Instructions for distributing tax revenue sources

From 1 January 2018 – by law of 27 October 2017 amending the Personal Income Tax Act, the Corporate Income Tax Act and the Flat-rate Income Tax Act on certain revenues generated by individuals 1 (hereafter: Amending Act) – to the provisions of the Act of 15 February 1992 on corporate income tax 2 (Next the Corporate Income Tax Act) the distribution of revenues into sources of obtaining them has been introduced.

In the legal state up to the end 2017 the Corporate Income Tax Act it did not specify at all the sources of revenue and the revenue generated from any source of revenue was cumulative and subject to cumulative taxation one Tax rate, similarly the cost of obtaining was settled in a single tax bill.

According to the new sound Article 7(1) the Corporate Income Tax Act under tax rules two revenue sources defined as: 1) sources of capital gains whose catalogue is included under Article 7b the Corporate Income Tax Act and 2) other revenue sources, i.e. in principle revenue from the entity's core business.

1. Comment

1.1. Preliminary remarks

Importantly, taxpayers are obliged to qualify a given income for one or two sources and adequate distribution of revenue costs. The new rules also indicate that revenue costs can only be deducted from revenue from that source, which was used to bear these costs.

The revenue must be determined separately for the revenue source and the revenue from the revenue source shall be the excess of the revenue generated from the revenue source over the cost of obtaining it. It is not possible to offset income from one source of revenue with a loss from another source second sources.

If, on the other hand, the taxpayer achieves income from both sources, they are aggregated and taxed on a uniform basis, as the new regulations do not introduce a separate tax regime depending on the source of revenue.

On the other hand, the new rules have maintained the principle of flat-rate taxation of certain cash streams, such as the share of corporate profit (counted revenue source – capital gains) at which the cost of obtaining these revenues is not taken into account, resulting from Article 7(1) dd. 2 the Corporate Income Tax Act In the cases referred to under Article 21, 22 and 24b the Corporate Income Tax Act, the subject of taxation is income. This specific tax regime concerns the following types of revenue (income):

• 1) interest, copyright, intangible services and other benefits listed under Article 21(1) the Corporate Income Tax Act, achieved in the territory of Poland by non-tax residents,
• 2) dividends and other income from the participation in the profits of legal persons, specified in detail under Article 22(1) the Corporate Income Tax Act,
• 3) from a permanent medium which is a building of value. 24b the Corporate Income Tax Act

Flat-rate income tax Under points 1 and 2 is collected by the payer and the revenue listed Under point 3 the tax is paid by the taxpayer itself. New rules that entered into force 1 January 2018, use – according to Article 4(1) amending act – to revenue obtained from 1 January 2018, and in the case of taxable persons applying a tax year other than a calendar year, to income obtained in the tax year starting after the tax year starting with the tax year following the tax year after the tax year after the tax year after the tax year starting with the tax year after the tax year after the taxing period, the tax year after the tax year after the tax year ended after the tax year the tax year after the tax year after the tax year after the tax year the tax year after the tax period, the tax year after the tax year 31 December 2017 Consequently, the new loss accounting regulation under the same source of revenue will also apply to the loss incurred over time first in the accounts for 2018 (in the case of taxable persons applying a tax year other than a calendar year, in the accounts for the tax year starting after 31 December 2017).

In accordance with the transitional provision, under Article 6 Act amending, losses incurred for tax years preceding the tax year started after 31 December 2017 are deducted from income on the basis of existing rules — losses incurred in previous years, including loss for tax year 2017, will be deducted in future years from global income.

Tax loss incurred in a given year may reduce income in future years (maximum five years), but only within the same revenue source from which this loss was incurred. In practice, this means that until the taxpayer obtains income from the same source of income in future years, he will not be able to settle this loss.

This also applies to situations where the taxpayer will suffer a loss from both sources of revenue. In this case, the loss of a given revenue source can be deducted in future years from the income obtained only from the same revenue source.

