Taxation of the donation in terms of VAT

The provisions of the Polish Order have raised doubts among taxpayers about VAT taxation of the transfer of a fixed asset purchased from a lessor for private purposes. According to them, fixed assets, after being taken out of a private lease, disposed of by means of a sale transaction within six years from the first day of the month following the month in which the asset was taken out of business, are to be considered as business income subject to value added tax.

This question prompted a Polish entrepreneur to submit a request for an individual interpretation to the Director of the National Fiscal Information (hereafter NFI).

During the course of his business, the applicant made a private purchase of an excavator for non-business purposes, which he acquired through an operating lease agreement. During the term of the contract, he exercised his right to deduct input VAT on expenses related to the operation of the machine. After the buyout, he intends to give the machine to his wife under a donation agreement. The wife is also self-employed but not registered as an active VAT payer. In the applicant’s view, the transaction in question is not subject to VAT because it will be implemented as a donation of personal property and the taxpayer will be exercising their right to dispose of their own property.

In order for an activity to be subject to VAT, it must be defined in the law as being subject to VAT and be performed by an entity that is subject to VAT in connection with its performance (Articles 7, 8 of the VAT Act).

In the event that the disposal of personal property is an occasional activity that is not continued and is not carried out on a permanent basis, it cannot be considered to be an economic activity ( Article 15(2) of the VAT Act).

An individual person who carries out one-time transactions and does not conduct organized or registered business activity or carries out the given activity outside the scope of his/her business activity is not subject to VAT with regard to the given activity. This also applies to the sale, transfer, or donation of goods that are part of his/her personal property, i.e. property which was not acquired with a view to its sale.

Therefore, it is reasonable to confirm the position of the taxpayer by the director of NFI in an interpretation dated 23 June 2022 (sign. 0113-KDIPT1-3.4012.249.2022.1.AG). He emphasized that an activity is subject to value-added tax when it is carried out by an entity with the status of a taxable person acting as such in respect of that activity. In connection with the donation of the excavator, the entrepreneur will not be acting as a taxable person within the meaning of Article 15(1) of the VAT Act but will be making management of personal assets. In the context of the verification of taxation of a donation with the tax on donation or its exemption, it is recommended to analyze the provisions of the Act on inheritance and donations in terms of the situation described by the applicant.

Author: Karolina Bartos