Tax News January 2018

Date of an article 29 January 2018 r.

Tax News January 2018

The deadline to pay the new tax on commercial real estate falls on 20th of February

APA (advanced pricing arrangements) are to facilitate tax deductibility of expenses on intangible services

Refund of overpaid taxes based on ECJ ruling and the statute of limitations for taxes

CIT amendments already amended (with retroactive effect)

Advisory services do not have to be rendered by a scientific unit for R&D relief

Due income arises as at the date of signing the agreement, irrespective of the date when the claim becomes due

Earlier termination of lease contract – contractual penalty as tax deductible cost

 

The deadline to pay the new tax on commercial real estate falls on 20th of February

Starting from 1 January 2018, new regulations amending the CIT act have been in force. This means that the taxpayers are obliged now to pay “minimum tax” on the commercial real estate they own.

The deadline to pay the first advance falls on 20th of February.

We would like to remind you – in a nutshell – how this new tax works:

  • the tax is due on commercial real estate whose value exceeds PLN 10 Mio.
  • the base for calculating the tax is the gross initial value (for taxes), i.e. without depreciation, increased by improvements
  • the tax rate is 0.035% on the value exceeding PLN 10 Mio.
  • minimum tax may be “set-off” against due CIT – taxpayer may refrain from paying it if it is lower than CIT advance due.

APA (advanced pricing arrangements) are to facilitate tax deductibility of expenses on intangible services

Starting from 1 January 2018, there is a threshold for deducibility of costs of intangible services obtained from related entities – expenses exceeding 5% of EBITDA are denied for income tax.

This limitation does not, however, cover a few cases. One of such is a situation when costs of intangible services result from a transaction, the conditions of which had been covered by a decision approving the methodology of choosing and applying the method for assessing transfer prices between related entities (APA).

For some time the tax authorities have been declaring that the APA procedure will be simplified, in order to make it easier for taxpayers to finalise such arrangements with the tax authorities. So far, however, no details of changes in the regulations have been disclosed, which would address the simplification of the APA procedure.

Please contact us if you wish to verify the application of APA for your business case as well as initiate that procedure.

Refund of overpaid taxes based on CJEU ruling and the statute of limitations for taxes

On 20 December 2017, CJEU ruled in a case which had earlier been proceeded by the Polish tax authorities and later on administrative courts (Polish Supreme Administrative Court case no.: I FSK 224/15).

Proceedings in front of the Polish tax authorities concerned a Polish limited liability company which in 2013 had sought a refund of overpaid VAT for the years 2005, 2006 and 2007. The basis for the refund application was a verdict issued by the CJEU proving groundlessness of levying VAT (namely: C-224/11 BGŻ Leasing sp. z o.o.).

The authority refused to initiate refund proceedings invoking the statute of limitations which had passed. The taxpayer did not agree with this approach and pointed out that in this particular case the standard 5-year statute of limitations should not apply, as in this extent it is incompatible with the EU law. The case finally went to the SAC, which decided to file a motion for a preliminary ruling to the CJEU.

The CJEU ruled that there are no obstacles in the light of the Treaty on European Union for the domestic regulations to envisage a limitation to seek a refund of unlawfully paid taxes if a motion for such had been submitted after the statute of limitations for taxes lapsed – even if the grounds for the refund application was a CJEU verdict.

CIT amendments already amended (with retroactive effect)

On 4 January 2018, a bill was published on the website of the National Bureau of Legislation, which is to amend the recently passed amendments e.g. to the Polish CIT act (which entered into force starting from 2018).

In a press statement Maciej Żukowski – a director in the department of income taxes in the Ministry of Finance – as a justification to introduce these new changes pointed out to the need to clarify the previous amendments due to doubts arising regarding the wording. This is also the reason for the retroactive effect of the changes (as of 1 January 2018).

Not all the changes, however, are only a clarification. The bill includes in particular the following changes:

  • capital injections to companies will not be subject to CIT, only in-kind contributions (the previous amendment introduced taxation of all types of contributions);
  • the possibility for the tax authorities to assess income/loss in case the value of liabilities exceeds the value of financing which could be granted to the taxpayer by a non-related entity (new regulation).