Transitional provisions (contained) under Article 9 The amending act) also regulates the cost of obtaining revenue which should be attributed to the relevant revenue sources also when they were incurred before 1 January 2018, However, to 1 January 2018 are not included in the cost of obtaining revenue.

1.2. The scope of the revenue included in the return on equity gains

The capital gains revenue catalogue is included under Article 7b(1) the Corporate Income Tax Act and includes six categories:

• 1) revenue from corporate profit (described in detail) Under point 1.2.1.),
• 2) revenue arising from the contribution in kind,
• 3) revenue resulting from the exercise of the rights of shares,
• 4) revenue from the disposal of all rights and obligations in a company not a legal person,
• 5) revenue from the sale of receivables,
• 6) Other revenue.

What's important, under Article 7b the Corporate Income Tax Act a closed inventory of capital gains is included, so any other revenue not explicitly mentioned in the Act should be treated as income from other economic activities.

1.2.1. Revenue from the participation of legal persons

According to Article 7b(1)(1) the Corporate Income Tax Act Capital gains revenue shall be considered to be income on corporate income (except for a specific under Article 12(1)(4b) the Corporate Income Tax Act the right to participate in the profit of the State-owned undertaking which is part of the remuneration of the company’s manager) representing the revenue actually obtained from that share, including:

1. dividends, balance-sheet surpluses in cooperatives and the income received by participants in investment funds or mutual investment institutions of that fund or that institution where the statutes provide for the payment of such income without the redemption of units or the purchase of investment certificates;
2. revenue from the redemption of shares or from the reduction of their value;
3. revenue from the withdrawal of the shareholder from the company in question under Article 1(3) the Corporate Income Tax Act (i.e. a limited partnership and a foreign partnership treated as a legal person) which occurs in a different way than specified under Article 7b(1)(1) point (b) the Corporate Income Tax Act;
4. revenue from the reduction of the shareholder’s capital share in the company in question under Article 1(3) the Corporate Income Tax Act (i.e. a limited partnership and a foreign partnership treated as a legal person, which occurs in a different way than specified under Article 7b(1)(1) point (b) the Corporate Income Tax Act;
5. value of the property received in connection with the liquidation of the legal person or company in question under Article 1(3) the Corporate Income Tax Act (a limited partnership and a foreign partnership treated as a legal person;
6. the equivalent of the profit of the legal person and the company concerned under Article 1(3) the Corporate Income Tax Act (a limited partnership and a foreign partnership treated as a legal person, intended to increase its share capital, the equivalent of the balance sheet surplus of the cooperative to increase the equity fund and the equivalent of the amounts transferred to that capital (fund) from other capitals (funds) of such a legal person or company;
7. payments received in the event of merger or division of companies by the shareholders of the company being acquired, merged or divided;
8. the income of the company's shareholder, if the assets acquired as a result of the division and the assets acquired as a result of the division or assets remaining in the company, do not constitute an organized part of the undertaking;
9. the payment in question. 12 section 4d the Corporate Income Tax Act (the payment of the exchange of shares;
10. the value of the undivided profits in the company and the value of the profit transferred to other capitals than the share capital in the converted company, where the company is transformed into a non-legal company, except that the income is determined at the date of conversion;
11. interest on the share of capital paid to the shareholder by the company in question under Article 1(3) the Corporate Income Tax Act (i.e. a limited joint-stock company and a foreign passenger company treated as a legal person;
12. interest on the loan granted to the legal person or company in question under Article 1(3) the Corporate Income Tax Act (i.e. a limited partnership and a foreign passenger company treated as a legal person if the payment of interest on such a loan or their amount depends on the gain of that legal person or company or on the amount of that profit (participation loan);
13. revenue generated by transformation, merger or division of entities, including:

(a) revenue from the legal person or company in question under Article 1(3) the Corporate Income Tax Act (a limited partnership and a foreign partnership treated as a legal person), acquiring by merger or division of assets or part of assets of another legal person or company,

(b) the revenue of the joint or joint venture,

(c) the revenue of the split company.

