Transmission easement for a telecommunications company - is it necessary to pay tax?

Service-Tax

Property owners through which telecommunications lines pass conclude contracts for the establishment of transmission easement with operators. These types of contracts are payable, which in turn raises the question of tax issues. Is the consideration received for a transmission easement a taxable income?

What is transmission easement?

Before we get into tax matters, let's explain what transmission easement is.

The regulations concerning the legal structure of the transmission easement can be found in the Civil Code. According to Art. 3051 of the Civil Code: "the property can be encumbered on behalf of the entrepreneur who intends to build or whose property is the equipment referred to in article 1. 49 § 1, the law consisting in the fact that the entrepreneur may use the encumbered property to a certain extent, in accordance with the intended use of these devices (transmission easement)”.

The devices referred to in Art. 49 § 1 of the Civil Code, are devices used to supply or discharge liquids, steam, gas, electricity and other similar devices.

It is also worth recalling the content of Art. 3052 of the Civil Code, which states that: "if the property owner refuses to conclude a transmission easement agreement, and it is necessary for the proper use of the devices referred to in Art. 49 § 1, the entrepreneur may request its establishment for appropriate remuneration. If the entrepreneur refuses to conclude a transmission easement agreement, and it is necessary to use the devices referred to in Art. 49 § 1, the property owner may demand appropriate remuneration in exchange for the establishment of a transmission easement ”.

Therefore, it follows from the above-mentioned provisions that the transmission easement is established for the benefit of the entrepreneur who is obliged to pay the owner of the encumbered real estate appropriate remuneration. In this regard, it is necessary to conclude an agreement to establish an easement.

Transmission easement is classified as a limited property right under which entrepreneurs can obtain a legal title to someone else's real estate in order to install various transmission equipment. The contract for the establishment of a transmission easement is concluded between the entrepreneur and the owner of the property on which the transmission facilities are located. The owner of the encumbered property receives remuneration for this.

Transmission easement on the basis of PIT tax

There is no doubt that the received remuneration constitutes a property gain for the property owner, which, in terms of income tax, qualifies as tax revenue.

Considering this issue in terms of PIT, it is necessary to determine what source of income we are dealing with. In terms of the extensive catalog described in Art. 10 sec. 1 of the PIT Act, the remuneration under the contract for the establishment of transmission easement should be included among other sources of income referred to in Art. 10 sec. 1 point 9 of the PIT Act.

The definition of revenues from other sources contained in art. 20 paragraph 1 of the PIT Act is open, which means that we can include in this category every case when the taxpayer has real property benefits. This also includes income from transmission easement.

From the perspective of our considerations, the most important, however, is Art. 21 sec. 1 point 120a of the PIT Act. This provision states that: "vtax-free is the remuneration received for establishing a transmission easement within the meaning of civil law”.

Consequently, although the remuneration received under the transmission easement agreement is income from other sources, it still benefits from tax exemption. The property owner pays no wage tax and is under no obligation to report such income in the annual tax return.

Example 1.

A natural person has concluded a transmission easement agreement with a telecommunications company. A transmission device has been installed on her property. According to the agreement, the monthly remuneration is set at PLN 500. The taxpayer does not have to pay tax on this amount and does not show the value of the remuneration in the PIT declaration. The remuneration for the establishment of a transmission easement is completely exempt from personal income tax.

Transmission easement on the basis of VAT

Let us now turn to the tax on goods and services.

According to Art. 8 sec. 1 point 2 of the VAT Act, the obligation to refrain from performing an activity or to tolerate an activity or a situation is also considered a taxable provision of services for consideration. Transmission easement falls within the scope of this definition, as the owner of the encumbered property must tolerate the presence of transmission facilities on its property. Additionally, as we have already indicated, the transmission easement is paid for.

At first glance, it may seem that the establishment of an easement is subject to VAT.However, it should be noted that in order for this tax to occur, the activity must be performed by a taxpayer within the meaning of the VAT Act. On the other hand, the analysis of the definition contained in Art. 15 sec. 1 of the VAT Act leads to the conclusion that the taxpayer is only the entity conducting business activity.

Activities that are not performed under the conditions of business activity, i.e. those relating to the management of private property, do not fall within the scope of the Value Added Tax Act. This is because this applies only to professionals conducting independent economic activity, regardless of the purpose or result of such activity.

This means that if the real estate is in no way related to business activity, the establishment of a transmission easement on it is an ordinary exercise of the right to manage personal property and is not subject to the regulations of the VAT Act. Start a free 30-day trial period with no strings attached!

Example 2.

A natural person running a business has concluded an agreement with a telecommunications company to establish a transmission easement on its private land. This land is not used in the business and is part of the taxpayer's personal property. In these circumstances, there is a supply of services for consideration, which, however, is not subject to VAT as it relates to the taxpayer's private and not business assets.

This was also the position of the Supreme Administrative Court in the judgment of February 19, 2015, I FSK 276/14, where the legal justification indicated that although the establishment of a transmission easement for a fee under a contract falls within the concept of providing a service, within the meaning of Art. 8 sec. 1 point 2 in connection with Art. 5 sec. 1 point 1 of the act on tax on goods and services, but for its taxation it is necessary that the entity providing such a service act as a taxpayer of the tax on goods and services referred to in art. 15 sec. 1 and sec. 2 of the above-mentioned act, in relation to this taxable activity. The establishment of a transmission easement is subject to VAT only if the contract is concluded by a VAT payer in the scope of business activity and includes the encumbrance of the real estate used in this activity. Summarizing the above, we can indicate that the transmission easement produces different tax effects depending on whether we look at the remuneration we receive from the PIT or VAT perspective.

As regards personal income tax, it is income from other sources, which, however, benefits from a tax exemption pursuant to Art. 21 sec. 1 point 120a of the PIT Act.

In the field of value added tax, it becomes crucial to determine whether the transmission easement is established by a private person or by a taxpayer conducting business activity. In the first case, the VAT Act will not apply at all because it does not cover activities related to personal property. In the second case, it will be necessary to tax the provision of the service referred to in art. 8 sec. 1 point 2 of the VAT Act.