Positive individual tax ruling will also protect VAT refund entitlements

The Provincial Administrative Court in Warsaw has issued a key decision for those entities operating in the real estate market. The case related to the consequences of the proper qualification of a shopping centre for the purpose of VAT taxation: if it was deemed that an asset (in this case in the form of a shopping centre) was sold, the parties had the right to opt for VAT taxation of the transactions; however, if the centre was to be considered an organised part of an enterprise, the buyer would have been liable to pay tax on a civil law transaction. The parties obtained a tax ruling confirming that the object of the sale contract did not have the status of an organised part of an enterprise.

The Provincial Administrative Court in Warsaw addressed the issue of the scope of protection of the issued tax ruling in its verdict of 20 February 2018 (file ref. III SA/Wa 1896/17). The tax authority maintained that the protection afforded under the ruling was limited to the absence of the obligation to pay the tax due and interest, and the non-application of a penal and fiscal sanction. According to the authority, this did not, however, extend to the guarantee to exercise the right to claim a refund of the surplus input VAT over the output VAT and, consequently, refused to make the VAT refund to the buyer. The court agreed with the buyer and indicated that compliance with the tax ruling had to afford the buyer’s broad protection, especially against the tax authority’s refusal to grant the buyer the VAT refund.

Actual impact on a company to be considered before granting exemption from a taxation of interest

The Provincial Administrative Court in Łódź resolved a dispute concerning the continuity of the stake holding in a company paying interest for the purpose of its exemption from CIT taxation in its verdict of 25 January 2018 (file ref. III SA/Łd 1060/17). A Dutch company held a stake in a Polish company to which it had granted a loan. The Polish company was merged with another Polish company whereby all its assets were transferred to the acquiring company (a subsidiary of the Dutch company) whereas the assets of the acquired company were obliterated. The dispute with the tax authorities related to the tax charged on the interest the Dutch company wished to recover by arguing that, prior to and after the merger, it held, on aggregate, at least 25 per cent of the shares in the borrower company for a minimum period of two years. The tax authorities found that the merger interrupted the period of holding the shares and, consequently, the Dutch company was not entitled to the exemption.

The court ruled that a merger does not result in a “divestment” from the shares held in the acquired company, but merely in their replacement with the shares of the acquiring company. Invoking the principle of general succession, the court stated that the period of holding of the company’s stake prior to the merger and of the shares of the acquiring company after the merger had to be aggregated for the purpose of an application an exemption from the taxation on the interest paid.

Accounting and IT services expenses, and some know-how fees to be charged against costs in full

The tax authorities have issued their first rulings on the amended provisions of the CIT Act concerning restrictions on the charging of individual expenses against tax-deductible expenses. A cap on the expenses incurred for broadly understood intangible services that tax payers can recognise as tax deductible expenses in the case of their purchase from related parties has been in place since 1 January 2018. A deduction of up to PLN 3 million can be made annually, whereas any surplus can constitute a tax-deductible expense of up to 5 per cent of the EBITDA.

The Director of the National Revenue Information Service (KIS) explained that the notion of “advisory services” did not extend to those services concerned with maintaining accounting ledgers, records or registers, or drafting financial statements (tax ruling of 20 February 2018, file ref. 0111-KDIB1-2.4010.2.2018.1.AW). Furthermore, according to the KIS, the limitation do not include IT support services consisting of, among other things, network administration, hardware operation monitoring, or new system implementation services, etc. (tax ruling of 5 March 2018, file ref. 0111-KDIB2-1.4010.357.2017.2.MJ). The cap also does not apply to the costs of those services treated by the tax payer as costs when directly associated with the manufacture or purchase of goods, or the provision of services even if those are the fees paid in consideration of provided know-how (tax ruling of 19 February 2018, file ref. 0111-KDIB1-1.4010192.2017.1.BK).

The threshold for documenting loans for transfer pricing purposes to be defined, not only by interest, but also by principal

According to the Director of KIS, the value of a loan qualifying a given transaction as subject to the obligation to a draft transfer pricing documentation is made up of both the value of the interest due and of the value of the loaned principal (tax ruling of 14 February 2018, file ref. 0115-KDIT2-3.4010.379.2017.1.JG). This means that the principal portion of the loan, and not merely the value of the interest, needs to be considered in order to determine whether or not the loans made between the related parties fall within the caps referred to in Article 9a(1d) of the CIT Act and, consequently, whether the need arises for drafting transfer pricing documentation.