Capital gains revenue shall include interest, but only to a narrow extent, i.e. interest on the capital share paid by the limited partnership and interest on the participating loan.

Other interest are not explicitly specified in the capital gains catalogue specified under Article 7b the Corporate Income Tax Act, which does not mean that interest (especially on the loan) will not be included in this revenue source.

According to the general rule of tax law, interest on the loan is treated as a loan, so interest should be taxed in the same way as the principal debt, as confirmed by the Director of the KIS in the interpretation of the 25 July 2018 3 .

Exchange-rate income is also not listed in the capital gains revenue catalogue, but due to their similar nature it can be assumed that it should be treated as the revenue to which it is linked.

1. 2.2. Revenue from the disposal of all rights and obligations in a company not a legal person

According to Article 7b(1)(4) the Corporate Income Tax Act The proceeds of capital gains shall be considered to be revenue from the disposal of all rights and obligations in a company not a legal person.

In an individual interpretation of 25 July 2018 4 The Director of KIS explained that the determination of the source of the specific revenue should be eligible, i.e. the revenue from capital gains or revenues from other sources must already be made at the level of the company.

If the income obtained by such a company constitutes income from capital gains, its attribution to the shareholder on the basis of Article 5 the Corporate Income Tax Act does not alter his qualifications. This income also remains for the taxpayer the income from capital gains and increases its revenue from that source.

1.2.3. Revenue from the sale of receivables

According to Article 7b(1)(5) the Corporate Income Tax Act The proceeds from capital gains shall be deemed to be the proceeds from the disposal of receivables previously acquired by the taxpayer and receivables resulting from the proceeds of capital gains.

1.2.4. Other revenue

According to Article 7b(1)(6) the Corporate Income Tax Act Capital gains revenue shall be considered to be:

1. of the property rights in question under Article 16b(1)(4-7) the Corporate Income Tax Act (i.e. which are subject to depreciation of copyright or related property rights, licences, industrial property rights and know-how, excluding the proceeds from licences directly linked to the obtaining of revenue not included in capital gains;
2. of securities and derivatives of financial instruments, excluding derivatives of financial instruments to hedge income or costs not included in capital gains;
3. for participation in mutual funds or institutions;
4. from the lease, lease or other similar agreement concerning the rights in question under Article 7b(1)(6) point (a)–c the Corporate Income Tax Act;
5. the sale of the rights in question under Article 7b(1)(6) point (a)-c the Corporate Income Tax Act

one from emerging doubts, it concerned whether the proceeds from the capital gains should also include income from the commercialisation of property rights which were generated by the taxpayer rather than acquired from the entity third. Following numerous interpretations also the Ministry of Finance, in response to the parliamentary interpelling with 27 June 2018 5 claimed that Article 7b(1)(6) the Corporate Income Tax Act, laying down a list of income constituting income from capital gains, as regards income from property rights, refers directly to the property rights in question only under Article 16b the Corporate Income Tax Act Provision Article 16b the Corporate Income Tax Act it concerns those property rights which are subject to tax depreciation. Tax depreciation is subject to acquired rights (not self-produced). Copyrights created on their own may be commercialised either by the transfer of copyright to them to individuals third, or by enabling them to be used under a licensing agreement. In any case, the revenue generated by the commercialisation of such copyrights does not constitute income from capital gains. It can therefore be summarised that:

• 1) income from capital gains is the income that comes from the exploitation of the rights acquired by the taxpayer from entities third,
• 2) revenue from other sources shall be such as to derive from the exploitation of the property rights generated by the taxable person himself obtaining income from them.

The so-called cryptocurrency is also considered to be property law, but the revenue from their sale is not explicitly listed in the inventory of sources of capital gains. Consequently, revenues of this kind should be included in revenue from other sources, as confirmed for example by individual interpretations of the Director of KIS 6 .

