CRIDO TAXAND FLASH OCTOBER 2013

Size: px

Start display at page:

Download "CRIDO TAXAND FLASH OCTOBER 2013"

Christian Lambert
6 years ago
Views:

ISSUES OF THE MONTH CRIDO TAXAND FLASH OCTOBER 2013 Amendments to the VAT Act Limited partnership will not be CIT taxpayer Exit fee paid to related entity constitutes tax deductible cost Contractual

1 ISSUES OF THE MONTH CRIDO TAXAND FLASH OCTOBER 2013 Amendments to the VAT Act Limited partnership will not be CIT taxpayer Exit fee paid to related entity constitutes tax deductible cost Contractual penalty for non-performance of an investment is not tax deductible cost A take-up of newly issued shares in SKA could constitute taxable income Income from sale of products partially manufactured in SSE could be exempted from CIT Incentive payment can be considered as indirect tax deductible cost Incentive payment is not subject to VAT Free of charge transfer of self-manufactured products was not subject to VAT Entire in-kind contribution to SKA is subject to TCLT 1

2 Amendments to the VAT Act As of 1 October 2013 Poland introduced major changes to the VAT Act. According to the most important changes: taxpayers acquiring the so-called sensitive goods (e.g. steel products, fuel) would be jointly and severally liable for the VAT payment, if: the net value of goods purchased from the given seller exceeds PLN 50k monthly, at the time of delivery, buyer knew or had reasonable grounds to presume that all or part of the amount of VAT linked with the particular supply will not be paid to the tax office, application of the reverse charge mechanism (VAT settlement by the buyer) would be extended to the transactions consisting in e.g. the supply of steel. Moreover, the government is going to maintain the current VAT rates for the years and remove the provisions on the obligatory increase of VAT rates in case of exceeding the 55% debt-to-gdp threshold. Limited partnership will not be CIT taxpayer The higher house of the Parliament (Senat) passed the bill on modification of Polish CIT and PIT Acts with minor amendments. The amendments did not concern the main idea of taxation of joint stock partnership (SKA) by CIT. Hence, it is highly probable that under the new law joint stock partnership (SKA) will become CIT taxpayer as of 1 January Moreover limited partnership (SK) will remain tax transparent. The lower house of the Parliament (Sejm) will work on the amendments proposed by Senat probably on the next session planned for 6-8 November. After that the bill will be passed to the President for his signature. This means that publishing the modification of the CIT law in the beginning of November is unlikely. Still, it is probable that the bill will be published within the deadline for modifying income tax law, i.e. 30 November. Exit fee paid to related entity constitutes tax deductible cost Judgment of the Provincial Administrative Court in Bydgoszcz of 19 September 2013 (I SA/Bd 444/13) Argument: Polish company took over the production activity performed by the foreign related entity. Company expected that the acquisition of these functions would increase its income. According to the Court, under such background, the exit fee paid by the Polish company to the foreign related entity is connected with company s income. In consequence, it can constitute tax deductible cost. The Court underlined, that the necessary condition to recognize the cost for CIT purposes is not the actual generation of income, but economically justifiable expectation to generate it. Implications for entrepreneurs: The judgment is favorable for taxpayers. It regards the exit fee linked with the international transfer of the production activity, in the case at hand to Poland. Based on the analyzed judgment, in a contrary case (if the functions are transferred from Poland to another country), Polish companies should be entitled to recognize received exit fees as taxable income. The matter raised in the judgment confirms the increasing awareness of Polish tax authorities in the area of TP issues linked with business restructuring. 2 CRIDO TAXAND FLASH OCTOBER 2013

3 Contractual penalty for non-performance of an investment is not tax deductible cost Judgment of Supreme Administrative Court of 11 September 2013 (II FSK 2629/11) Argument: According to the Court, contractual penalties for non-performance of a building investment are not tax deductible costs, although they are not excluded from the tax cost in the CIT Act. In the case at hand, the termination of the agreement and the penalty resulted from the delay in the performance of the investment. The Court reminded that the recognition of an expense as tax deductible cost depends on its link with generation of income or retaining / securing its source, and not the fact that the particular type of costs has not been included in the catalogue of non-taxable costs. As a consequence, if a taxpayer wanted to finalize the investment and achieve gains from this title, the received penalty could not be linked with generating income or retaining / securing its source. Thus, the Court judged that the penalty cannot be considered as tax deductible cost. Implications for entrepreneurs: Contractual penalties for non-performance of an investment cannot be considered as tax deductible costs just as penalties resulting from the defective performance or failure to perform the works in time. A take-up of newly issued shares in SKA could constitute taxable income Judgment of the Provincial Administrative Court in Warsaw of 17 September 2013 (III SA/Wa 831/13) based on a press release Argument: The case concerns the increase of SKA s share capital from the funds accumulated on premium capital resulting in the issuance of new shares. In Court s opinion, a shareholder taking up such shares should recognize the income from participation in SKA it should be classified as the income from the business activity. The Court ascertained that such take up of the new shares causes for the taxpayer the same tax implications as receiving inkind dividends. Implications for entrepreneurs: The judgment is negative for taxpayers. In a verbal justification the Court emphasized that its standpoint is not in line with the previous court judgments. Up to now, courts used to claim that taxable income of SKA shareholders arises only after the resolution adopted by SKA on dividend payment. Simultaneously, courts used to claim that such income should not arise when shareholders received new shares (e.g. the recent judgment of the PAC, I SA/Gd 702/13). Income from sale of products partially manufactured in SSE could be exempted from CIT Judgment of the Provincial Administrative Court in Bydgoszcz of 1 October 2013 (I SA/Bd 645/13) based on a press release Argument: In Court s opinion, placing the whole production process in a special economic zone (SSE) is not the necessary condition to apply the CIT exemption. The Court did not agree with tax authority s view that the sale of a product finally manufactured outside the SSE could not be subject to the CIT exemption. According to the Court, the entrepreneurs cannot lose the full right to benefit from the CIT exemption if they are able to separate income corresponding to the part of production process taking place in the SEE. At the same time, tax authorities are entitled to audit the taxpayer s method of such separation. 3 CRIDO TAXAND FLASH OCTOBER 2013

