There is no end to disputes with the tax authorities as to whether the division of real estate into several plots and their sale is already a business activity or a sale of private property. The latter is not subject to income tax if the sale of real estate took place after 5 years from their purchase (Article 10 (1) (8) of the Personal Income Tax Act). Unfortunately, the tax authorities perceive sales as conducting business activity – often wrongly – depriving taxpayers of tax preferences, because the entrepreneur is obliged to settle the tax regardless of the date on which the property is sold.

The source of the problems is the definition of economic activity in the Personal Income Tax Act (Article 5a (6) of the Act), which leaves a great deal of freedom in interpretation. As a result, all activities characterized by professionalism, repetition of activities and intention to make a profit can be considered an economic activity.

There is no clear limit from how many plots of land and under what circumstances a business sale begins. Due to the above, each case is analyzed individually by administrative authorities and courts. For example, in the interpretation no. 0112-KDIL2-1.4011.484.2020.3.MKA, the Director of the National Tax Information Office concluded that the sale of 3 plots to a developer for the construction of houses causes the taxpayer to become an entrepreneur, despite the fact that the plots had been idle for many years and were initially intended for the construction of single-family houses for three children. The fact that the taxpayer granted a power of attorney to the developer was a sufficient basis for adopting this position by the Director of the National Tax Information Office.

Fortunately for sellers who have been wrongly classified as entrepreneurs, administrative courts have recently issued many favorable rulings on the definition of economic activity in the context of the sale of private property. In the opinion of the Supreme Administrative Court, the number and scope of transactions cannot be decisive when assessing the nature of sales made by a taxpayer. A one-time disposal of large assets may be difficult or less beneficial than the divided ones. The owner who cannot sell the whole property will successively sell part of his property (judgment of the Supreme Administrative Court of March 5, 2019, ref. II FSK 829/17). Summing up, the tax office should not only consider the number of transactions. The sale of both one plot and twenty plots may still constitute a sale of private property – the circumstances of the case should decide. It is particularly important in similar cases to entrust the case to a professional representative who will take into account all circumstances favorable to taxpayers.