Capital gains also include income from derivatives of financial instruments, except for those instruments which hedge revenues or costs that are not included in capital gains (they are then income from other sources).

An example of revenue from derivatives of financial instruments representing income from other sources, rather than capital gains, indicated the Director of KIS in an individual interpretation from 26 April 2018 7 , which has included in other sources the revenue from the exchange rate instruments of specific commodity transactions which are the main source of income for the applicant.

The argument confirming this was that none of these hedge transactions were speculative, i.e. was not detached from commodity transactions.

Capital gains also include revenue from participation in investment funds and mutual investment institutions as well as revenue from the disposal of these rights (Article 7b(1)(6) point (c) the Corporate Income Tax Act).

Capital gains revenue includes income from both sale and redemption of investment certificates in a closed investment fund. Consequently, the expenditure incurred for the acquisition of these certificates should constitute the cost of obtaining revenue in the source of the Capital Profit Revenue.

On the other hand, the proceeds of the guarantees and guarantees provided should not be included in the capital gains, since according to an individual interpretation of 20 September 2018 8 not listed in the closed directory under Article 7b the Corporate Income Tax Act

1.3. Breakdown of revenue costs from different sources

The obligation to divide into sources applies not only to revenue but also to revenue costs. In the case of costs directly linked to the source of revenue, their allocation to the relevant source is not a problem. For so-called common costs, i.e.

those which cannot be clearly attributed to one revenue sources, the breakdown should follow the key (factor). The coefficient indicates what percentage of the taxpayer’s total income constitutes the source of revenue and thus the same percentage of the common costs will be allocated to the source.

Example

Unit shows 900,000 PLN revenue from which 180,000 PLN are income from capital gains, and 720,000 PLN is revenue from other economic activities. Revenue costs amounted to 860,000 PLN, of which 120,000 PLN These are costs directly linked to the income from capital gains, 650,000 PLN – costs of obtaining revenue from other economic activities, and 90,000 PLN are the common costs of both sources of revenue.

Then:

1) the capital gains revenue ratio shall be: 180,000 ÷ 900,000 × 100% = 20%;

2) the sharing of common costs will take place as calculated:

(a) the share of the common costs per capital gains revenue is: 20% × 90,000 = 18,000 PLN,

(b) the share of the common costs per income from other economic activities is: 80% × 90,000 = 72,000 PLN.

The unit will ultimately demonstrate:

• 1) Capital gains revenue of the amount 180,000 PLN – revenue costs 138,000 PLN (i.e. 120,000 + 18,000),
• 2) revenue from other economic activities in the amount 720,000 PLN – revenue costs 722,000 PLN (i.e. 650,000 + 72,000).

The entity will therefore recognise the return on capital gains and losses on income from other business activities. Profit and loss shall not be offset and shall be reported separately.

In accordance with the new rules introduced by the amending Act, both revenue from both sources (capital gains and other economic activities) and possible losses incurred are accounted for separately.

The difference between revenues and the cost of obtaining them from a given source is the tax revenue (loss) from a given source of revenue. Income is taxed at CIT 19%. The loss can be settled over time.

The taxpayer will be able to reduce its income generated from the source of revenue in subsequent five tax years by the amount of loss incurred in a given tax year in a given source of revenue, the amount of such reduction may not exceed in a given tax year 50% loss amounts.

CIT is taxed separately by income from each source (individual income from capital gains, separate income from other economic activities), without deducting from income from one source the loss incurred from another source second revenue sources.

Where the taxable person from both sources of income will reach income, then it is taxed at a rate 19%. However, if the taxable person one sources (e.g. revenue from other economic activities) will show tax revenue and from second income (e.g. income from capital gains) loss, this is impossible to deduct from income from one source the loss incurred from another source second.

