The planned sale of the property will not take place as part of a business activity, but will constitute the disposal of private assets, provided that the actions undertaken by the taxpayer in connection with the preparation of the transaction – including the granting of specific authorisations to the purchaser – do not constitute evidence of the conduct of a business activity.
Client's situation
Our client was planning to sell a plot of land situated in Wrocław. Although they already held an individual tax ruling confirming that the planned transaction would be subject to VAT, they wished to ensure that the sale would not also be deemed to have been carried out as part of a business activity for the purposes of personal income tax. Resolving this issue was crucial to determining whether the income derived from the sale would be subject to personal income tax.
The issue
DMS TAX’s task was to prepare an application for an individual tax ruling to be submitted to the Director of the National Tax Information Service, in which it would be confirmed that the Client’s planned sale of the property would not be subject to personal income tax (PIT)
Our approach
On behalf of the Client, we submitted an application for an individual tax ruling. We demonstrated that the planned sale of the property would constitute the ordinary management of private assets, rather than a business activity involving the professional trading of property. We emphasised that the property had been acquired as part of the Client’s personal assets; it had not been used in any business activity nor included in the fixed assets register. The client does not carry out any business involving property trading, and the planned sale will be a one-off transaction and will not form part of any organised profit-making activity.
A key element of the argument was demonstrating that the actions taken in connection with the preparation of the transaction would not, either, result in the sale being regarded as having taken place within the scope of business activity. In their interpretative practice, the tax authorities often point out that granting the purchaser specific powers of attorney or authorisations may be regarded as evidence of actions taken to enhance the property’s attractiveness and increase its value, and thus as grounds for classifying the transaction as having been carried out as part of a business activity.
Such circumstances were present in the Client’s case – the Client granted a power of attorney to a solicitor designated by the purchaser to inspect the land registers kept for the property. Furthermore, in order to enable the purchaser to analyse the legal and factual status of the property, the Client granted him the right to use the land for construction purposes. On this basis, the purchaser was able to submit specific applications and enquiries to the relevant authorities.
However, we demonstrated that the actions undertaken would not serve to increase the property’s attractiveness, enhance its value or prepare it for sale in a manner characteristic of professional property trading. Their sole purpose would be to enable the purchaser to verify the property prior to concluding the transaction.
Confirmation of DMS TAX’s arguments by the Director of the National Tax Information Service – a favourable individual interpretation
The Director of the National Tax Information Service (KIS) fully endorsed our position. He confirmed that the planned sale of the property would not take place as part of business activities, but would constitute a disposal of private assets. The authority accepted the arguments we put forward, recognising that the steps taken by the Client in preparation for the transaction, including granting specific authorisations to the purchaser, would not be sufficient to establish that a business activity was being carried out.
At the same time, the Director of the National Tax Information Service confirmed that, given that five years have elapsed since the acquisition of the property, the income derived from the planned sale will not be subject to personal income tax.
What this means
Thanks to the interpretation obtained, the client secured his tax settlements and received confirmation that he was not obliged to pay as much as 32 per cent PIT on the sale of a property worth several million.