Instructions on the calculation of the revenue for the cost of intangible services

Intangible services play a particular role among the various types of services that the taxpayer can acquire for the purposes of his business. This distinguishes them by not having a material effect that can easily be captured and counted.

It is from one of the parties, which may give rise to temptation on the part of taxpayers to manipulate the value of these services (especially in relation to related entities), second and – creates difficulties for tax authorities to verify this value.

Therefore, the tax authorities have long been paying particular attention to intangible services at the time of the tax clearance verification, requiring evidence of the provision of services justifying the costs incurred.

1. Introduction

To the end 2017 There was no restriction in the law relating to the inclusion in the cost of obtaining revenue from such expenditure.

The tax legislature has only decided to change this approach from 1 January 2018, introducing the provisions of the Act 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 (hereinafter: Amending Act) new legislation, as defined under Article 15e Act on 15 February 1992 on corporate income tax 2 (Next the Corporate Income Tax Act).

It reduces the cost of obtaining revenues related to certain areas of activity of the taxpayer for the acquisition of various intangible services incurred to related parties.

The restriction was introduced only in the Corporate Income Tax Act At the same time, the legislator has not decided to introduce a similar exemption for taxpayers of personal income tax.

As is apparent from the justification for the draft amending law, the introduction of regulations Article 15e the Corporate Income Tax Act is a reaction to the actions perceived by the legislator in relation to the so-called aggressive tax optimization, consisting in the use of intangible rights and values (e.g. trademarks).

It has been noted that the characteristics of these rights and values, such as the ease of transfer to other entities, the lack of connection with a real substance or the difficulty of establishing the actual market value of such a law, make it difficult for tax authorities to verify restructuring transactions using them.

The use of these rights and values in relations between foreign entities and their Polish daughter companies allows in turn to make transfers of money abroad, not preferred by the tax, while at the same time crediting the expenditure on the rights and values acquired from the foreign entity to the costs of obtaining revenue from the Polish entity.

1. The nature of the reduction in the cost of obtaining revenue from the acquisition of certain types of services

Provision Article 15e the Corporate Income Tax Act, added from 1 January 2018 by means of a amending law, it reduced the costs of obtaining revenue incurred by the taxable person to entities associated with him for the acquisition of:

• 1) advisory services, market research, advertising, management and control services, data processing, insurance, guarantees and similar services,
• 2) any charges and charges for the use or right to exercise the rights or values in question under Article 16b(1)(4-7) the Corporate Income Tax Act,
• 3) the transfer of the debtor's default risk for loans other than those provided by banks and the SKOC, including liabilities arising from derivative financial instruments and similar benefits.

The limitation shall not apply to all costs incurred, but only those above a certain limit. The limit is set as the sum two variables: 5% EBITDA and amounts not subject to impairment 3,000,000 PLN. Under this threshold, expenditure on services listed in the provision Article 15e the Corporate Income Tax Act are not excluded from the cost of obtaining revenue.

3. Catalogue of regulated services Article 15e Corporate Income Tax Act

3.1. Cost groups subject to restrictions

Provision Article 15e the Corporate Income Tax Act details three cost groups subject to restrictions. first the group is the costs specified under Article 15e(1)(1) the Corporate Income Tax Act, incurred in purchasing the following services (or services of a similar nature):

• 1) advisory,
• 2) market research,
• 3) advertising,
• 4) management and control,
• 5) processing of data,
• 6) insurance,
• 7) guarantees and guarantees,
• 8) similar benefits.

It is worth noting that the above catalogue of services subject to this regulation is similar to the catalogue specified under Article 21(1) the Corporate Income Tax Act (This provision introduces a catalogue of services provided in the territory of Poland by foreign taxpayers, for which the purchaser is obliged to deduct the withholding tax from this payment.

