POLISH MISSION PROTESTS NYC REAL PROPERTY TRANSFER

UNCLAS USUN NEW YORK 000607 SIPDIS IO/UNP: SUSAN EDMONDSON E.O. 12958: N/A TAGS: PREL OFDP PL KREC SUBJECT: POLISH MISSION PROTESTS NYC REAL PROPERTY TRANSFER TAX (RPTT) ¶1. (U) This is an action request. See paragraph 8. ¶2. (U) SUMMARY: Representatives of the Polish Mission to the UN (PMUN) met June 16 with the NYC Commission for the UN (NYCC) to clarify rules re Real Property Transfer Tax (RPTT) in NY. USUN/HC was invited to attend. The PMUN is in contract to sell a small property next week and NYC's tax regulations stipulate that, in this case, the RPTT (a tax normally paid by seller) must be paid by the buyer since the PMUN is exempt from paying tax per a bilateral agreement. The PMUN believes the transaction should be exempt and views NYC's application of RPTT as a breach of the bilateral treaty since, in practice, the PMUN must lower the sales price to secure a buyer. Of greater concern is the tax implication for a prospective sale of the PMUN's $50 MIL office building in 2010. The PMUN warned that its government must consider applying reciprocity toward the USG in Poland if NYC's rules prevail. The PMUN wants USG intervention and USUN/HC advised it to raise the matter with DOS through its Embassy in Washington. END SUMMARY. ¶3. (U) On June 16, armed with a diplomatic note HC-52-09 from USUN/HC and Article 18 of the Bilateral Agreement between the USG and Poland, the PMUN's Deputy PermRep Pawel Herczynski, and local lawyer Jerzy Sokol protested the application of Real Property Transfer Tax (RPTT) to the sale of its Queens, NY property scheduled to occur the following week. Since RPTT is a tax normally paid by the seller, Sokol claimed the exemption is, in practice, invalid since buyers would clearly expect to be accommodated by a reduction in price commensurate with the tax, particularly in the current sales market. The DPR and his lawyer stated: - NYC position that the buyer pay the RPTT, in this particular sale, was financially disadvantageous to the PMUN and is clearly a breach of the spirit of the bilateral agreement, if not the letter of it. - The PMUN was surprised that NYC, was "trying not to obey the bilateral agreement" since its regulations make the PMUN pay the tax by the "back door." - Using sales tax exemption as an example, the DPR said its value was that the tax on the transaction itself was waived, i.e., the merchant was not expected to pay the sales tax, either. - NYC's local tax regulations that RPTT must still be paid if both parties were not exempt, was actually discriminatory. Sales among exempt parties were a minuscule percentage of property sales and did not apply in their current sale. - The Bilateral Agreement is not interpreted in this way in Warsaw and if NYC and the USG accept these terms, then the Polish Government will consider invoking reciprocity in Poland. NYC on RPTT ¶4. (U) New York City Commission for the UN, Consular Corps and Protocol (NYCC),part of the Office of the NYC Mayor, was represented by Deputy Commissioner Bradford Billet and General Counsel Linda Wayner. Wayner and Billet said the following: - The bilateral agreement did not state all sales transactions of real property are exempt, but only specified that the Polish Government was exempt to which NYC agreed. - In the U.S., its states, cities and municipal authorities have the power to interpret the law (in this case the bilateral agreement). While NYC agrees that the Polish Mission is exempt from the RPTT, payment of this tax was a pre-condition for transfer of property and therefore must be paid by the buyer, if the buyer is not an exempt entity. - NYC courts had ruled that this interpretation was consistent with the exemptions allowed. - There are certain costs associated with doing business in NY. Wayner cited the example of companies that might increase the cost of leasing property to diplomats because of risks assumed since diplomats cannot be taken to court. - The Mayor's Office (which NYCC represents) has no authority to change these tax regulations that were enacted by the City's government and confirmed in court rulings (though no specific cases involving diplomats had been heard). - In regard to the prospective sale of PMUN property valued at over $50 million, Wayner contemplated that the PMUN might consider it worthwhile to set aside money for litigation on this point since no diplomatic case had been heard in NY courts. USUN/HC Intervention ¶5. (U) MinCouns Graham stated that he was in listening mode and would take the position of the PMUN back to Washington. - He noted that the USG position was clear in HC-52-09 that the PMUN was exempt from the RPTT. - He asked, and received clarification from NYCC that the RPTT was, indeed, a tax and NOT a service fee for registering the transaction. - MinCouns Graham told the PMUN that reciprocity is not appropriate in the multilateral context in New York since member states are treated in the same manner with exceptions only on national security grounds. Conclusion ¶6. (U) The meeting ended cordially but with no resolution. The PMUN's DPR requested the City's position in writing and stated that it appeared a clear breach of the intent, if not the letter of the Bilateral Agreement. He repeated that the Polish Government would have to consider reciprocal taxation on USG property transactions in Poland. To the suggestion from NYCC to litigate, he said that this was not the usual course of action taken by the GOP. ¶7. (SBU) COMMENT: USUN/HC MinCouns was sympathetic to the Polish Mission's concerns and provided information from the NYC Finance Department's website to the PMUN, which appeared to contain possible loopholes that the Mission's lawyer could explore. He also advised the DPR privately to have his Embassy discuss the matter with Washington, particularly in regard to an upcoming $50 million sale of property. The Polish Government appears not to be overly concerned that the PMUN will probably be forced to reduce the sale price on the current contract by $10K in what it sees as a "back door" tax imposed by NYC. The GOP is concerned about the principle involved and what is likely to happen if they sell the $50 million property in 2010. For that reason, the Poles cannot really understand why the Department does not tell the City to back down. USUN expects that the GOP will raise this issue bilaterally in both Washington and Warsaw even if the current sales transaction is completed. ¶8. (U) USUN seeks Department view. RICE