Depreciation of fixed assets allows for lower taxes. However, as a result of changes introduced by the Polish Deal, 2022 was the last year in which depreciation of residential premises and buildings was allowed (only those for which depreciation had already begun). Starting this year, taxpayers can no longer deduct depreciation deductions for these assets from their tax-deductible costs. This change was (and still is) controversial, particularly in connection with the principle of retention of acquired rights. The depreciation ban applies not only to newly acquired properties but also to those already in the process of being depreciated.
However, the new regulations were challenged by the Provincial Administrative Court in Łódź. The case concerned a company that constructed residential buildings for commercial purposes in 2019-2020. It began depreciating them before January 1, 2022. The company requested a tax ruling from the Director of the National Revenue Information Service, asking whether it would be able to deduct depreciation charges for these properties from its tax-deductible costs until they were fully depreciated.
The interpretative body, citing the provisions of the Corporate Income Tax Act, found that the taxpayer would not be entitled to such a right, as the Act expressly excludes the possibility of depreciation of residential real estate.
However, the Provincial Administrative Court in Łódź disagreed with this position and, in reviewing the taxpayer's appeal, overturned the contested interpretation. In its justification, it stated that the regulations prohibiting the depreciation of residential real estate are clearly inconsistent with the principle of acquired rights arising from Article 2 of the Constitution. Therefore, the provisions of the Constitution should be applied without regard to statutory provisions.
The administrative court conducted a dispersed constitutional review, which is the prerogative of the Constitutional Tribunal. However, such action is acceptable to the Supreme Administrative Court. In its judgment of November 16, 2022 (ref. III OSK 2528/21), it stated that: "The presence of improperly appointed judges on the Constitutional Tribunal's bench results in the entire Polish Constitutional Court being 'infected' with illegality, and therefore has materially lost its ability to adjudicate in accordance with the law, as there is a high degree of probability that at least one of the so-called 'understudies' will be on the adjudicating panel." This judgment gave the green light for administrative courts to directly apply the Constitution, bypassing statutory norms.
The repeal of the issued interpretation does not mean that the provision prohibiting the depreciation of residential properties will be eliminated from the legal system. However, this ruling constitutes a departure from the existing case law. The Director of the National Revenue Information Service still has the right to file a cassation appeal. If he exercises this right, the case will be reviewed by the Supreme Administrative Court. If the Supreme Administrative Court agrees with the position of the Provincial Administrative Court in Łódź (and the taxpayer), this will open the door to further depreciation of residential properties.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of July 17, 2023
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