4 Implications for entrepreneurs: The judgment is favorable for the entrepreneurs conducting part of their production process in the area of the SSE. If it is businesswise to locate the production partially in and outside the SSE, and the entrepreneurs are able to make reliable split of income, they should be entitled to enjoy the SSE benefits in the part of the income corresponding to the production conducted in the area of the SSE. Incentive payment can be considered as indirect tax deductible cost Judgment of the Provincial Administrative Court in Rzeszów of 17 September 2013 (I SA/Rz 587/13) based on a press release Argument: A taxpayer incurred one-off charge for the benefit of a mother company for the purpose of the participation in the motivating fee incurred by the mother company. The fee was an incentive aimed at concluding a trade contract with a group s client. In a consequence, the taxpayer expected to derive economic benefits from the cooperation with the client. The court did not agree with the tax authority s view that such charge should be deducted in proportion to the duration of the trade contract. The Court found that the fee is not related to any service, but is linked solely with the conclusion of the trade contract. Implications for entrepreneurs: The judgment is favorable for the taxpayers. The Court considered that the motivating fee constitutes the indirect tax cost deducted one-off when incurring. Incentive payment is not subject to VAT Judgment of Provincial Administrative Court in Rzeszów of 5 September 2013 (I SA/Rz 523/13) Argument: Non-refundable incentive payment aiming at encouraging the potential client to enter into business cooperation is not subject to the VAT taxation, because it is not linked with any equivalent. The payment for the willingness to enter into a trade agreement (and future provision of VATable services) should be subject to VAT only if it is an integral part of the remuneration for particular services. The Court indicated that this will be the case if it is agreed that the incentive payment is returnable when the parties do not sign the contract or the party receiving the payment fails to perform its contractual obligations. Implications for entrepreneurs: The standpoint taken by the court deserves an approval. It clearly confirms that the key element of the supply of services under the VAT regulations is their equivalence and mutuality. Consequently, the non-refundable incentive payments provided to potential contractors prior to beginning of the cooperation may be tax efficient instrument of the companies marketing and business policies. Free of charge transfer of self-manufactured products was not subject to VAT Judgment of Provincial Administrative Court in Olsztyn of 12 September 2013 (I SA/Ol 370/13) Argument: The Company has provided its contractors with self-manufactured products for promotional purposes. According to the Court, from 1 April 2011 to 31 March 2013 the free-of-charge transfer of products manufactured internally was out of scope of VAT. During the above period, only free-of-charge supply of goods that were previously acquired by the taxpayer was subject to VAT. 4 CRIDO TAXAND FLASH OCTOBER 2013

Implications for entrepreneurs: Discussed judgment is favorable for the taxpayers.

Secondly, the Court indicated that the favorable regulations may be applied not only with respect to gifts of small value.

for advertising purposes and charged VAT on these activities.

5 Implications for entrepreneurs: Discussed judgment is favorable for the taxpayers. Firstly, the Court indicated that the interpretation of VAT provisions should not be broaden the production of goods cannot be treated the same as their acquisition. Secondly, the Court indicated that the favorable regulations may be applied not only with respect to gifts of small value. In our opinion, the commented judgment gives reasonable grounds to apply for the refund of the VAT overpayment by the taxpayers who, during the abovementioned 2-year period, used their own products for advertising purposes and charged VAT on these activities. Entire in-kind contribution to SKA is subject to TCLT Judgment of Provincial Administrative Court in Poznań of 15 October 2013 (III SA/Po 671/13) based on a press release Argument: The Court ruled that in case of in-kind contribution in a form of an enterprise or its organized part to the SKA, the tax base for the Tax on Civil Law Transactions (TCLT) is the entire value of the contribution enlarging the assets of the partnership. It is irrelevant that the contribution is partially allocated to the premium capital. The Court did not accept the taxpayer s standpoint that the tax base should correspond solely to the part of contribution allocated to the share capital. Implications for entrepreneurs: The Court upheld the dominant unfavorable line interpretation presented by the administrative courts regarding TCLT taxation of the contributions to SKA. In case of SKA, contrary to the capital companies, value of entire contribution is subject to TCLT. SHOULD YOU HAVE ANY ADDITIONAL QUESTIONS CONCERNING THE ABOVE ISSUES PLEASE CONTACT: Andrzej Puncewicz Partner andrzej.puncewicz@taxand.pl Paweł Toński Partner pawel.tonski@taxand.pl Crido Taxand Ul.Grzybowska 5A Warszawa crido@taxand.pl Crido Taxand Sp. z o.o. ul. Grzybowska 5a, Warszawa, crido@taxand.pl 5 CRIDO TAXAND FLASH OCTOBER 2013

CRIDO TAXAND FLASH JUNE

CRIDO TAXAND FLASH JUNE 2014 ISSUES OF THE MONTH In case of a receipt of subsidy, the related costs of tax depreciation shall be corrected in the month of receipt of the subsidy; In case of employment