However, the directory specified under Article 15e the Corporate Income Tax Act is not identical to the directory with Article 21(1) the Corporate Income Tax Act, because it does not include legal, accounting, recruitment and staffing services. This means that costs for purchasing these services (i.e.

legal, accounting, recruitment and recruitment of staff) from affiliated entities shall not be subject to the right to be credited with the cost of obtaining revenue on the basis of Article 15e the Corporate Income Tax Act They constitute revenue costs without a limit, on the basis of the general conditions for revenue costs.

second group costs are specified under Article 15e(1)(2) the Corporate Income Tax Act – for fees and charges for use or the right to use:

• 1) copyright or related property rights,
• 2) licences,
• 3) industrial property rights,
• 4) know-how.

third the group is the specified costs under Article 15e(1)(3) the Corporate Income Tax Act – for the transfer of the debtor's default risk from loans other than those provided by banks and the CBA, including liabilities arising from derivative financial instruments and similar benefits.

1. 2. Advisory, market research, advertising, management and control, data processing, insurance, guarantees and similar benefits

Basic doubt about the scope of the services in question, the cost of which is subject to specific restrictions under Article 15e the Corporate Income Tax Act, it follows that the Corporate Income Tax Act They don't define these concepts. An additional complication is the fact that the list of services listed under Article 15e(1)(1) the Corporate Income Tax Act is of an open nature (the legislator used it to refer to ‘similar experiences’).

In decoding the meanings of the terms used under Article 15e(1)(1) the Corporate Income Tax Act standard instruments for interpreting legal provisions may help. First, language (vocal) definitions of these concepts should therefore be addressed, as concepts not defined should be understood as in common language.

Some kind of indication is the possibility of referring to definitions developed on the basis of Article 21(1) the Corporate Income Tax Act, because the scope of the catalogue contained in that provision is similar to that indicated under Article 15e the Corporate Income Tax Act, But it's not entirely compatible with him.

Although regulation with Article 21 the Corporate Income Tax Act concerns obligations relating to the collection of flat-rate income tax and the objective Article 15e the Corporate Income Tax Act is different, but semantic similarities between the disposition of these provisions justify such comparison.

In addition, it is appropriate to apply to statistical classifications (e.g. PKWiU) as the widest possible range of existing products (products) and services as a universal economic classification. Although PKWiU was created for statistical purposes, it has the legitimacy of the real economy.

3.2.1. Advisory services

According to the dictionary definition, ‘advise’ means ‘to provide advice, to indicate how a case is handled’ 3 . The WSA in Warsaw also points to the indication of how to deal with a case, as a designation of the concept of advice, in the judgment of 25 November 2016 4 . At the same time, administrative courts clearly distinguish between advisory and factual actions taken in the area.

Judgment

Services consisting of support for the processing of commitments, support for the processing of receivables, accounting reporting, support for EXIM processes (supporting import and export services), support for financial reporting, which are repetitive activities carried out in accordance with pre-established procedures or standards, are not advisory, as the main purpose of the services provided is not to provide specialised advice to the Company; the services analysed by their nature are ongoing, orderly and carried out in accordance with pre-planned procedures; only the processing of the data provided in an appropriate manner, using appropriate instruments and mechanisms, can in any way contribute to the planning of the Company's activities (such activities will not, however, fall within the scope of the services provided by the Indian Company)[5].

From the above, it can be concluded that advisory services include activities involving the expression of an opinion on a given case, but do not include services consisting also of an action.

The key defining feature of the advisory services is that the entity performing them does not directly manage the process of changes occurring at the recipient of those services, but merely suggests that it recommends whether it gives an opinion on the scenarios under consideration for those responsible for their implementation.

However, beyond the scope of the adviser's activities, there is a decision to take specific actions. It is not for the adviser to be directly responsible for taking them. It is also characteristic of advisory services that they cannot be clearly attributed to a specific business area.

The advisory activity of the sense of the largo may concern most areas of economic life, as such it is a heterogeneous activity.

