the type and amount of the profit earned. Consequently, since a taxpayer under subjective exemption is not burdened with any kind of corporate income tax liability, imposing the disclosure obligation in line with Article 27(1e) of the CIT Act on a partner of a real estate company, who is such a taxpayer, would be inadequate to the purpose of this provision indicated at the outset. At the same time, however, given the purpose of the interpreted provision, the exemption finds no application to the real estate company itself.

The general ruling leaves no doubt as to the scope of disclosure in real estate companies. According to the explanations provided, real estate companies must disclose information on: (i) entities holding, directly or indirectly, shares in that real estate company or all rights and obligations, participation units or similar rights, which entitle to at least 5% of voting rights in the company or all rights and obligations giving at least a 5% share in the profit of the company, which is not a legal person, or at least 5% of the total number of participation units or rights of similar kind and (ii) the number of participation rights held by entities listed in (i).

Given the fact that the Minister of Finance defines a “taxpayer holding (directly or indirectly) rights in a real estate company” by directly referring to entities under disclosure obligation because of the shares held in a real estate company, the question remains which entities should be indicated by the real estate company in the report it submits. On the one hand, one may assume that since the explanations regarding a “taxpayer holding (directly or indirectly) rights in a real estate company” refer directly to disclosure obligation incumbent on the broadly perceived category of partners of a real estate company and, at the same time, the disclosure obligation of real estate companies, according to the ruling issued, refers directly to “entities” and not “taxpayers” holding, directly or indirectly, rights attached to shares, the information provided by such a real estate should include data on all indirect and direct shareholders of that real estate company (i.e. not only those whose rights are exercised through the so-called fiscally transparent entities).

On the other hand, this can be interpreted that a real estate company should submit reports in a scope similar to/mirroring the reports submitted by its partners, i.e., by indicating only its direct or indirect partners, understood as having rights to this company exercised through a shareholder or other entities, i.e. so-called fiscally transparent entities. This would mean that both reports must have the same scope. 

The Minister of Finance also noted that in tax groups, the reports under Article 27(1e) of the CIT Act must be submitted separately by each company being part of the group.

Interpretacja ogólna Nr DD5.8203.7.2022 Ministra Finansów w sprawie obowiązków informacyjnych spółek nieruchomościowych i podatników posiadających udziały w tych spółkach