NEWSLETTER. Table of contents TOPICS OF THE MONTH 2 RECENT TAX RULINGS 5. September 2016

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1 NEWSLETTER September 2016 Table of contents TOPICS OF THE MONTH 2 Ministry of Finance announces which costs of business trips can be deductible 2 Sale of debts as a form of tax optimization 3 Depreciation of building partially leased free of charge 4 RECENT TAX RULINGS 5 An imprecise invoice does not exclude the right to recognize input VAT 5 Recompense instead of a company car 5 Deduction based only on scanned invoice 5 Disclaimer 5

2 Topics of the month Ministry of Finance announces which costs of business trips can be deductible On 18 August 2016 the Ministry of Finance published on its official website sip.mf.gov.pl (ref. no /K) a clarification regarding deductibility of costs of business trips of selfemployed persons under the Personal Income Tax Act. According to the document, costs of travel can be deductible expenses when certain circumstances are met: If travelling by public transport, an amount up to the price of the ticket for the specific means of transport (train, bus, ferry or plane) is deductible. If travelling by a company-owned car, the costs of fuel, parking, tolls, car wash, repair, and towing are deductible expenses. The basis for such settlements are invoices, bills, and payment receipts. If travelling by car used on the basis of a mileage allowance, deductible expenses can cover up to the amount resulting from the mileage allowance (the number of kilometres driven times the applicable rate per km appropriate to the vehicle). The taxpayer is obliged to keep records of the mileage allowance. Within the limit of the mileage allowance, deductible costs also include other costs related to the use of the car, e.g. parking fees and tolls, with the exception of costs of car rental, as confirmed by the general tax ruling of the Minister of Finance of 11 August 2013, no. DD2/033/55/MWJ/13/RD The Ministry of Finance also addressed expenses associated with parking, documented with a parking meter ticket, coupon or one-time ticket which does not contain the taxpayer s details. In this case, it is necessary to prepare an internal record and attach it to the document. Expenses incurred abroad for the purchase of fuel can be documented by receipts or other cash evidence. The details of the taxpayer and the type of goods purchased must be recorded on the back of the document. The Ministry of Finance also refers to accommodation expenses. The costs of accommodations in the amount indicated in an invoice or bill are deductible (limits for workers do not apply to self-employed persons). In the case of the cost of travel by public transport the deductible cost is the expense confirmed by the fare ticket or other document indicating the amount of the expenditure 2

3 incurred on the specific means of transport (lump-sum payments for employees do not apply to self-employed persons). Deductible costs also include other expenses, e.g. tickets to trade fairs, exhibitions and shows and baggage fees in the amount confirmed by an invoice or bill. In addition to actually incurred expenditures, the amount of the daily allowance provided in regulations for employees also qualifies as a deductible business cost. Because selfemployed taxpayers are entitled to a daily allowance, dining expenses are not separately deductible even if documented by receipts. The daily allowance is intended to cover the increased cost of dining when travelling. The basis for recognition of such costs as deductible should be an internal document prepared by the taxpayer settling the expenses for the business trip. Sale of debts as a form of tax optimization According to Art. 16(1)(20) of the Polish CIT Act, written-off time-barred receivables cannot be recognized as tax-deductible costs. In terms of the statute of limitations, it should be mentioned that: 1) Limitations periods are prescribed in the Polish Civil Code. 2) Limitations periods are effective by operation of law, and in the case of time-barred receivables, enforcement proceedings cannot be commenced. The limitations periods provided in the Civil Code for receivables are as follows: 1) 10 years general limitations period 2) 3 years for periodic settlements or receivables related to business activity 3) 2 years for claims connected with professional sales. All of the limitations periods mentioned above begin to run when the receivable falls due. In brief, it may be difficult for companies issuing significant amounts of sale invoices to recognize the potential risk of time-barred receivables, mainly for those who carry out professional sales. In such cases a quite unfavourable situation may occur where the taxpayer was obliged to pay income tax on the revenue under the invoice, but while obtaining no payment is not allowed to recognize the outstanding balance as a tax-deductible cost. One of the best remedies is to sell the time-barred receivable. 3