The consequence of this is that advisory activities may include services from different divisions (groups, classes, categories) of the PKWiU classification. Signs of such services may also form part of services classified as a separate service type. An example of the advisory services covered by this regulation Article 15e the Corporate Income Tax Act e.g. management advisory services (as indicated in section M in section 70 in category 70.22.1 PKWiU 20151), covering the following specific services:

• 1) strategic management advisory services (70.22.11.0),
• 2) Financial management consultancy services, excluding taxes (70.22.12.0),
• 3) market management consultancy services (70.22.13.0),
• 4) Human resource management consultancy services (70.22.14.0),
• 5) Production management consultancy services (70.22.15.0),
• 6) Supply chain management and other management advisory services (70.22.16.0),
• 7) economic process management services (70.22.17.0).

Another example of advisory services, provided for directly in the PKWiU, can be e.g. IT consultancy services (62.02) whether financial advisory services (66.19.91.0). In the analysis of the scope of these services, clarifications to PKWiU published by the Central Statistical Office may be helpful.[6] .

Not all advisory services fall within the scope Article 15e the Corporate Income Tax Act Apart from this, there are, for example, legal, accounting or tax services.

For accounting services (and payroll services) The Director of KIS confirmed in an individual interpretation from 20 February 2018, that these services are not subject to restrictions on tax costs 7 Similar position in information services (including helpdesk services) The Director of KIS expressed the guilty individual interpretations[8].

In their interpretations, the tax authorities consider that the expenditure on sales brokering services is subject to a limit. In particular, they argue that these services are similar to advisory services (e.g.

through the creation of sales policy, pricing policy), advertising services (incentives are being taken to encourage a potential buyer to purchase goods) or even management, if the component of the service was to manage the supply chain or customer relationship.

This position was expressed in an individual interpretation of 2 August 2018 9 . In fact, it was pointed out that the taxpayer is active in the manufacture and sale of heating equipment.

As part of this activity, he acquired sales support services consisting of maintaining relations with customers from other countries, providing them with product information, identifying local markets, technical sales support and post-sales support. The Authority considered these services to be intangible services and subject to a limit.

A similar position was expressed in an individual interpretation of 6 July 2018 10 , the taxable person who owns a network of construction and repair shops.

This taxable person has acquired sales brokering services, including: negotiating prices and other commercial terms, concluding contracts for the supply of goods to and to the company, finding suppliers of goods to the company (in accordance with the company's guidelines), establishing commercial relations, controlling the quality of the goods ordered by the company, auditing quality and ethical standards in establishments, checking product standards, testing samples and products, approving graphic designs of packages, providing information to suppliers on new regulations and directives which must be respected in the manufacture of goods, managing supplies and contracts submitted by the company and ensuring the efficiency of the supply chain.

The Authority concluded that such services are of an intangible nature and are subject to a limit on tax costs. This position was also reiterated in the individual interpretations issued to development investment companies, insofar as they acquire housing support services[11].

On the other hand, it is worth noting that the position that sales brokering services do not constitute services of a similar nature to advisory or advertising services has been accepted in practice by tax authorities and court rulings under the rules on taxation of intangible services provided by foreign entities (in particular, the view that sales brokering services do not constitute services of a similar nature to those specifically mentioned) under Article 21(1)(2a) the Corporate Income Tax Act, is confirmed in individual interpretations[12].

3.2.2. Market research services

The study must mean “accurate, thorough knowledge of something by scientific analysis” 13 . Thus, according to the interpretation of the individual Director of IS in Łódź from 3 June 2015 14 , market research is a survey of customer needs and requirements.

Consequently, in the interpretation body's assessment, this type of service includes a market recognition service in the countries where the taxpayer intends to conduct business.

According to the definition adopted for statistical needs (according to PKWiU) 2015) market research services, classified in Section M of section 73 PKWiU 2015 in category 73.20.1 („Market research services and similar services) include the examination of market potential, demand and consumer habits to increase sales and the use of monographs, statistical surveys, econometric models, surveys, etc.

Although this classification does not include public opinion polling services classified in the category 73.20.20.0, It should be assumed, inter alia, that both categories of these services are covered by the same group of PPWiUs, that public research services are similar in nature to market research services and therefore fall within the scope of regulation from Article 15e(1)(1) the Corporate Income Tax Act 15 .

