Is an open shed a building?

If this question is raised in order to establish the amount of real estate tax, the Polish Classification of Buildings does not provide a sufficient answer.

When assessing real estate tax in Poland, disputes often arise between taxpayers and tax authorities on whether a particular edifice is a “building” or merely a “structure.” This determination has a major impact on the tax basis and thus the amount of real estate tax. The classification of sheds for purposes of real estate tax has generated particularly numerous controversies. Sheds are often listed in the land records as “other non-residential buildings,” and consequently the tax authorities count the usable area of the shed when determining the tax basis.

As correctly pointed out by the Warsaw Local Government Appeal Board in one of its rulings, for purposes of the real estate tax, the definition of a “building” in Art. 1a(1)(1) of the Act on Local Taxes and Fees is decisive. It is particularly notable that the Warsaw board laid out the connection between the rules of tax law and the rules in the Regulation of the Minister of Regional Development and Construction on the Register of Plots and Buildings of 29 March 2001. The board pointed out that the definition of “building” in the regulation refers to the Polish Classification of Structures and not to the definition set forth in the Act on Local Taxes and Fees. This means that the definition in the regulation is much broader than the “tax definition,” including as a specific type of “building” a shed, constituting a ground-level space not completely enclosed by walls or even without walls at all. This was consistent with the definition of a building in the Act on Local Taxes and Fees, but only prior to 1 January 2003. Since the act was amended effective 1 January 2003, a “building” has been defined differently for tax purposes.

It should be pointed out that even now, decisions by tax authorities on classification of structures are often issued on the basis of erroneous reports by appraisers relying solely on the Polish Classification of Structures.

The Warsaw Local Government Appeal Board also found that in defining the terms “building,” “structure” and “structural installation” as used in the Act on Local Taxes and Fees, there are no grounds for relying on the Regulation on the Classification of Fixed Assets of 30 December 1999. The board thus held that classification rulings by public statistics agencies are not a source of law and not formally binding on the tax authorities, but only serve as one form of evidence in the tax proceeding.

Radosław Teresiak, Tax Practice, Wardyński & Partners