Holding activity may constitute an organised part of an enterprise (ZCP) – Provincial Administrative Court judgment relevant for tax-neutral demergers (III SA/Wa 1992/25)
In its judgment of 9 January 2026 (case no. III SA/Wa 1992/25, non-final), the Provincial Administrative Court (WSA) in Warsaw set aside an individual ruling issued by the Director of the National Tax Information (DKIS), who had concluded that the separated holding and management division did not constitute an organized part of an enterprise (ZCP), and that its transfer as part of a demerger by separation would result in taxable income for CIT purposes.
The case concerned a joint-stock company conducting holding activities within a corporate group, in which two divisions were distinguished, each assigned to different segments of the group. The division intended for separation had allocated assets, personnel, contracts, a bank account, and separately maintained financial records.
However, the tax authority argued that since operational activities were carried out by subsidiaries, the division being separated could not qualify as an organized part of an enterprise.
The Provincial Administrative Court did not share this view. The Court held that holding and management activities constitute a distinct type of economic activity, and that the assessment of independence and separation should refer to the activity of the demerging company itself, rather than to the activities of its subsidiaries. The fact that both divisions perform holding functions does not preclude their functional separation, provided that they relate to different business segments. The Court also emphasized that the authority should analyze each of the criteria defining an organized part of an enterprise (organizational, financial and functional) separately and in a specific manner.
Our comment
The judgment is of significant importance for reorganizations within corporate groups, particularly in cases involving the separation of holding-type divisions. The Court confirmed that holding activities may constitute an organized part of an enterprise (ZCP), which reduces the risk of such classification being challenged by tax authorities.
Interest on tenants’ security deposits vs. debt financing costs – Provincial Administrative Court in Warsaw judgment (case no. III SA/Wa 2373/25)
In its judgment of 15 January 2026 (case no. III SA/Wa 2373/25; non-final), the Provincial Administrative Court in Warsaw set aside an individual ruling issued by the Director of the National Tax Information (DKIS) concerning the tax treatment of interest paid to tenants as remuneration on lease security deposits.
The dispute concerned whether such interest should be taken into account when calculating the limitation on debt financing costs referred to in Article 15c(12) of the Polish CIT Act. The tax authority held that the interest was not subject to the limitation, but solely on the basis that, in its view, it did not constitute a tax-deductible expense within the meaning of Article 15(1) of the CIT Act.
The authority’s reasoning was based on the assumption that a security deposit is refundable in nature and tax neutral, and therefore, since its receipt does not give rise to taxable income, the corresponding interest cannot give rise to a tax-deductible cost.
The Provincial Administrative Court did not agree with this approach. The Court indicated that the payment of a security deposit is not an event detached from the conclusion and performance of the lease agreement, under which the company generates revenue. Although the interest on the deposit is not a cost “related to the deposit” as a refundable payment, it remains a cost related to the conclusion and performance of the lease agreement and may therefore constitute a tax-deductible expense.
Accordingly, the Court challenged the authority’s fundamental position that such interest does not fall within the category of tax-deductible costs at all.
Our comment
The judgment is of significant importance for entities operating in the commercial real estate sector. The Provincial Administrative Court in Warsaw rejected the concept of automatically excluding interest on security deposits from tax-deductible costs solely due to the “tax neutrality” of the deposit itself. Although the judgment is non-final, its conclusions may have a significant impact on tax practices in lease structures involving interest-bearing security deposits.
Development project under construction as an organised part of an enterprise (ZCP) – Supreme Administrative Court confirms no VAT on demerger (case no. I FSK 1805/24)
In its judgment of 26 February 2026 (case no. I FSK 1805/24), the Supreme Administrative Court (NSA) dismissed the cassation appeal filed by the Director of the National Tax Information (DKIS) and confirmed that a separated development project under construction may constitute an organized part of an enterprise (ZCP) within the meaning of Article 2(27e) of the Polish VAT Act. Consequently, its transfer as part of a demerger by separation is not subject to VAT pursuant to Article 6(1) of the VAT Act.
The case concerned a company carrying out a multi-phase development project. One of the phases—covering the construction of an office and service building together with related infrastructure—was to be transferred to the acquiring company along with the allocated tangible and intangible assets, including the perpetual usufruct right to land, construction works in progress, design and construction contracts, copyrights, administrative decisions, financing, bank accounts, and dedicated management personnel.
The DKIS held that a project under construction does not meet the criterion of functional separation, as at the date of the demerger it does not yet constitute a “completed” undertaking capable of independently conducting business activity. According to the authority, a project at the construction stage does not form a self-contained unit capable of independent economic activity.
