Last Monday, we informed you about the landmark judgment of the Provincial Administrative Court in Łódź, which allowed (contrary to the literal wording of the regulations) the possibility of continued depreciation of residential real estate. This case has not yet concluded with a final judgment. Meanwhile, the Supreme Administrative Court has ruled on a similar case. However, its position is unfavorable for taxpayers.
This case concerned an individual who owned and co-owned nine residential properties. All of the properties had already been depreciated prior to 2022. The taxpayer asked the Director of the National Revenue Administration whether she would be able to recognize depreciation deductions for residential properties as tax-deductible costs in 2023 and subsequent years under the rules applicable in 2021 and 2022. She concluded that she would continue to be entitled to this right. She argued that the current regulations violate the constitutional protection of acquired rights. When she purchased the properties, she had the prospect of fully depreciating them. The current regulations significantly impacted the profitability of the investment.
In its individual interpretation, the interpretative body deemed the taxpayer's position incorrect. It stated that the current legal framework does not permit depreciation of residential properties. However, assessing the constitutionality of these regulations falls within the jurisdiction of the Constitutional Tribunal.
The Provincial Administrative Court in Łódź, which considered the taxpayer's complaint against the interpretation, found that "in proceedings for issuing a tax interpretation – due to the inability to determine the actual factual circumstances – the provisions of substantive law governing a given tax are not applied, but only the legality of the interpretation of tax law provided by the interested party is assessed." Tax authorities cannot rule on the unconstitutionality of regulations and must therefore apply legal provisions that have not been repealed.
The Supreme Administrative Court also disagreed with the taxpayer's position. In its ruling, it stated that the legislature had implemented a comprehensive, systemic change. Taxpayers, however, should always consider that changing social or economic conditions may result in changes to the regulations. Tax authorities, however, cannot challenge the constitutionality of regulations, as they operate within the limits and on the basis of applicable law.
The ruling is unfavorable for residential property owners, as it confirms the ban on depreciation write-offs. Interestingly, the Provincial Administrative Court in Łódź weighed in on both cases, as well as on the case reported last week. It took a different stance in both cases (the same judge even served on the same panel). While this case concluded with a final judgment unfavorable to the taxpayer, the Supreme Administrative Court will still have the opportunity to rule on the case reported last week. In its ruling, it will not be bound by the ruling issued in this case, although it may rely on it. However, reality shows that the same court (and sometimes even the same judge) can issue two contradictory judgments. While this may sometimes be favorable to the taxpayer, it does not promote legal certainty.
We will continue to inform you about any changes on this topic.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of July 21, 2023
author/editor of the series:
