First judgments of the Supreme Administrative Court on depreciation by real estate companies

According to the wording of Article 15(6) of the CIT Act, in force since 2022, real estate companies may recognise depreciation write-offs on buildings and premises (group 1 of the Classification of Fixed Assets) as tax deductible costs, but only up to the amount of balance sheet write-offs. Since the amendment, real estate companies valuing real estate at fair value have been uncertain how to interpret this provision.

According to the tax rulings issued so far, the tax authorities have consistently stated that if a real estate company does not make depreciation write-offs on the basis of accounting provisions, their amount is ‘0’. And consequently, such a company is not entitled to recognise tax deductible depreciation expenses.

Judgments of Voivodship Administrative Courts [WSA] generally favourable

The position of the WSA is different – the majority of judgments issued by courts of first instance are favourable for taxpayers. In the judgements, the courts argue that Article 15(6) of the CIT Act indicates write-offs ‘made’ according to accounting rules and charged to the financial result, so if a company does not depreciate real estate on an accounting basis (due to the valuation method adopted), the limitation arising from the aforementioned provision should not apply.

Nevertheless, there are some exceptions from this generally consistent line of jurisprudence. For example, in a judgment of 12. January 2023 (ref. no. III SA/Wa 1356/22), the court held that for the purposes of determining the amount of depreciation write-offs on tax grounds, it is irrelevant whether the company actually makes accounting write-offs.

Supreme Administrative Court [NSA] presents a completely new position

On 28. January 2025, NSA recognised 5 cases concerning this issue (II FSK 1652/23, II FSK 788/23, II FSK 789/23, II FSK 987/23, II FSK 1086/23). In long-awaited rulings, the NSA confirmed that Article 15(6) of the CIT Act applies to all real estate companies, including those that value real estate at fair value.

Significantly, the NSA did not agree with the tax authorities’ interpretation, but neither did it agree with the one presented by the taxpayers. The court indicated a completely new way of interpreting the aforementioned provision. As appears from the verbal justification of the judgment, according to NSA, it is first necessary to determine what the value of the depreciated real estate is according to International Accounting Standards [IAS] or fair value and then compare it to the hypothetical value that would be determined if the company had applied the depreciation basis according to the accounting regulations. If it turns out that these write-offs would have been higher on the basis of the accounting principles applied by the company according to IAS or fair value, the company must reduce them to the amount that would have resulted if the principles of the Accounting Act had been applied.

Such an understanding of the provisions seems unclear to say the least….

What next?

Although we will have to wait for the publication of the written justifications of the NSA judgement, it is already worth verifying whether the amount of depreciation write-offs (and thus tax deductible costs) should change.

If you are wondering what action should you take in relation to latest NSA judgments, we encourage you to contact us directly.