All the other changes and the status of the legislative process can be tracked under this link: https://legislacja.rcl.gov.pl/projekt/12306805

Advisory services do not have to be rendered by a scientific unit for R&D relief

Starting from 1 January 2016, regulations have been in force concerning a so-called R&D relief (which replaced the previous technological relief). These regulation provide the opportunity to reduce the tax base by a part of qualified costs expensed for research and development activities. Given that such expenses had been included earlier as tax deductible costs, the result is that some costs are expensed for taxes twice.

The regulations include a catalogue of expenses qualifying for this second settlement within the relief. One of the groups indicated covers advisory services, opinions, expert assessments and also acquisition of results of scientific research, carried out by a scientific unit (as understood under the regulations on the rules for financing science).

On 19 December 2017 the Voivodship Administrative Court in Warsaw, in the case I SA/Łd 914/17, issued a verdict concerning the scope of the R&D relief. The court pointed out that due to the literal wording of Art. 18d(2)(3) of the CIT Act, covered by this relief are: advisory services, opinions, expert assessments, irrespective of whether they are rendered by a scientific unit or not. Involvement of a scientific unit is required only in the case of expenses on acquisition of scientific research.

This ruling is still not binding and the justification has not been yet disclosed. Nevertheless it appears that it touches upon significant practical outcomes – it may lead to including in the qualified costs not only the expenses on salary of employees employed based on a work contract or commission agreement, but also the ones making settlements with the taxpayer by way of rendering services as sole proprietors. We will continue to track the whereabouts of the proceedings and will keep you informed as soon as any developments are disclosed.

Due income arises as at the date of signing the agreement, irrespective of the date when the claim becomes due

The SAC in the case no. II FSK 2815/15, when analysing the provisions of a share sale agreement, ruled that due income arises at the moment of concluding the agreement. The court pointed out that for the purposes of deciding on the date when the revenues arise, the provisions of the agreement are irrelevant, in particular the date when the claim becomes due irrelevant.

Important is only, says SAC, whether a given revenue belongs to the seller, and as for the question of date when claim is due and the outcomes of that – this is outside of the scope of the analysed matter.

Earlier termination of lease contract – contractual penalty as tax deductible cost

The SAC was considering a case of a taxpayer, who had been running a network of coffee houses. This taxpayer often, with respect to its business activities, reaches decisions on earlier termination of certain lease contracts (before their standard term passed) and incurring a contractual penalty as a result of such action. From the business perspective, this is expected to be a countermeasure against suffering any further losses in the case of coffee shops not reaching the assumed levels of profitability. In each such case the value of the contractual penalty is lower than the value of the estimated losses that could have been suffered.

In the tax ruling issued, the tax authority did not agree with the tax payer and ruled that expenses of this kind should not be tax deductible. The case ended up in the Supreme Administrative Court which took a standpoint favorable for the taxpayer.

The SAC noted that as tax deductible costs should be considered such expenses which were incurred by the taxpayer as a result of rational endeavor and objective possibility of deriving revenues (or retaining or securing a source of revenues), and which were not listed in the Art. 16(1) of the CIT Act.

According to SAC, in the case of damages, contractual penalties and other expenses resulting from withdrawing from a lease contract, it should be considered that they tend to show a link with revenues as long as the taxpayer is considering a possibility of deriving such, at least potentially some revenues, either based on a particular transaction or as a result of reducing indirect costs, so – general ones, concerning their business activity. It should be therefore be appraised in a case like that, says the SAC, the rationality of particular action for deriving revenues.

The SAC underlined that whenever there are costs indirectly related to revenues and concerning the activities of a taxpayer as a whole, these may be in the case of paying contractual penalties link them with securing a source of revenues. When justifying its standpoint, the SAC mentioned the resolution of SAC of 25 June 2012, II FPS 2/12, addressing the rationality of costs borne in the context of expensing them for income taxes.

Similar view was presented by the SAC in a verdict of 7 September 2017 (II FSK 2054/15).

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