Speakers from TPA Horwath presented their view on the current tax environment in the CEE countries (with a focus on the Czech Republic, Poland & Romania) in the real estate sector together with the proposed tax changes and tax policies followed in case of potential tax issues. Quick overview of the valuation field was also provided.
Key critical tax aspects for investors to look at when planning the real estate transaction
• Consider the appropriate tax structure upfront and reflect any specifics of the transaction including its closing and any post-closing reorganization requirements
• Financing aspects to set up any leverage in the tax effective manner, i.e. meeting local tax law requirements such as thin capitalization rules and other local specifics
• Address potential foreign exchange rate issues related to the denomination of accounts in local currencies while the purchase price, financing provided and rental income may be denominated in foreign currency (in principle EUR)
• Distinguish between tax specifics of the share deal and asset deal transactions and explore market practice to properly address them
Most frequent tax due diligence findings or matters which may require closer attention
• Assessment of the tax book value of assets to address any potential latent capital gain consequences (i.e. difference between the fair value and the tax book value)
• Transactions carried out with related parties and transfer pricing position review and confirmation on the proper supporting documentation
• Any deferred tax elements which should be reflected in the purchase price and/or otherwise addressed
• VAT agenda and compliance with the focus on the capital good scheme aspects and any potential undisclosed or unrecoverable VAT liabilities
• Fit-out recognition and related tax treatment applied to consider any potential tax effects (which may crystalize even after closing of the transaction)
• Property tax aspects
Specific topics in valuation field
• Exchange rates (local currencies vs. EUR) movements can significantly affect a value of real estate projects. From the accounting perspective, this may have impact not just in the profit and loss account but also other balance sheet items (e.g., effective equity position upon reorganization, reporting and consolidation).
• Despite the new Civil Code effective in the Czech Republic from 1 January 2014 which considers the building and related land beneath to be one object, the accounting and tax law still require a split and allocation of the value between land and building. Further aspects and interpretation of new Civil Code provisions are still under the discussion of real estate professionals
Selected market trends during last years
• Successful shopping center projects in regional cities
• Increasing the difference in value between prime and class B & C projects
• Moving of companies from Prague’s city center and outlook for the refurbishment of buildings to residential projects
Speakers
Ms. Malgorzata Dankowska – Partner TPA Horwath Poland, Warsaw‘s office (tax specialist)
Mr. Jiri Hlavac – Partner TPA Horwath Czech Republic, Prague‘s office (valuation & structuring specialist)
Mr. Stefan Falis – Senior Manager TPA Horwath Czech Republic, Prague‘s office (tax specialist)
Ms. Andreea Florian, Senior Manager TPA Horwath Romania, Bucharest‘s office (tax specialist)