Example

An entity A has achieved an income from the source of capital gains in the amount 100,000 PLN and income from other economic activities of 1,000,000 PLN. In such cases, the rate of taxation 19% will be subject to the entire income of 1,100,000 PLN.

Unit B obtained tax revenue from other economic activities of 5,000,000 PLN and loss of capital gains in amount 2,000,000 PLN. In such a situation, an entity may not reduce the income generated from other economic activities by a loss on capital gains. The tax to be paid will be: 5,000,000 × 19%, In turn, the loss of capital gains will be manageable in the following years, but only on the income generated from capital gains.

Importantly, in accordance with the transitional provisions, the tax loss incurred before the entry into force of the Act amending its countdown will continue on old terms. This means that the deduction of losses from tax years started before 1 January 2018 it will be made on the sum of all income, irrespective of the source of the income, and the taxpayer will choose in what proportion and order he will settle these losses.

Example

In 2016 the taxpayer has achieved a loss of 360,000 PLN. In 2017 achieved income of 12,000 PLN, he was therefore able to deduct a loss of 12,000 PLN. In 2018 the taxpayer has lost the remaining business activity of 30,000 PLN and profit from capital gains of 200,000 PLN. At that time, since the loss was incurred before the new rules entered into force, the taxpayer can deduct it on old rules.

In 2018 the taxpayer must not deduct from the return on capital gains the loss from other economic activities but has the right to deduct, on old terms, 50% loss incurred in previous years, i.e. 180,000 PLN.

Accordingly, the taxable person for 2018:

• 1) shows a loss from the remaining business activity of 30,000 PLN (which it will be able to deduct in the following years, but only from revenue from other economic activities),
• 2) show the return on capital gains in the amount 20,000 PLN (i.e. income 200,000 PLN less loss from previous years to deduction of the maximum amount 180,000 PLN),
• 3) He'll have it. 168,000 PLN losses from previous years which may be deducted from any revenue source.
• 1.4. Distribution of revenue sources – PIT taxpayers

Prior to the entry into force of the law amending the shareholders of companies which were not taxpayers of CIT, they shared income and income costs in proportion to their shares in the company. After the introduction of the new rules, in addition to the distribution according to the shareholders' shares, taxpayers must also allocate the revenues and costs of obtaining them to those from capital gains and those from other economic activities.

Example

Jan Kowalski and Jan Nowak are partners of the public company, with Jan Kowalski having 60% shares of co-workers and Jan Nowak 40%. The Company achieved revenues of 2,000,000 PLN, of which 60,000 PLN is the revenue from capital gains. Revenue costs amounted to 1,800,000 PLN, of which 40,000 PLN This is the cost of obtaining capital gains revenue, and 120,000 These are the common costs of both sources of revenue which cannot be clearly attributed to any source of revenue.

Then:

Jan Kowalski will recognize:

1) Total revenue of: 60% × 2,000,000 = 1,200,000 PLN, of which:

• (a) capital gains revenue of: 60% × 60,000 = 36,000 PLN,
• (b) revenue from other economic activities: (2,000,000 − 60,000) × 60% = 1,164,000 PLN. The cost allocation coefficient shall be: 36,000 ÷ 1,200,000 × 100% = 3%;
• 2) Total revenue costs: 1,800,000 × 60% = 1,080,000 PLN, of which
• (a) the cost of obtaining income from capital gains: 40,000 × 60% = 24,000 PLN,
• (b) costs of obtaining revenue from other economic activities: (1,800,000 − 40,000 − 120,000 PLN) × 60% = 984,000 PLN;
• 3) common costs of both revenue sources: 120,000 × 60% = 72,000 PLN;
• 4) common costs of capital gains revenue: 72,000 × 3% = 2,160 PLN;
• 5) common costs for revenue from other economic activities: 72,000 × 97% = 69,840 PLN.