3.2.3. Advertising services

According to the dictionary definition, to advertise this ‘promoting, praising goods or services by means of appropriate advertising’, in turn advertising means ‘incentivising potential customers to purchase certain goods or services’, as well as ‘print, drawing, poster, film etc. for this purpose’.[16].

Therefore, advertising services should be considered to have a positive effect on consumer purchasing decisions and are carried out in a specific form which is not limited only to poster, inscription, announcement or film.

As regards the classification of PKWiU, it should be noted that advertising services are classified in Section M, section 73 PKWiU 015 (class 73.1), which includes, inter alia, advertising services provided by advertising agencies or brokering the sale of space or time for advertising purposes.

These services include, for example, the design and implementation of advertising campaigns and their placement in magazines, newspapers, radio and television or in other media, as well as the design of advertising venues.

Since the provision Article 15e(1) the Corporate Income Tax Act introduces a breach in the general principle of corporate income tax, allowing the cost of obtaining revenues of costs actually incurred in order to achieve, secure or preserve the source of revenue, it does not seem reasonable to include this concept of services of organisation of certain promotional activities, such as loyalty programmes, or the organisation of receptions, banquets, press conferences, congresses, seminars, competitions which, depending on the circumstances, may be regarded as training or representation expenses[17].

3.2.4. Management and control services

According to the dictionary definition, “manage” means “to give orders, to make things happen, to control things, to direct things” 18 , control, on the other hand, is “checking, examining something, comparing the facts with the condition required and establishing possible derogations, supervising someone or something, guarding someone or something” 19 . Management and control services may in particular include the following services in the PKWiU grouping:

• 1) bankruptcy management services (69.20.40.0),
• 2) services of central firms (head offices) and holding companies (70.10.10.0),
• 3) economic process management services (70.22.17.0).

With reference to the above definitions, the Director of KIS, in an individual interpretation from 5 March 2018 20 concluded that IT support services, IT system administration and IT infrastructure do not have management and control characteristics and therefore are not subject to specific restrictions under Article 15e the Corporate Income Tax Act The common practice for capital groups is to delegate persons to management positions in subsidiaries of a holding company.

Such secondment shall be based on a service contract signed between a holding company and a subsidiary. The seconded persons shall receive remuneration only from a holding company the cost of which is transferred to a subsidiary on the basis of that contract.

Such cost will be subject to a limit in the tax settlement of the subsidiary (as an intangible service).

If the management is paid directly by a subsidiary (e.g. on the basis of appointment), such expenditure is not limited, as it does not constitute a service provided by a member of the board to the company. In this respect, the tax authorities issued the following tax rulings:

1. individual interpretation of 15 June 2018 21 , where the authority confirms that payment of remuneration to a member of the management board performing its functions on the basis of the appointment relationship is not subject to a limit on either the fixed part of the remuneration or the variable part dependent on the achievement of certain financial indicators;
2. individual interpretation of 1 June 2018 22 , where the authority considers that if persons on the board (or occupying other directorial functions) perform their tasks on the basis of secondment (i.e. one the entity makes its qualified specialists available second the entity), that comes to the provision of an intangible service (the taxpayer acquires management services). In this context, taxpayers may consider changing the management model of subsidiaries by transferring the remuneration paid to the management of the company directly to the level of the subsidiary.
3. 2.5. Data processing services

The verb ‘processing’ means: ‘1. transform something creatively, transform it; 2. change something, giving a different shape, appearance; 3. analyse, develop collected data, information, etc., using computer technology’ 23 .

Data processing services are classified in Section J, section 63 PKWiU 2015 („Information services), under heading 63.11.11.0.

These services include data processing services, including complete processing and specialized reports of data provided by the client or the provision of automatic data processing and data input, including database maintenance.

Therefore, the processing of data involves transforming the content and form of input data. Data processing services are therefore of a creative nature and their purpose is to perform operations on existing databases (systems) of data.

In an individual interpretation of 5 March 2018 24 The Director of KIS indicated that the concept of data processing relates to activities of a creative nature and includes elements such as sorting, archiving, security and the provision of data sets and data development.

In turn the WSA in Warsaw in a judgment with 25 November 2016 25 the substance of data processing services was considered to be the subject of data processing processes.

3.2.6. Insurance, reinsurance services

The insurance contract is a contract named, specified under Article 805 Act on 23 April 1964 - Civil Code 26 (Next: k.c.). Under this provision, the insurance contract requires the insurer, in the course of its business, to fulfil a certain benefit in the event of an accident provided for in the contract and the policyholder undertakes to pay a contribution. The insurer’s benefit shall in particular consist in paying:

• 1) for property insurance, a certain compensation for damage resulting from the accident provided for in the contract,
• 2) for personal insurance, the amount of money, pension or other benefit contracted in the event of a contract accident in the life of the insured person.

The conditions for carrying out business in the field of personal and property insurance and reinsurance activities are laid down in the Act of 11 September 2015 on insurance and reinsurance activities[27].

Under it, insurance activities are meant to carry out insurance activities related to offering and granting protection in the event of a risk of the consequences of events.

In the light of the explanations given by the Minister of Finance – despite the reference made by the legislator under Article 15e(1)(1) the Corporate Income Tax Act directly to insurance costs – there should be no doubt that reinsurance services as services of a similar nature to insurance services are also covered by this provision[28].

3.2.7. Guarantee and guarantee services

The guarantee is a unilaterally binding agreement whereby the guarantor undertakes to execute an obligation to the creditor in case the debtor fails to fulfil the obligation. The guarantee shall be settled under Article 876-887 k.c. The guarantee is also a unilaterally binding agreement.

On the basis of this agreement, the guarantor undertakes that, once the guarantee has been fulfilled by the beneficiary, the guarantee will be paid to the beneficiary in cash (guarantee sum). The guarantee agreement does not have its statutory regulations, except for the fragmentary regulation concluded under Article 80 and n.

Act of 29 August 1997 - Banking law[29] (hereinafter: (b) concerning one of its kind, i.e. Bank guarantee agreement.

Under the rule Article 81 (b) the bank guarantee is the unilateral obligation of the guarantor bank that, once the eligible entity (the beneficiary of the guarantee) has fulfilled certain conditions of payment that may be laid down in this provision by the documents which the beneficiary will attach to the payment request drawn up in the form indicated, that bank will carry out a cash benefit to the beneficiary of the guarantee, either directly or through another bank.

In addition to the possibility of granting and confirming bank guarantees and guarantees, banks may also open and confirm letters of credit.

The accreditation is that the bank, acting on behalf of the client, but in its own name (the bank opening the accreditation), can commit itself in writing to the person third (the beneficiary) will pay the beneficiary an accredit of a fixed monetary amount, once the beneficiary has fulfilled all the conditions set out in the letter of credit (documentary credit).

It appears that the granting of an accreditation can be regarded as services of a similar nature to the guarantee and guarantee service. The argument in favour of such a position is that the guarantee and accreditation services are classified under the same heading in PKWiU, i.e.

under heading 64.19.25.0 („Non-monetary commercial lending and lending services) and 64.92.15.0 („Commercial credit services other than mortgages, excluding those provided by monetary institutions).

1. 2.8. Benefits of a similar nature to those mentioned under Article 15e(1)(1) Personal Income Tax Act 30

Due to use under Article 15e(1)(1) the Corporate Income Tax Act There are many doubts as to what specific services should be regarded as having a similar character to those mentioned. This is a vague concept and forces taxpayers to decide which of them are subject and which are not subject to restrictions. It is reasonable to refer at this point to the NSA judgment from 5 July 2016 31 .

Judgment

Current wording Article 21(1)(2a) the Corporate Income Tax Act the benefits mentioned therein can be divided into two groups. first they are clearly named benefits, second create benefits similar to those named. This one.

second the group consists of benefits having characteristics of the benefits specifically mentioned under Article 21(1)(2a) the Corporate Income Tax Act, but having also elements characteristic of benefits other than those specified in that provision.