This position was not shared by either the Provincial Administrative Court or the Supreme Administrative Court. The courts indicated that the assessment of functional separation must take into account the specific nature of development activity, which includes both the design and investment phase, as well as the subsequent commercialization phase. The fact that the investment is still under construction does not preclude the existence of a functionally linked set of assets intended to achieve a specific business purpose. The Supreme Administrative Court emphasized that the case involved significant elements of organizational and financial separation, and that the authority’s reasoning was merely polemical.
The Court confirmed that the transferred set of assets—including assets, rights and obligations, as well as liabilities—was capable of independently continuing the project by the acquiring company without the need to involve additional assets not included in the transaction.
Our comment
The judgment is of significant importance for the real estate market and the restructuring of development projects. The Supreme Administrative Court clearly confirmed that the investment phase—even prior to completion of construction—may constitute an organised part of an enterprise for VAT purposes, provided that the criteria of organisational, financial and functional separation are met.
The ruling enhances tax certainty for demergers by separation in project-based structures and reduces the risk of the absence of VAT being challenged in the transfer of projects under construction.
Real estate division as an organized part of an enterprise (ZCP) despite continued leasing to the demerging company – Provincial Administrative Court in Poznań judgment (case no. I SA/Po 893/25)
In its judgment of 26 February 2026 (case no. I SA/Po 893/25; non-final), the Provincial Administrative Court in Poznań set aside an individual ruling issued by the Director of the National Tax Information (DKIS) to the extent that the authority refused to recognize the separated real estate division as an organized part of an enterprise (ZCP) within the meaning of Article 2(27e) of the Polish VAT Act.
The case concerned a planned demerger by separation in a company conducting manufacturing, real estate, and photovoltaic activities. The real estate division included, inter alia, land, buildings, rights and obligations under lease and tenancy agreements, rights and obligations under employment contracts, as well as agreements related to property management and utility supply. Accounting records were maintained in a manner enabling the allocation of revenues, costs, receivables, and liabilities to individual divisions.
The DKIS held that, despite the existence of organizational and financial separation, the real estate division was not functionally separate. The authority argued that following the demerger, the demerging company would need to lease part of the real estate from the acquiring company in order to continue its manufacturing activity, which—according to the authority—precluded the functional independence of the separated division.
The Provincial Administrative Court did not agree with this reasoning. The Court indicated that the fact that, after the demerger, the company would be required to lease real estate in order to continue its manufacturing operations does not imply a lack of functional separation of the real estate division. At most, this circumstance may indicate a potential lack of independence of the remaining part of the enterprise, but not a lack of independence of the real estate division as a separate pool of assets.
The Court emphasized that the real estate division comprises a set of tangible and intangible assets (including rights and obligations under lease, tenancy, property management, and utility supply agreements) which—without the need to supplement it with additional elements—enables the conduct of independent business activity consisting in the commercial exploitation of real estate. Consequently, this set of assets falls within the definition of an organized part of an enterprise under Article 2(27e) of the VAT Act.
Our comment
The ruling confirms that the functional independence of an organized part of an enterprise for VAT purposes should be assessed through the ability of the separated set of assets to carry out a specific business activity, rather than through the analysis of operational dependencies that may arise on the side of the demerging company after the transaction.
VAT deduction based on a notarial deed – Supreme Administrative Court judgment (case no. I FSK 949/23)
In its judgment of 13 February 2026 (case no. I FSK 949/23), the Supreme Administrative Court (NSA) addressed the issue of the right to deduct input VAT in a situation where the seller of real estate refused to issue an invoice and the taxpayer held only a notarial deed documenting the transaction.
The case concerned a company that acquired real estate, but the seller did not issue a VAT invoice. The company raised doubts as to whether, in such circumstances, it could exercise the right to deduct input VAT based on the information contained in the notarial deed. The tax authority took the position that the absence of an invoice precludes the possibility of deducting VAT.
The Supreme Administrative Court did not share the authority’s position. The Court referred to the case law of the Court of Justice of the European Union (CJEU), which indicates that an invoice is not the only document that may serve as a basis for deducting input VAT. In particular, where another document—such as an agreement or a notarial deed—contains all the data necessary to determine whether the substantive conditions for the right to deduction have been met, it may serve as evidence equivalent to an invoice.
At the same time, the Supreme Administrative Court emphasized that the assessment of whether these conditions are met may be carried out only in assessment (tax determination) proceedings, and not in interpretative proceedings, in which the authority does not conduct evidentiary proceedings. In the case at hand, however, the interpretative authority limited itself to a formal finding of the absence of an invoice, disregarding the taxpayer’s arguments concerning the fulfilment of the substantive conditions for deduction. Consequently, the authority’s position was found to be incorrect.
