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The legal definition of ‘structure’ in the context of the property tax SK 14/21

On 4 July 2023 at noon, the Constitutional Tribunal delivered its judgment concerning the constitutional complaint filed by Zakłady Tłuszczowe „Kruszwica” S.A. (the company is currently operating under the name of ‘Bunge Polska sp. z o.o.’) with regard to the legal definition of ‘structure’ in the context of the property tax.

The Constitutional Tribunal adjudicated that Article 1a(1)(2) of the Local Taxes and Duties Act of 12 January 1991 (Journal of Laws – Dz. U. of 2023 item 70) is inconsistent with Article 84 and Article 217 of the Constitution of the Republic of Poland. The said provision will cease to have effect after the lapse of 18 (eighteen) months from the date on which the judgment is published in the Journal of Laws of the Republic of Poland.

As to the remainder, the Tribunal decided to discontinue the proceedings.

The ruling was unanimous.

In the Tribunal’s view, the fundamental constitutional problem in the present case consisted in determining the subject of the property tax with regard to a structure, on the basis of criteria which have not been rendered in the provisions of the Local Taxes and Duties Act.

The Tribunal pointed out that, as regards the legal definition of ‘structure’ in the context of the property tax, the Tribunal had already twice raised constitutional reservations and signalled the necessity to change the said definition. The first time it did so in its judgment of 13 September 2011, ref. no. P 33/09, and the second time – in its signalling decision of 15 December 2020, ref. no. S 3/20. Despite the lapse of almost twelve years since the issuance of the said judgment and the passage of over 2.5 years since the issuance of the said signalling decision, the legislator has not yet amended the impugned legal act.

The Tribunal noted that what follows from Article 84 and Article 217 of the Constitution is a heightened standard of the specificity of law which is characteristic of tax law in general. Mentioned in Article 217 of the Constitution, the components of the legal construct of a tax – and in particular the subject of taxation – must arise from a statute and must be regulated sufficiently precisely that a taxpayer would know whether the statute pairs the factual or legal situation concerning that taxpayer with a tax obligation or not.

The Local Taxes and Duties Act regulates the subject of taxation with the property tax in Article 2(1), indicating that the said tax is applicable to land, buildings as well as structures which are related to the conduct of economic activity. Article 2(1)(3) of the Local Taxes and Duties Act, which specifies structures as the subject of the relevant tax, does not, however, define them.

In order to determine the subject of taxation in the case of the property tax, it is necessary to make reference to the legal definition of ‘structure’ set out in Article 1a(1)(2) of the Local Taxes and Duties Act. However, also, the said provision does not contain an autonomous legal definition of ‘structure’ for taxation purposes, but it makes reference to the provisions of construction law twice i.e. provisions that are not related to taxation.

A reference to the general concept of “construction-law provisions” as a realm of administrative law, and not a reference to the Construction Act of 7 July 1994 alone, leads to the situation where the determination of the subject of taxation may occur not only in a statute, but also potentially in a sub-statutory act which would fall within the realm of construction law. On the basis of the binding provisions, it may not be precisely established which acts – whether statutory or sub-statutory ones – fall within the realm of construction law.

Consequently, the taxpayer cannot be sure in a given factual or legal situation whether a particular legal act – even if this is a statutory one – will be, or will not be, deemed as falling within the realm of construction law by tax authorities, and thus regarded as shaping the subject of taxation in the context of the property tax.

The Tribunal also noted that, in its opinion, it is inadmissible to regulate such important components of the legal construct of the tax as the subject of taxation in a statute that is not related to taxation. The Tribunal agreed with the stance of the company filing the constitutional complaint, namely that the proper determination of the subject and basis of taxation constitutes the fundamental issue in view of the proper fulfilment of the tax obligation.

The legislator’s use of a general reference to “construction-law provisions” in the legal definition of ‘structure’ set forth in Article 1a(1)(2) of the Local Taxes and Duties Act makes it impossible for taxpayers to determine, solely on the basis of the provisions of a tax statute, whether the structures owned by the taxpayers are subject to the property tax or not.

For those reasons, the Tribunal held that the legal definition of ‘structure’ in the context of the property tax is inconsistent with the heightened standard of the specificity of tax law in general, arising from Article 84 and Article 217 of the Constitution. This necessitated the ruling that entire Article 1a(1)(2) of the Local Taxes and Duties Act is inconsistent with Article 84 and Article 217 of the Constitution.

Having considered the need to preserve the continuity of imposing the property tax on structures, the Tribunal deferred by 18 months the date after which Article 1a(1)(2) of the Local Taxes and Duties Act would cease to have effect. This is to allow the legislator to draft and adopt a new legal definition in the context of determining the subject of the property tax.

The Tribunal also emphasised that, when adopting a new legal definition of ‘structure’ in the Local Taxes and Duties Act – one which will not refer to statutes that are not related to taxation – the legislator should also change the binding legal definition of ‘building’, included in Article 1a(1)(1) of the Local Taxes and Duties Act, which also refers to “construction-law provisions”.

The adjudicating bench of the Constitutional Tribunal in the case was composed of: Judge Jarosław Wyrembak – Presiding Judge; Judge Rafał Wojciechowski – Judge Rapporteur; Judge Piotr Pszczółkowski; Judge Bogdan Święczkowski; Judge Andrzej Zielonacki.