In its judgment dated 04 July 2023 (case file SK 14/21), the Polish Constitutional Tribunal held Article 1a(1)(2) of the Act on Local Taxes and Duties, providing the definition of “structure”, incompatible with the Polish Constitution. The challenged provisions are to lose legal effect 18 months after publication of the judgment in the Polish Journal of Laws.
Case merits
The case at hand related to a joint-stock company, which asked the authority to confirm that it has overpaid real estate tax for 2010-2015. The basis for the application was, among others, incorrect classification of warehouses (silos) as structures in the submitted real estate tax return. According to the company, they should be classified and, consequently, taxed as buildings.
The mayor refused to confirm that the overpayment on the grounds of incorrect classification of warehouse with a transport gallery and a warehouse as structures in real estate tax has actually taken place. The Applicant appealed against the mayor’s decision, yet, the Local Government Board of Appeal, the Regional Administrative Court, and the Supreme Administrative Court upheld it. Consequently, the company lodged a constitutional complaint.
It stated that silos (warehouses) demonstrate all statutory features of buildings, which means that the related taxable base should be established according to their usable area and not their initial value, which happened because of their erroneous classification as structures and artificially inflated the tax due. According to the Applicant, the uniform interpretation approach displayed by administrative courts, in line with which a silo demonstrating all statutory features of a building should be subject to real estate tax as a building only if it does not display any additional features exceeding the statutory scope of the “building” definition, should be treated as a manifestation of law-forming interpretation, extending the statutory definition of a structure and, at the same time, narrowing the definition of building, by introducing a supplementary functional premise for classifying a given object as a structure.
The Applicant pointed out that as a result of ambiguity and lack of precision of the challenged provisions, the framework for their application by tax authorities and administrative courts became too broad. This means that the challenged provisions allow public authority bodies to step into the role of the legislator as regards to issues that should be sufficiently precisely regulated by statute, i.e., relating to the proper and clear designation of the subject of taxation, and - consequently - also the taxable base.
Position of the Constitutional Tribunal
The Tribunal held that the definition of “structure” provided for by the Act on Local Taxes and Duties goes against the statutory exclusivity principle in public tribute law resulting from Article 84 and the principle of definiteness of the provisions of the tax law set forth by Article 217 of the Polish Constitution. According to the Tribunal, the elements of the legal construction of tax, listed in Article 217 of the Constitution, especially the subject of taxation, must be derived from an act and precise enough to make it possible for the taxpayer to understand whether that act links the tax obligation with the taxpayer’s factual or legal situation. However, Article 1a(1)(2) of the Act on Local Taxes and Duties does not bring a stand-alone definition of a structure for tax purposes, yet it makes as many as two references to building law provisions, which are not in any way related to taxation. Consequently, making references to the general concept of "construction law provisions" perceived as a field of administrative law, and not to the Act of 7 July 1994 - Construction Law itself, would mean that the subject of taxation can be specified not only by statute, but potentially also by an act of sub-statutory rank under construction law. In line with the applicable provisions, it cannot be precisely determined which of the two: statutory or sub-statutory acts can be classified under construction law. As a result, a taxpayer cannot be sure whether a given legal act, even of statutory rank, will be recognized by the tax authority as belonging to the construction law or not, and thus whether it will shape the subject of taxation in real estate tax in their factual or legal situation. Moreover, according to the Tribunal, it is not admissible to use a non-tax act to regulate such essential elements of the legal construction of tax as its subject matter.
Consequences
By force of the judgment, Article 1a(1)(2) of the Act on Local Taxes and Duties, which sets forth the definition of “structure” is to lose legal effect 18 months after publication of the judgment in the Polish Journal of Laws. During this period, the legislator is expected to enact new regulations in this regard.
The content of the judgment can be accessed at: Trybunał Konstytucyjny: Definicja legalna budowli na potrzeby podatku od nieruchomości (trybunal.gov.pl)
A commentary thereto can be accessed at: Trybunał Konstytucyjny: Definicja legalna budowli na potrzeby podatku od nieruchomości (trybunal.gov.pl)