Jan Kowalski will finally show:

• 1) Capital gains revenue — 36,000 PLN,
• 2) cost of obtaining capital gains revenue — 26,160 PLN (i.e. 24,000 + 2160),
• 3) revenue from other economic activities — 1,164,000 PLN,
• 4) the cost of obtaining income from economic activities — 1,053,840 PLN (i.e. 984,000 + 69,840).

Jan Nowak will recognize:

1) Total revenue of: 40% × 2,000,000 = 800,000 PLN, of which:

• (a) capital gains revenue of: 40% × 60,000 = 24,000 PLN,
• (b) revenue from other economic activities: (2,000,000 − 60,000) × 40% = 776,000 PLN. The cost allocation coefficient shall be: 24,000 ÷ 800,000 = 3%;

2) Total revenue costs: 1,800,000 × 40% = 720,000 PLN, of which:

(a) the cost of obtaining income from capital gains: 40,000 × 40% = 16,000 PLN,

(b) costs of obtaining revenue from other economic activities:

• (1,800,000 − 40,000 − 120,000) × 40% = 656,000 PLN;
• 3) common costs of both revenue sources: 120,000 × 40% = 48,000 PLN;
• 4) common costs of capital gains revenue: 48,000 × 3% = 1,440 PLN;
• 5) common costs for revenue from other economic activities: 48,000 × 97% = 46,560 PLN.

Jan Nowak will finally show:

• 1) Capital gains revenue — 24,000 PLN,
• 2) cost of obtaining capital gains revenue — 17,440 PLN (i.e. 16,000 + 1440),
• 3) revenue from other economic activities — 776,000 PLN,
• 4) the cost of obtaining income from economic activities — 702,560 PLN (i.e. 656,000 + 46,560).
• 1.5. Profit income of legal persons

Separation two revenue sources do not conflict with the principle of taxation of revenues of a specific nature, which constitute the so-called income from the participation of the acquired legal persons. The new rules continue to apply to the principle that the taxpayer does not take into account, inter alia, the income (income) obtained from the participation in the profits of legal persons when determining the amount of income or loss. Tax on these revenues (19%) is collected by the payer, subject to possible exemptions. Importantly, the new rules have reduced the tax exemption on corporate income (currently mentioned) under Article 7b(1)(1) the Corporate Income Tax Act) only to third revenue types:

• 1) for dividends,
• 2) the share capital increase in profit; and
• 3) for undivided profits and profits allocated to capital other than share capital in the event of a company becoming a non-taxable company of CIT.
• 2. Balance sheet distinction between capital gains and other economic activities

As a general rule, the model of the performance account (which is an annex to the Act of 29 September 1994 on accounting 9 (Further u.o.r.) No 1 or No 4, 5 is 6 for entities that have the right to benefit from simplifications), it does not provide for the distribution of revenue into capital gains revenue and other sources of revenue, as it does not provide for the allocation of costs into capital gains and others. Balance sheet law distinguishes between the following categories of income that should be adequately distributed in the performance account:

• 1) net revenue from the sale of products, goods and materials,
• 2) other operating revenue,
• 3) financial revenue.

In principle, costs are also divided into three Main categories:

• 1) basic operating costs (comparative or calculation arrangements),
• 2) other operating costs,
• 3) financial costs.

Both revenue and financial costs are not the same as capital gains and costs. It covers a much broader spectrum of economic events (such as exchange rate differences from settlements with counterparties).

In turn, the range of income from capital gains and the costs assigned to them also goes beyond the revenue and financial costs recognised in accordance with u.o.r.

Under Article 24 s.o.r., economic operators were obliged to keep accounts so that on the basis of them it could be possible to draw up both financial statements and tax returns correctly and to make appropriate financial accounts.

Therefore, in the case of the tax law's demarcation of the income from capital gains and revenues from other economic activities, the balance sheet record should be designed to allow for the separation of revenues from capital gains and the costs associated with their achievement in order to calculate the amount of income from capital gains and income from other activities.

