Investments in wind power plants - the Act of May 20, 2016

The Act of May 20, 2016 on Investments in Wind Power Plants (Journal of Laws of 2016, item 961; hereinafter “the Act”), which came into force on July 16, 2016, may introduce changes to the real estate tax regime for wind power plants.

So far, tax authorities and administrative courts have commonly taken the approach that only structural parts of wind power plants, i.e. the foundations and towers (masts), were subject to real estate tax while the remaining elements were exempted. After the entry into force of the Act, tax authorities could argue that as from January 1, 2017 real estate tax should be levied on an entire wind power plant, including its technical components (rotors with blades, complete drive trains, power generators, nacelles etc.).

First and foremost, it is necessary to point out that the Act does not explicitly change the rules for levying real estate tax on wind power plants. A change in taxation can be however inferred from its wording.

First, in Article 2 item 1 the Act introduces a definition of a wind power plant whereby a wind power plant is defined as a building structure (in Polish: budowla) within the meaning of the Building Law, consisting of at least foundations, a tower and technical components. In other words, the Act defines an entire wind power plant as a building structure.

Secondly, the Act amends the definition of a building structure in Article 3 item 3 of the Act of July 7, 1994 – the Building Law by deleting “wind power plants” from the section referring to structural parts of technical facilities constituting a building structure. Moreover, “wind power plants” are added in category XXIX in the annex to the Building Law listing different categories of building objects (in Polish: obiekt budowlany). In view of these changes, it would be possible to conclude that technical components of a wind power plant will also constitute a building structure and, as such, will be subject to real estate tax.

Thirdly, the Act’s transitional provisions set out that until December 31, 2016 real estate tax applicable to wind power plants is to be assessed and levied in the same way as before the entry into force of the Act. This seems to strongly suggest the legislator’s intention is to change the rules for levying real estate tax on wind power plants as from January 1, 2017.

Even after the entry into force of the Act it is still possible to find legal arguments to support the view that only structural parts of a wind power plant, without technical components, are subject to real estate tax. Most importantly, the Act on Local Taxes refers to the definition of a building object in Article 3 item 1 of the Building Law, which defines a building object as “…a building, a building structure or a small architecture structure, along with installations enabling the object to be used in accordance with its intended purpose and built using construction materials (in Polish: wyroby budowlane).” It could be claimed that, unlike foundations and towers (masts), technical components of wind power plants are not built using construction materials, and consequently are not building objects within the meaning of the Building Law. In addition, technical components of a wind power plant can be easily replaced or removed with no disturbance to its structure. As a result, it could be claimed that technical components of a wind power plant do not constitute a building object within the meaning of the Building Law and should not be subject to real estate tax.

Before the entry into force of the Act, Article 3 item 3 of the Building Law stated that „a building structure includes also (…) structural parts of technical facilities (boilers, industrial furnaces, wind power plants, nuclear power plants, and other facilities).” After the entry into force of the Act, “wind power plants” are missing from the list compiled in Article 3 item 3 of the Building Law. Tax authorities could argue that this change demonstrates the legislator’s intention to classify an entire wind power plant as a building structure (and thus make all of it subject to real estate tax). On the other hand, the list of structural parts of technical facilities constituting a building structure in Article 3 item 3 of the Building Law shows only examples and is not exhaustive so it is possible to argue that wind power plants fall within the category of “other facilities.”

It is also worth taking a look at ruling P 33/09 of the Constitutional Tribunal of September 13, 2011 concerning the so-called mining pits, in which the Constitutional Tribunal determined that only the following may be regarded as building structures for the purposes of real estate tax:

1. building structures expressly listed in Article 3 item 3 of the Building Law or in other provisions of the Building Law or in the annex to it, which along with the installations and facilities constitute a building object referred to in Article 3 item 1.b of the Building Law;
2. construction facilities described in Article 3 item 9 of the Building Law or in other provisions of the Building Law or in the annex to it, and if such facilities are not expressly described, it is necessary to demonstrate their ability to enable the building object to be used in accordance with its intended purpose.

The ruling’s interpretation could point to a conclusion that the definition of a wind power plant in the Act, referring to the Building Law, does not apply for the purposes of the Act on Local Taxes.

To sum up, the Act on Investments in Wind Power Plants introduces uncertainty as to how real estate tax is to be levied on wind power plants. The Act seems to suggest that the legislator wants to levy that tax on an entire wind power plant. As from January 1, 2017 municipalities will be entitled to interpret provisions of the new Act in relation to real estate tax. The uncertainty caused by the new Act will most likely give rise to numerous court disputes.

Please do contact us if you wish to receive more information about the potential levying of real estate tax on wind power plants as from January 1, 2017 and prepare for the imminent changes.