Change in the definition of structure and building in tax law

The draft law on amending the Law on Agricultural Tax, the Law on Local Taxes and Fees, and the Law on Stamp Duty primarily provides for amending the definition of a structure and a building for the purposes of tax law. As of the date of this note, i.e., November 19, 2024, the draft is pending its second reading at the Parliament. The planned effective date of the new regulations is January 1, 2025, because in accordance with the Constitutional Tribunal’s Judgment of July 4, 2023 ref. SK 14/21 (Journal of Laws, item 1313), Article 1a para. 1 pt. 2 of the Act on Local Taxes and Fees of January 12, 1991 (i.e., Journal of Laws of 2023, item 70, as amended) i.e., the regulation containing the definition of a structure, shall expire on January 11, 2025.

However, it should be kept in mind that since the draft amendment is still at a fairly early legislative stage, its effective date being January 1, 2025 remains doubtful.

The main thrust of the draft is to eliminate direct references in definitions to the construction law and to introduce definitions of an autonomous nature in the Local Taxes and Fees Law.

The following information is essentially limited to the changes that will occur to the definition of a building and structure on tax grounds if the draft amendment is adopted in its current form, and does not cover all the changes introduced by the amendment in question.

1. FUNDAMENTAL CHANGES RESULTING FROM THE CHANGE OF THE DEFINITION OF STRUCTURES AND BUILDINGS

1. Change in the definition of a building

Resignation of reference to the regulations of the construction law. The proposed autonomous definition of a building includes elements that, in the current state of the law, under the Local Taxes and Fees Law and the Construction Law, determine the qualification of an object as a building, and adds the requirement of “erected as a result of construction works ‘ instead of ’erected with the use of construction products,” which is intended to eliminate interpretation disputes due to the lack of a definition of “construction products” in both the tax and construction laws.

2. Amend the definition of structures

Giving up the reference to regulations of the Construction Law. In the proposed autonomous definition of a structure, first of all, the catalog of objects that are structures and the catalog of construction equipment indicated in the Construction Law were moved to Appendix 4, which is a catalog of structures. This change is aimed at eliminating doubts about the taxation as a structure of technical devices not explicitly mentioned in the Construction Law, which provide for the use of a structure that is a building or a structure in the tax sense.

3. To regulate the taxation of complex and heterogeneous objects (in principle, no changes, but mainly to regulate explicitly the hitherto doubtful issues) and to include in the catalog of structures, certain objects that are currently explicitly listed in the Construction Law as construction equipment.

In the case of objects that, due to their construction, can be considered complex objects, consisting of buildings and other objects, its individual elements indicated in the relevant items of the proposed Appendix 4 to the Law will be taxed as structures.

Objects located within a complex object such as bicycle sheds, roads, fences, parking bay, pedestrian walkways, parking yards, container facilities permanently attached to the ground, etc. (catalog in Appendix 4 to the Law) will qualify as structures for tax purposes. On the other hand, facilities comprising a complex object that meet the premises of the definition of a building will be taxed as buildings and will be taxed on the surface area – due to the priority of the qualification of a building taking into account the reservation contained in the definition of a building.

In addition, objects that are explicitly listed in the Construction Law as building facilities, e.g., crossings, fences, parking lots and yards for garbage cans, are indicated as structures in the appendix. In principle, this change does not affect the change in taxation, because until now the tax regulations referred to the definition of a structure and the definition of construction equipment in the Construction Law to define a structure. For example, until now a fence was a technical device under the construction law, while in tax law, based on the reference to the construction law, it was understood as a structure. The proposed amendment, by introducing an autonomous definition of a structure in the Tax Law, directly indicates that a fence is a structure within the meaning of the Tax Law.

4. Qualification of certain objects to the category of structures, e.g. silos which in the current state of the law simultaneously meet the prerequisites for being a building

Change introduced in the definition of a building by excluding from the definition of a building “an object in which bulk materials, materials occurring in pieces, or materials in liquid or gaseous form are or may be accumulated, the basic technical parameter of which determining its purpose is its capacity.” This solution is intended to eliminate doubts related to the qualification, for the purposes of the Law on Local Taxes and Fees, of objects meeting the statutory criteria of a building and at the same time currently classified as structures under the Law on Construction, i.e. objects of the following types: tanks, silos, elevators or other tanks of a similar economic nature

5. Clarification of taxation of structures located in a building

In the explanatory note to the draft amendment under discussion, the legislator clarified – due to interpretation disputes – that the Law on Local Taxes and Fees provides for the taxation of various taxable objects occupying a common space. Thus, structures or parts thereof are now also subject to taxation when they are located inside a building. The placement of a structure or part thereof in a building does not mean that only the building is subject to taxation, to the exclusion of the object inside it. If a structure or a part thereof that is not an integral part of the building is located in the building, it constitutes a taxable object separate from the building. The amendment maintains this legal status.

IN ADDITION

1. Postponement of the deadline for filing the declaration

The possibility of filing the property tax declaration for the year 2025 by March 31, 2025, after meeting the relevant prerequisite including, among other things, submitting a written notice to exercise this right by January 31, 2025.

2 Change in tax rate for garages in residential buildings

The amendment introduces a change in the rate for garages in residential buildings, because according to the draft, a room for storing vehicles in a residential building is also considered a residential part of the building, which means that a garage in a residential building is to be taxed at the rate for residential buildings.

COMPARISON OF THE CURRENT LEGAL STATUS WITH THE PROPOSED CHANGES

In addition, it is proposed to add the following definitions in order to avoid doubts about taxability or non-taxability:

2a) construction object – a building or structure, excluding mine workings, as well as small objects constituting:

(a) objects of religious worship – in particular, shrines, wayside crosses and statues,

1. b) objects of garden architecture – in particular, statues and garden figures, water features, bridges and pergolas, brick barbecues, ponds,
2. c) utilitarian objects for daily recreation and maintenance of order – in particular, garbage cans, shelters for baby carriages and bicycles, and objects providing equipment for children’s playgrounds;

2b) construction works – works involving construction, reconstruction, expansion, superstructure, reconstruction or assembly, to which the provisions of the Act of July 7, 1994 apply. – Construction Law (Journal of Laws of 2024, item 725, 834 and 1222).

2c) permanently connected to the ground – such a connection of a construction object with the ground, which provides the object with stability and the ability to counteract external factors independent of human action, which may destroy, cause displacement or move the object to another place;

APPENDIX NO. 4 TO THE LAW – LIST OF OBJECTS REFERRED TO IN ART. 1A SEC. 1 ITEM 2 LETTER. A OF THE LAW