It is therefore necessary to distinguish in the analytical records from the different categories of financial revenue and financial costs of those which according to the Corporate Income Tax Act are income from capital gains.

The separation of these categories requires appropriate changes to the entity's account plan and therefore an update of the accounting policy by the entity manager. However, tax revenues from capital gains may be hidden not only in financial income and costs accounts but also among other revenues and costs.

For example, income from property rights (author or related property rights, licences, industrial property rights and know-how), which should also be taxed among the proceeds from capital gains and may therefore be difficult to extract on a balance sheet basis.

The entity should therefore check on a regular basis whether the income should not be tax-decoupled. If so, it should properly expand the analytical records in order to make such a separation for tax purposes.

Example

Economic entity to meet the requirement Article 24 u.o.r., adjusted the corporate account plan to the need to separate the proceeds from capital gains as follows:

1. From the category of revenue from the sale of products, goods and services, she has separated a separate account to record the revenue generated from the putting into service of her property rights (under the lease agreement, the situation concerns the leasing entities, so that the revenue from these contracts — leasing charges — is the revenue of their core business, while for the other entities the account should be separated from the other operating revenues);
2. out of the category of financial revenue (except for an already existing breakdown taking into account a separate account for the recording of revenues in the form of dividends received), an account for interest received on loans granted to the companies mentioned under Article 1(3) the Corporate Income Tax Act;
3. in the accounts on which the interest income is recorded, it has broken down the interest received on capital gains and other interest (e.g. counterparties for late payment).

It can be considered that, since the units held among the accounts (for example, ‘foreign services’) have issued the relevant accounts for the purpose of accounting for revenue and non-revenue costs (‘foreign revenue costs’ and ‘non-revenue-free services’), some accounts will be broken down into two parts: ‘capital income’ accounts and ‘non-capital income’ accounts (as in direct business cost accounts).

Where costs are recorded, it will be a special situation where an economic unit (a commercial, service or production company) has an investment department separated in the organisational structure whose employees are tasked to multiply its assets.

In this case, expenditure relating to this department, such as the remuneration of employees or the costs of advisory services, should be distinguished in the books so that they can be attributed to the revenue from capital gains.

In fact, part of indirect costs (such as general management costs or sales costs) should also be attributed to capital gains, but tax rules do not indicate on what basis such allocation should take place. As a general rule, settlements can be made in proportion to the revenue generated from the source (capital gains and other revenues).

The use of a given billing key will mean that it will have to be applied in principle to any cost invoice received. Moreover, it is worth that the entities should indicate at the time of formulating the various contracts which activities (from capital gains or others) it will apply to.

In an individual interpretation of 20 September 2018 10 the tax authority explained that the proportion according to which costs are allocated to sources of revenue is not determined until the end of the tax year.

The rules on proportional allocation of indirect costs should not apply to flat-rate tax revenues (e.g. dividends) because they relate only to those revenues which can be reduced by costs. Consequently, when allocating indirect costs using an income key, flat-rate tax revenues should not be taken into account, as confirmed inter alia by the individual interpretation of 16 May 2018 11 . Similarly, if revenues are received that are exempt, they should not be taken into account when allocating indirect costs.

Example

The entity that makes numerous financial investments has determined that 10% its total revenue is capital gains revenue. So she started using the billing key.

1:9, according to which in the case of general management cost invoices, each invoice is broken down: 90% the amount indicated in the invoice represents an appropriate cost and 10% is described as the cost of obtaining income from capital gains (as an indirect cost).

In the case of direct costs incurred in connection with the investments carried out, they are fully considered as costs of obtaining income from capital gains, and all other costs are accounted for on the basis of the existing ones, as they do not involve income from capital gains.

So from 1 January 2018, in the light of changes in tax rules, units in the accounting books must allocate revenue to basic and capital. These revenues must also be allocated costs – both direct and indirect.