Our comment
The judgment confirms the primacy of substantive conditions over formal requirements in the context of the right to deduct VAT. The absence of an invoice does not automatically preclude the right to deduction, provided that the taxpayer is able to demonstrate—on the basis of other documents—that the transaction actually took place and meets the statutory conditions.
At the same time, the ruling highlights the inherent limitations of interpretative proceedings, which do not allow for the verification of facts or the assessment of evidence.
Use of real estate in business activity excludes its private nature – Provincial Administrative Court in Wrocław judgment (case no. I SA/Wr 128/25)
In its judgment of 3 September 2025 (case no. I SA/Wr 128/25), the Provincial Administrative Court in Wrocław addressed the VAT treatment of the sale of plots of land that were originally acquired by the taxpayer as a private individual but were subsequently used in the taxpayer’s business activity.
The case concerned a taxpayer who, shortly after acquiring the plots, contributed them to the business (as part of supplementary capital) and used them as collateral for business financing (a working capital loan and factoring). The taxpayer later planned to sell the plots, arguing that the transaction should fall outside the scope of VAT as a disposal of private assets.
The Provincial Administrative Court did not share this view, indicating that the manner in which the plots were used clearly confirmed their connection with the taxpayer’s business activity. In particular, the Court emphasized that the plots were used as an instrument securing business financing, which means that from the moment they were incorporated into the business, they could no longer be treated as private assets.
The Court also referred to the case law of the Court of Justice of the European Union (CJEU), in particular the judgment in Case C-291/92 (Armbrecht), according to which an asset may be regarded as private property only if it has been intended for personal use throughout the entire period of ownership. In the case at hand, this condition was not met, as the plots were used in business activity almost immediately after their acquisition.
Additionally, the Court noted that since even the sale of private assets may, under certain circumstances, be subject to VAT, then all the more so the sale of real estate that has been used in business activity and subsequently withdrawn from it should be subject to VAT.
As a result, the taxpayer’s complaint was dismissed.
Our comment
The judgment confirms that, for VAT purposes, the actual manner in which real estate is used during the period of ownership is of key importance. The inclusion of real estate in business activity—even indirectly, such as through its use as collateral for financing—may result in the definitive loss of its private character for VAT purposes and lead to the taxation of its subsequent sale.
VAT adjustment following a change in the intended use of land acquired by a non-VAT taxpayer – Provincial Administrative Court in Poznań judgment (case no. I SA/Po 475/25)
In its judgment of 4 December 2025 (case no. I SA/Po 475/25), the Provincial Administrative Court in Poznań addressed the rules governing VAT adjustments in the case of a change in the intended use of land originally acquired by an entity that was not a VAT taxpayer.
The case concerned a taxpayer who acquired land with the intention of carrying out an investment involving the construction of a non-residential building to be used in business activity. At the time of acquisition, the taxpayer did not act as a VAT taxpayer; however, at a later stage, she commenced preparatory activities for the investment, which raised the question of the right to deduct input VAT and the application of the multi-year adjustment mechanism.
The Court agreed with the position of the tax authority, indicating that the classification of the land for tax purposes is of key importance. In the case at hand, the land did not constitute trading stock intended for resale but was acquired for use in business activity, which means that it should be treated as a fixed asset—regardless of whether it was formally recognized as such in the fixed asset register.
The Provincial Administrative Court emphasized that, consequently, the multi-year adjustment mechanism provided for in Article 91 of the Polish VAT Act applies to such land. This system covers land used for taxable activities with a value exceeding PLN 15,000, but does not apply to land classified as trading stock.
The Court also indicated that the wording used in Article 91(2) and (7a) of the VAT Act (“if they have not been classified as fixed assets of the acquirer”) should be interpreted as meaning that the exclusion from the adjustment applies only to land constituting trading stock.
As a result, the Court held that the taxpayer has the right to deduct input VAT on the acquisition of the land and to make an adjustment of VAT in accordance with the rules set out in Article 91 of the VAT Act, and dismissed the complaint.
Our comment
The judgment confirms that, for VAT purposes, the economic function of land is decisive, rather than its formal classification in accounting records. If land is acquired with the intention of being used in taxable business activity, it is subject to the multi-year adjustment rules applicable to fixed assets, even if the acquirer was not acting as a VAT taxpayer at the time of acquisition.
The ruling is of significant practical importance for entities implementing investments in stages, particularly in the context of the subsequent recovery of input VAT.
