The Supreme Administrative Court has ruled on the classification of reducing and metering stations and points as structures

by ​Jakub Wajs

10 October 2022

A seven-judge panel of the Supreme Administrative Court (SAC) ruled on 10 October 2022 (file no. III FPS 2/22) that under the laws applicable before 28 June 2015 the real property taxation of pressure-reducing, reducing and metering, and metering stations and points had depended on the existence of a technical and functional relationship between those facilities and the pipeline. This was crucial for their classification as a structure in the form of a gas grid.

The SAC ruled on a very controversial legal issue. During the procedure leading to that judgment SAC’s changing approach to the classification of stations across various judgments was pointed out, and especially the shift noticeable in mid-2016.

In their oral statement of reasons, the SAC has stated the following:

• the Local Taxes and Fees Act has not been amended for years, the definitions contained therein are incomplete and require reference to non-tax laws, in particular the Construction Act;
• the Local Taxes and Fees Act uses a broader concept of a structure (budowla) than the Construction Act, as they include construction facilities as defined in the Construction Act related to a building object (obiekt budowlany), which enables using the object for its intended purpose;
• the concepts included in the Regulation on technical requirements to be met by gas grids and their location cannot be taken into account for tax purposes, as it is a legal act of a lower rank than the statute;
• the term “a technical and functional whole along with installations and facilities” requires that both the functional relationship and the technical relationship must exist jointly; none of them alone is sufficient. The SAC has ruled that an expert opinion should be sought to assess the above;
• a pipeline is a linear facility for which length is the key parameter. In that sense pressure-reducing and metering stations are not a part of the pipeline;
• stations are not installations either;
• stations are facilities that may have a technical and functional relationship with the pipeline, which automatically classifies them as structures.

The SAC has mentioned a sad fact that the Local Taxes and Fees Act has not been amended for years – it is laconic and difficult to interpret, e.g. due to numerous references to non-tax laws. This causes uncertainty for both taxpayers and revenue authorities.

Nevertheless, keep in mind that the judgment referred to the legislation that had been in force before the building object was redefined.

In their statement of reasons, the SAC reiterated that the ruling did not apply to the current legislation. They also mentioned that they could not rule in reference to the current legislation because they were bound by the case perimeter.

Summary

It seems that the case interpretation in view of the current definition could lead to different conclusions. Nevertheless, at this point we recommend extra caution to taxpayers who have such facilities.
Please note that prior to 28 June 2015, a building object was defined as a technical and functional whole along with installations and facilities. Later, a building object was defined as a structure along with installations which enabled using the object for its intended purpose, erected using construction products. However, the definition of a structure included in the Local Taxes and Fees Act as “a building object as defined in the Construction Act other than a building or a piece of street furniture, and also as a construction facility as defined the Construction Act that is fixed to a building object and enables using the object for its intended purpose” remained unchanged.

Prior to 28 June 2015, technical facilities were taxed provided that they made a technical and functional whole along with the building object. It seems that following a change in definition, the key issue will be whether a technical facility is a construction facility as defined the Construction Act. And if so, whether it enables using the building object for its intended purpose.

The ruling may affect not only the gas industry, but also e.g. the power industry, and may in some situations apply to other facilities such as transformer stations.

Taxpayers with such facilities should consider reviewing their real property tax returns.

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