When a developer contributes to infrastructure costs – new judgment of the Supreme Administrative Court
In its judgment of 26 September 2025 (case no. I FSK 1359/22), the Supreme Administrative Court (SAC) confirmed that a participation fee paid by an investor to finance the expansion of technical infrastructure constitutes consideration for a taxable supply of services and is therefore subject to VAT.
The case concerned a property developer who undertook to pay a non-refundable fee to a company operating the water and sewage network in order to enable the earlier connection of its development project. The court held that a contractual relationship had arisen between the parties, under which the network operator provided a specific service to the developer — the expansion of the network in a way that generated a measurable economic benefit. Consequently, the fee was considered to have a reciprocal (remunerative) nature and should be treated as a taxable service within the meaning of art. 8(1) of the VAT Act.
Our commentary:
This judgment aligns with the well-established line of case law according to which the economic substance of a transaction – not its formal designation – is decisive for VAT purposes. For investors, this means the need for careful planning of settlements in infrastructure projects where the boundary between a donation and a service may appear thin but is crucial from tax perspective.
Split Payment Mechanism also applicable to payments made to subcontractors – precedent-setting judgment of the Supreme Administrative Court
On 26 September 2025, the Supreme Administrative Court (SAC) issued a significant ruling (case no. I FSK 1154/22) that substantially affects the interpretation of the split payment mechanism (SPM) in the context of a joint and several liability for tax obligations.
The case concerned an investor who, under a construction works contract, was jointly and severally liable for the subcontractor’s remuneration. The subcontractor issued invoices, and the investor made direct payments to the subcontractor without applying the split payment mechanism. The tax authority challenged this activity, indicating that the use of the SPM was mandatory in transactions covered by the mechanism.
The court held that the obligation to apply the SPM also extends to situations in which the contracting party (the investor) makes payments directly to a subcontractor under its joint and several liability for remuneration. The court emphasized that this interpretation aligns with the purpose of the regulation — which is to prevent tax abuse. Otherwise, this could lead to the circumvent of the law by avoiding the use of the SPM in transactions that should be subject to it.
Our commentary:
This judgment delivers an significant message, especially to the construction sector, where an investor’s joint and several liability for a subcontractor’s remuneration is common. In accordance with this interpretation, investors must take a strict approach to applying the split payment mechanism (SPM)
Reimbursement of expenditures and VAT – Supreme Administrative Court confirms that the economic substance of the transaction prevails
The Supreme Administrative Court (SAC), in its judgment of 23 October 2025 (case no. I FSK 1283/22), resolved a dispute of significant importance for tax practice concerning the VAT treatment of reimbursement of expenditures incurred on third-party land. The court held that the transfer to the landowner, for consideration, of expenditures incurred on the construction of a building constitutes a taxable supply of goods within the meaning of art. 7(1) of the VAT Act, not a provision of services.
The case involved a company which, under a lease agreement, constructed a radiotherapy center on land owned by a hospital. After the cooperation ended and the lease was terminated, the building together with the related improvements was transferred to the landowner. In return, the company was entitled to claim for reimbursement of the incurred expenditures, duly documented by an invoice.
The Director of the National Tax Information (DNTI) took the position that in such a case, there is no supply of goods within the meaning of art. 7(1) of the VAT Act, as the building — being an integral part of the land — is owned by the landowner. According to the DNTI, this transaction should be treated as a supply of services under art. 8(1) of the VAT Act, since the subject of the transaction is not a tangible item (goods), but rather the right to reimbursement of expenditures, which has a purely contractual (obligational) nature.
Neither the Voivodeship Administrative Court in Kraków nor the Supreme Administrative Court (SAC) agreed with this interpretation. The SAC emphasized that the concept of a supply of goods under the VAT Act is autonomous and cannot be narrowed by civil law constructs such as the principle of superficies solo cedit. The court held that, for VAT purposes, the decisive factor is the economic nature of the transaction, not the formal transfer of ownership. In other words, since the lessee who constructed the building on another party’s land exercised actual control over it and subsequently transferred it to the landowner for consideration, the transaction constitutes a supply of goods, not a service.
