Non-contractual use of things and VAT

Service-Tax

Entrepreneurs renting their premises or other things often face the problem of using them by persons without legal title. Received receivables for non-contractual use of goods may have various effects in terms of VAT.

Pursuant to Art. 660 of the Civil Code, a property or room rental agreement for a period longer than one year should be concluded in writing. In the event of failure to do so, the contract is deemed to have been concluded for an indefinite period.

However, according to Art. 674 of the Civil Code, if, after the expiry of the period specified in the contract or in the notice, the tenant continues to use the goods with the consent of the lessor, it is considered in case of doubt that the lease has been extended for an indefinite period.

Non-contractual use of things - VAT

As a rule, VAT is subject to chargeable transactions, i.e. the paid delivery of goods and the paid provision of services.

Pursuant to Art. 7 of the VAT Act, the supply of goods is considered to be the transfer of the right to dispose of the goods as the owner.

As defined in Art. 8 sec. 1 of the VAT Act, the provision of services is understood as any service for a natural person, legal person or organizational unit without legal personality, which does not constitute a supply of goods.

The provision of services is, as a rule, taxed if it is paid for. The concept of the provision of services has a very wide scope, as it covers not only the actions of the taxpayer, but also the obligation to refrain from performing an action or to tolerate an action or a situation.

Tax on goods and services applies to those activities that may be considered payable if they were performed by the VAT payer under the contract. Thus, in order to consider a given activity taxable, there must be a mutual obligation relationship between the parties to the contract, which means that a given entity, in return for remuneration, is obliged to provide a specific service to another entity.

In the case of non-contractual use of goods, two situations should be distinguished:

  • when the landlord accepts the use of the subject of the lease after the end of the contract,

  • when the landlord does not accept the use of the subject of the lease after the end of the contract.

Use with the consent of the landlord

Use with the consent of the landlord occurs when the tenant uses the premises without a contract, however, with the consent of the landlord, the lease agreement is tacitly extended. Using the premises in such a situation should be considered a rental service that is subject to VAT under general rules.

This position is also confirmed by the tax authorities, an example of which is the individual interpretation of the Director of the Tax Chamber in Łódź of January 24, 2014, file ref. IPTPP4 / 443-746 / 13-5 / ALN), which reads:

(...) when, after the end of the contract, the previous tenant (lessee) still uses the property with the consent of the owner (even implied), paying certain amounts on this account, as well as a situation where the owner of the property (e.g. premises), for various reasons, tolerates the situation in which lack of a formal legal relationship, another entity uses the thing belonging to it. In such a case it should be taken into account that pursuant to Art. 674 of the Civil Code, if, after the expiry of the period specified in the contract or in the notice, the tenant continues to use the item with the consent of the landlord, it is considered in case of doubt that the lease has been extended for an indefinite period. In these circumstances, the remuneration received by the owner for non-contractual use of the item meets the definition of the provision of services within the meaning of Art. 8 sec. 1 of the Act and pursuant to Art. 5 sec. 1 point 1 of the Act is subject to tax on goods and services (...).

A similar position was also presented by the Director of the Tax Chamber in Poznań, in the letter no. ILPP2 / 443-1280 / 11/12-S / MN of 6 December 2012, in which we can read:

(...) when the user uses the property with the consent of the owner (even implied), paying certain amounts for it. In these circumstances, the remuneration received by the owner for non-contractual use of the item meets the definition of the provision of services within the meaning of Art. 8 sec. 1 of the Act and pursuant to Art. 5 sec. 1 of the Act is subject to tax on goods and services (...).

Example 1.

The entrepreneur rents the premises. The contract was concluded for a fixed period of one year. The parties forgot to extend it, but the lease is continued by mutual consent. In this case, the rental will be subject to VAT.

Use without the consent of the landlord

Use without the consent of the landlord takes place when the tenant continues to use the goods after the end of the obligation relationship and the landlord does not agree to this. There is no express or implied legal relationship (contract) between the landlord and the non-contractual user under which mutual benefits are fulfilled. Such a service is compensatory in nature and is not subject to VAT.

This position was confirmed by the Provincial Administrative Court in Białystok, October 17, 2012, file ref. act I Sa / BK 267/12:

(…) The service, not based on a legal title indicating the obligation to provide services and the amount of remuneration, is not subject to VAT. Compensation paid by the occupant in such circumstances is not a payment for the provision of a service, but compensation for depriving the owner of the right to freely dispose of the property and of the resulting damage. (...).

This position is also confirmed by the tax authorities, an example of which is the letter of the Director of the Tax Chamber in Łódź of August 4, 2014, no.IPTPP2 / 443-398 / 14-2 / ​​AW, in which we can read:

(...) a non-contractual activity performed - as it results from the application - without the consent (neither express nor implied) of the Applicant, does not constitute a transaction taxed with value added tax, and the payment of compensation for this will not constitute a charge for its performance. Accordingly, such compensation for non-contractual use of the building by the borrower is not an activity subject to VAT (…).