The generational change and the associated change of attitude towards ownership vs. rental has shifted the market in an interesting direction
New tax limits, share deals back on track and emerging PRS
Małgorzata Dankowska, Tax advisor, Partner responsible for real estate team and the Warsaw tax office, TPA Poland
T
he year 2018 is well under way with all its far-reaching regulatory changes. But in spite of the introduction of several new taxation schemes (like minimal CIT on commercial real estate property) and a shakeup in the taxation of real estate transactions, the Polish market has emerged unscathed. Although asset deals are less common and investors can no longer freely benefit from step-up options, this has not discouraged them from entering into the ever increasingly popular share deals and enterprise deals. Newcomers haven’t been scared off and even if some investors have put their Polish expansions on hold, they are still here. Some issues on the transactional market may be, however, caused by
limitations of tax deductibility of interest resulting from both the restrictive implementation of the EU Anti-Tax Avoidance Directive (ATAD) as well as some newly introduced Poland-specific regulations that address debt-pushdown structures and the creditworthiness of borrowers. All in all, even though these changes can’t be ignored, they seem manageable. On the other hand, we will soon have a VAT split payment mechanism implemented, which helps the transactional parties to significantly limit risk amounts by the sum of VAT sanctions. Hopefully, this mechanism will facilitate negotiations of risk sharing options during the transactions. From an operational perspective, tax settlements require due care. With the implementation of the already mentioned
ATAD regulations as part of a broader BEPS package (OECD initiative of preventing tax base erosion), the introduction of SAF-T reporting, and the new transfer pricing regulations and requirements, the time burden required for tax compliance issues has increased dramatically. It is also worth mentioning that, due to these recent tax amendments, companies have encountered overlapping tax regimes. For instance, in 2018, one may be challenged with two or even three systems of settling interest deductions for tax purposes; this makes the whole process of settlement increasingly complicated. Such complexity with respect to compliance has even transposed, to some extent, to transactional activity, as due diligence reports and transactional clauses are becoming more prevalent than ever before. With respect to the introduction of investor-friendly vehicles, the highly anticipated Polish REIT regulations have still not been introduced. Thus, both Dutch and Luxembourg structures continue to serve foreign and local investors as investment platforms. New investment project trends, however, are emerging. The Polish private rental sector (PRS) is experiencing significant changes and is approaching another major transformation: the emergence of an institutional rental market. The vast majority of housing stock in Poland is currently occupied by private owners, but the generational change and the associated change of attitude towards ownership vs. rental has shifted the market in an interesting direction. The growing interest in housing projects for rent on the institutional rental market is becoming increasingly apparent.
W B J APRIL 2018
27