The separation in the accounts of sources of capital and other (operational) sources of income will entail considerable work to reorganise accounting records, in particular as regards the adjustment of accounting accounts (expanding analytical records) and the implementation of mechanisms which will allow for the correct allocation of indirect costs to individual sources of revenue.

As stated by the tax authority in the individual interpretation of 28 March 2018 12 , The allocation of indirect costs to individual sources of revenue should be based on properly drawn up documents and tax books, and the revenue key applies only if it is not possible to accurately allocate costs to individual sources of revenue.

3. Explanations for the instruction pattern

The introduction of revenue allocation instructions and the cost of obtaining them to those derived from the source of capital gains and those from other operating activities will allow for the day-to-day recording of the distribution of individual revenue sources, which will translate into the correctness of the annual tax return drawn up, and will allow for the fulfilment of the provisions of u.o.r. that the accounting records should also allow the correct settlement of tax returns.

3.1. Responsible persons

According to Article 4(5) the head of the entity is responsible for carrying out accounting duties. Even if this responsibility has been delegated in writing (e.g. an accounting officer or an accounting office), the head of the unit is still responsible for supervision. Regulations u.o.r. (Article 24(5)) indicate, on the other hand, that accounts should be kept in such a way that tax returns can also be drawn up on their basis.

In practice, usually income tax clearing obligations belong to the accounting department, the principal accounting officer or the accounting office, which keeps records on the basis of documents received from the entity.

3.2. Objective

In order to introduce instructions for the distribution of revenues and the cost of obtaining them to those from the source of capital gains and those from other operating activities, it is necessary to comply with the requirements set out in the newly introduced the Corporate Income Tax Act regulation and correct:

• 1) drawing up a tax return,
• 2) calculation of the tax to be paid.
• 3.3. Procedures

The tax instruction to distribute revenue sources regulates the procedure to comply with the requirements of tax law which require the distribution of income from capital gains from incomes from other economic activities. The separation of revenue sources is necessary to properly calculate the amount of tax to be paid or the loss to be deducted.

3.4. Time limits

The instructions for the distribution of revenue and costs into sources of revenue, in accordance with the new tax law, should be introduced within the time limit allowing the tax return and the correct settlement of CIT.

Since the instruction may amend the account plan, it should be introduced from the new financial year in which the new tax rules apply so that the updated account plan can be applied from the new financial year onwards.

The introduction of instructions at the beginning of the year also allows for the current allocation of revenues and costs due to sources of revenue.

3.5. Storage of documents

The period of storage of instructions is not specified by law. As a general rule, the instructions shall be kept in accordance with the limitation period for tax obligations. It is worth storing until 5 years after the end of the tax year in which the allocation of tax revenues was carried out under this instruction.

4. Tax instructions for the distribution of revenue sources

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1 Journal of Laws of 2017, item 2175.

2 i.e. Journal of Laws of 2019, item 865.

3 reference no. 0111-KDIB1-3.4010.265.2018.1.MO, Legalis.

4 reference no. 0114-KDIP2-2.4010.259.2018.1.AG, Legalis.

5 No DD6.054.9.2018.

6 Cf. personal interpretations of the Director of KIS: from 10 August 2018, No 0111-KDIB2-3.4010.86.2018.3.KK, Legalis); of 3 August 2018, No 0114-KDIP2-2.4010.346.2018.1.AG, Legalis and of 9 March 2018, No 0114-KDIP2-2.4010.2.2018.1.AG, Legalis.

7 No 0111-KDIB2-1.4010.72.2018.2.BKD, Legalis.

8 No 0114-KDIP2-2.4010.271.2018.1.SO, Legalis.

9 i.e. Journal of Laws of 2018, item 395 as amended

10 reference no. 0114-KDIP2-2.4010.271.2018.1.SO, Legalis.

11 reference no. 0114-KDIP2-3.4010.89.2018.1.MC, Legalis.

12 reference no. 0111-KDIB1-2.4010.56.2018.1.MS, Legalis.