Our commentary:
From a practical perspective, the conclusion for taxpayers is clear: the reimbursement of expenditures incurred on third-party land may qualify as a supply of goods rather than a service, provided that the building or structure is effectively transferred for consideration.
The line between a statement and a waiver of VAT exemption in a real estate sale agreement – new position of the Director of the National Tax Information
In an individual tax ruling dated 19 September 2025 (ref. no. 0112-KDIL1-2.4012.418.2025.2.SN), the Director of the National Tax Information (DNTI) stated that an effective waiver of the VAT exemption in connection with the sale of real estate — pursuant to art. 43(10) of the VAT Act — requires an explicit and unambiguous declaration of intent made jointly by both parties to the transaction.
It is not permissible for the waiver of the exemption to occur implicitly, for instance by merely applying a VAT rate on the invoice or by stating in the agreement that the transaction “is subject to taxation.” Such provisions do not constitute clear evidence that the parties knowingly and jointly intended to waive the VAT exemption.
In the factual background described in the application for the ruling, the parties included in the notarial deed a clause stating that the sale of the property was subject to VAT, which resulted in the notary not collecting the tax on civil law transactions (TCLT). The tax authority, however, found that such a provision does not prove an actual, conscious waiver of the VAT exemption, but merely informs about the method of settling the transaction. The authority emphasized that for a waiver to be effective, it must be expressly reflected in the wording of the document in a manner that leaves no room for interpretative doubt.
Our commentary:
The presented tax ruling carries several clear consequences. First, taxpayers intending to apply VAT to the supply of real estate should ensure that the declaration of opting out of the VAT exemption is formulated unambiguously—preferably as a separate, joint statement by both parties, included in a notarial deed or another document whose content and delivery can be easily evidenced. Secondly, merely stating in the agreement that the transaction is subject to VAT, or issuing a VAT invoice without an accompanying declaration, does not guarantee acceptance of this approach by the tax authorities and may lead to the settlement being challenged. Thirdly, from a tax risk management perspective, it is important to bear in mind the potential consequences of the rejection of the VAT exemption waiver — both under VAT and TCLT.
When demolition has not commenced before sale — supply of land with a building designated for demolition and the implications for VAT Exemption
In an individual tax ruling dated 19 September 2025 (ref. 0112-KDIL1-2.4012.418.2025.2.SN), the Director of the National Tax Information (DNTI) addressed a significant practical issue regarding the VAT classification of the sale of land on which a building designated for demolition is located.
In the case under review, the company planned to sell a plot of land on which a building intended for demolition was situated. However, demolition work had not actually commenced by the date of sale. The company stated that, in such circumstances, the transaction should be treated as the sale of undeveloped land, which, in its view, would allow the application of the VAT exemption under art. 43(1)(9) of the VAT Act.
The tax authority did not agree with this interpretation. DNTI clearly stated that since the demolition of the building had not commenced before the supply, the transaction concerned developed real estate (i.e., the land together with the building situated on it), rather than the land alone. Accordingly, the supply cannot be treated as the sale of undeveloped land within the meaning of art. 43(1)(9) of the VAT Act.
The authority referred to established case law of the Court of Justice of the European Union (CJEU) and the Polish Supreme Administrative Court (SAC), including cases C‑461/08 Don Bosco Onroerend Goed and I FSK 382/17. According to this case law, the VAT classification of real estate is determined by its actual condition at the time of supply, not by the parties’ intention regarding the future use of the land. As long as the building physically exists and demolition has not begun, the property is considered developed.
Our Commentary:
The cited ruling confirms the consistent approach of the tax authorities: for VAT purposes, the classification of a supply is determined by the actual condition of the property at the time of sale, not by any intention to demolish it in the future.
For taxpayers, the key takeaway is that merely planning a demolition or entering into a contract with a contractor does not change the property’s status. Until physical demolition work has commenced, the sale must be treated as a supply of developed real estate.
At the same time, the ruling serves as a reminder of the formal rigor associated with waiving the VAT exemption. A declaration made in the notarial deed must unequivocally meet statutory requirements — the parties’ mere intention, even if reflected in the gross price, does not produce legal effects