For the purpose of recognising that a benefit not specifically mentioned under Article 21(1)(2a) the Corporate Income Tax Act is covered by its scope, it is crucial that the elements specific to the benefits explicitly mentioned in this provision outweigh the characteristics of the benefits not mentioned therein.

Therefore, in the light of the NSA position, it should be borne in mind that benefits other than those explicitly mentioned in the catalogue specified under Article 21(1)(2a) the Corporate Income Tax Act may have both characteristics characteristic of benefits from the above catalogue and characteristics characteristic of others (i.e.

benefits not listed in this catalogue.

To consider that a benefit not explicitly mentioned under Article 21(1)(2a) the Corporate Income Tax Act is covered by (as a similar benefit) its scope, and it is essential that the elements characteristic of benefits specifically mentioned in the provision outweigh the characteristics of benefits not mentioned therein.

Otherwise, you cannot talk about taxing such benefits.

This led NSA to conclude that the comprehensive maintenance and maintenance services of software purchased from a foreign entity are not services of a similar nature to those specified under Article 21(1)(2a) the Corporate Income Tax Act, in particular advisory services or data processing.

The use by the legislator of the term ‘similar’ cannot therefore extend the scope of this provision. Article 15e the Corporate Income Tax Act any other intangible services, but other than those to which the requirement of this similarity applies. It is worth to specify the sentence of the WSA in Warsaw from 25 November 2016 32 .

Judgment

It was rightly raised in the complaint that the Minister of Finance had unlawfully extended the scope Article 21(1)(2a) the Corporate Income Tax Act for all intangible services.

In that regard, the applicant stressed that the correct interpretation of the concept of ‘a certificate of similar character’ from Article 21(1)(2a) the Corporate Income Tax Act leads to the conclusion that ‘a certificate of a similar nature’ is not all intangible, but only the provision of legally equivalent services to advisory, accounting, market research, legal services, advertising, management and control services, data processing, recruitment and staffing services or guarantees and guarantees.

The concept of ‘similar benefits’ used in this provision should refer to the benefits mentioned therein, i.e.

such benefits as advisory, accounting, market research, legal services, advertising services, management and control, data processing, recruitment and staffing services, guarantees and guarantees, and not, as the Minister of Finance has accepted, any intangible services.

Moreover, according to the judgment of the WSA in Warsaw with 27 March 2015 33 , correct interpretation of the concept of benefits of a similar nature from Article 21(1)(2a) the Corporate Income Tax Act leads to the conclusion that this is not all intangible but only the legal equivalent of advisory, accounting, market research, legal services, advertising, management and control services, data processing, recruitment and staffing services or guarantees and guarantees. A similar position was expressed by the Director of IS in Bydgoszcz in the following individual interpretation.

Individual interpretation of the IS Director in Bydgoszcz with 3 January 2012 34

In order to qualify for the service in question in the catalogue indicated above, the same conditions should be fulfilled to obtain the service in question or the same rights and obligations for the parties.

In other words, this list also includes those services which are essentially similar to those mentioned, but can be defined, for example, differently, with the decisive importance of determining that the services in question are included in the catalogue of activities subject to flat-rate taxation has the content of the contract concluded with a foreign counterparty and, above all, the nature of the benefits actually performed.

A similar approach to the above led the Director of IS in Poznań to express his position in an individual interpretation of 24 January 2014 35 , that they do not constitute services of a similar nature to those listed.

21 section 1 point 2a the Corporate Income Tax Act services consisting of assistance in the handling and testing of imported goods.

Conclusion on the analysis of case law and interpretation Article 21(1)(2a) the Corporate Income Tax Act and the concept of similar benefits used there can be translated into Article 15e(1)(1) the Corporate Income Tax Act, as confirmed also by the Minister of Finance in his explanations[36].

