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Tax roulette

Investors should prepare themselves for more tax regulations, said Łukasz Kosonowski of MDDP.
"Recently there have been significant changes in the general taxation of all types of real estate investment – and not only for hotel transactions. On the one hand, there have been substantial legislative changes – for example, the introduction of a tax avoidance clause last year and also the introduction of a tax on investment funds. On the other hand, we have also seen a change in the attitude of the tax authorities towards certain cases, even though the legislation has not changed: an asset that is for sale is now being defined as a company or as a part of an organisation in the case of asset deal transactions. And, after several years, the tax authorities have now suddenly begun to question deals that were even done quite a few years ago, claiming that the assets should have been classified as a company or part of one, and thus refusing to allow VAT deductions while also claiming that such deals are subject to the 2 pct tax on civil law transactions. All this is giving investors a profound sense of uncertainty and is having an adverse impact on their investment decisions," partner of MDDP told us.

"I think it’s a huge problem. In terms of total transaction values, 2 pct of tax is a substantial sum of money. It can have an impact on the profitability of a deal. In addition, the amount of changes influences investors when they are taking the decision to invest. Although last year was not a bad one for the M&A market in real estate, the difference compared to previous years is obvious," he said.

"Well, I’ve got news for real estate investors – and it might not be good news. Firstly, nobody can predict what the next changes are going to be. There have been so many changes that we have now become used to them, either in legislation or in interpretation, and it’s hard to say whether these changes are behind us. Moreover, there is work going on at the European level to implement legislation on tax avoidance. This sounds ominous, but everything depends on how this will be interpreted and in which cases it will be applied. But more regulations of this kind are certainly on their way – and investors should prepare themselves for this," Łukasz Kosonowski explained.
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