4 In the opinion of the Supreme Administrative Court (Case II FSK 1958/14), a taxpayer is entitled to recognize the tax loss on the sale of a receivable even though it was already time-barred. The tax loss should be calculated as the difference between the price for the receivable and its nominal value including VAT (judgment of the Supreme Administrative Court of 11 June 2012, Case I FPS 3/11). Depreciation of building partially leased free of charge To avoid potential situations where taxpayers acquire fixed assets which are not used for business activity, the relevant provisions of the Polish CIT Act prescribe certain limitations. According to one of them, depreciation costs related to tangible or intangible assets leased free of charge are not tax-deductible (for the months when those fixed assets were leased). There are many reasons for granting a lease free of charge. They may be related to business purposes (e.g. premises leased to related parties) or social reasons (e.g. free lease for charity organizations). The legal analysis of the CIT Act provisions mentioned above may raise questions whether this limitation concerns granting a free lease of the whole property or also a part of the premises. The judgments of the administrative courts are not entirely consistent. In the judgment of the Supreme Administrative Court of 23 June 2010 (Case II FSK 259/09), the court held that in the case of letting just a part of the premises free of charge, only part of the depreciation cost must be excluded from the expenses. Conversely, in the judgment of 26 January 2012 (Case II FSK 1217/11), the same court stressed that the method presented before was not expressly provided for in the tax law. A more recent judgment, of 15 July 2016, states clearly that there is no connection between the depreciation costs related to the part of the building which was leased free of charge and taxable revenue. The argument that it could be a sort of brand-building by the taxpayer was not persuasive for the Supreme Administrative Court. The recent ruling seems to be based on reliable grounds. Taxpayer that own properties should take this holding into account, especially when they are involved in social events for charity. On the other hand, those arguments should not be interpreted as contrary to incentives for tenants. Such benefits are based only on business purposes aimed at building relations with business partners. 4

5 Recent tax rulings An imprecise invoice does not exclude the right to recognize input VAT The Court of Justice of the European Union has issued a ruling concerning the deductibility of VAT under invoices found to be facially insufficient due to the lack of a detailed description of the services provided. The case concerned a hotel in Portugal whose deduction of input VAT under invoices for legal services was questioned by the tax authorities, arguing that the description of the services was not detailed enough. The Court of Justice held that the local court must consider all the information included in the invoices as well as annexes presented by the taxpayer to ascertain whether the substantive conditions for the taxpayer s right to deduct the VAT are satisfied. If the tax authorities can determine the true circumstances justifying the deduction of input VAT, they cannot impose any additional, formal conditions on the right to deduct the VAT (Barlis 06, Case C-516/14, judgment of 15 September 2016). Recompense instead of a company car If a manager is not interested in using a company car, additional money, as recompense, may be paid instead. Moreover, such an expenditure may be considered a tax-deductible cost for the company, the Ministry of Finance held in the binding tax ruling no. IBPB-1-3/ /16-1/SK. Deduction based only on scanned invoice The director of the Bydgoszcz Tax Chamber confirmed in tax ruling no. ITPP3/ /16/MD that the fact that a taxpayer stores its purchase invoices in electronic form (scanned pdf files) does not have any negative impact on the right to deduct input VAT on the invoices. Disclaimer The KR Group Newsletter shall not constitute tax or legal advice. 5

6 KR Group is an independent, fast-growing accounting and auditing group with an international reach. Our head office is located in Warsaw. For over sixteen years we have been providing professional services in accounting, tax, audit, legal advice, payroll and human resources. At present, we have over 120 staff on our team. Our managers have experience with the major accounting and consulting firms. Currently, we work with international clients who are leading players in their industries, such as real estate, retail, manufacturing, investment funds, IT, gas exploration and extraction, automotive and FMCG, in Poland and around Central & Eastern Europe. We strive to ensure that our work is guided each day by trust, understanding and a spirit of partnership. If you are planning to start a business in Poland, or in one of the other countries in the region, we can help with the complex registration procedures, or assist in acquiring an existing company. This means that you can focus from the very outset on managing your business. We understand the requirements of modern business. We are here to help. Try us out! OUR OFFICES WARSAW OFFICE ul. Skaryszewska Warsaw, Poland office@krgroup.pl Tel.: (+48) Fax: (+48) GDAŃSK OFFICE al. Grunwaldzka Gdańsk, Poland office@krgroup.pl Tel.: (+48) Fax: (+48)