3.3. Costs of fees and charges for the use of intangible rights and values

second the group of services subject to restriction is, according to Article 15e(1)(2) the Corporate Income Tax Act – any charges and charges for use or the right to exercise the rights and values in question under Article 16b(1)(4-7) the Corporate Income Tax Act Provision Article 16b the Corporate Income Tax Act, to whom he refers Article 15e(1)(2) the Corporate Income Tax Act, contains the WNiP directory to be depreciated. The following rights are listed:

• 1) copyright or related property rights,
• 2) licences,

1. the rights set out in the Act of 30 June 2000 Industrial Property Law (hereinafter: BU) 37 , i.e. in particular the right to an invention (patent), a trademark protection mark, a utility model protection right, the registration of an industrial design, the right to a geographical indication, the right to register topography of an integrated circuit,
2. the value equivalent to the knowledge gained in the industrial, commercial, scientific or organisational fields (know-how).

Provision Article 15e(1)(2) the Corporate Income Tax Act refers to fees and charges for the use of the above rights and values. The scope of this concept should therefore be established. According to the Polish Dictionary, "use" is: "1. to benefit, to benefit, to gain from something, to exploit something; 2.

use something, use something, use something as a tool, a means” 38 .

This concept also occurs in the legal language – according to Article 140 k.c., which governs the scope of property rights, within the limits laid down in the laws and principles of social coexistence, the owner may, excluding other persons, use the items in accordance with the socio-economic purpose of his law, in particular may collect benefits and other income from the goods.

Within the same boundaries, he can control things. It follows from the above that, in both the common language and in the legal language, the use of a thing or a law constitutes the essence of the right of the owner of a thing or a right.

It includes aspects such as the use of things (rights) or the taking of benefits from them or other income from them.

The right to use a particular thing or right is the essence of, among other things, a licensing agreement (sublicence). A licence agreement (licence) is a contract named, regulated under Article 41(2) Act on 4 February 1994 about copyright and related rights 39 (hereinafter: p.a.) and under Article 66(2) and Article 76-81 p.o.p.

(in the field of invention), and Article 163 p.w.p. (for the trade mark). A licence agreement may also concern other rights specified in the Industrial Property Law.

Since the restriction concerns (all types of) charges and charges for the use or right to exercise the rights and values in question under Article 16b(1)(4-7) the Corporate Income Tax Act, restrictions with Article 15e the Corporate Income Tax Act costs (fees and charges) for the transfer of rights under Article 16b(1)(4-7) the Corporate Income Tax Act The sale of copyright (similarly in the field of invention or trademark) is a different type of contract from a contract for the use of these rights.

The fact that a contract for the sale of rights from a contract governing the exercise of rights (without being disposed of by the beneficiary) is also binding on the OECD rules on double taxation agreements, which affects the scope of the withholding tax obligation in question under Article 21(1) the Corporate Income Tax Act (As mentioned earlier, due to terminology convergence, it is appropriate to refer to concepts and practices developed in this regard.

This position is confirmed by the Director of KIS in an individual interpretation from 17 September 2018 40 .

In practice, doubts arose as to whether the exception from Article 15e(11)(1) the Corporate Income Tax Act is also applicable to the extent that any of the intangible services listed in the above provision form part of the initial value of fixed assets or of the WNiP (e.g.

advisory services related to the purchase of a fixed-term machine). In an individual interpretation of 9 March 2018 41 The Director of KIS considered that the expenditure on the production of fixed assets or of WNiP was subject to restrictions on the cost of obtaining revenue on the basis of Article 15e the Corporate Income Tax Act

3.4. Risk transfer costs of the debtor

The last group of services to be restricted according to Article 15e(1)(3) the Corporate Income Tax Act – there are services for the transfer of the debtor's default risk from loans other than those provided by banks and the SDO, including liabilities arising from derivative financial instruments and similar benefits.

An agreement that carries the risk of insolvency of a debtor is, inter alia, a contract classified under heading 65.12.61.0 PKWiU 2015 as ‘Credit and guarantee insurance services’. This grouping includes credit insurance services covering expenses arising from the insolvency of the borrower.

Provision Article 15e(1)(3) the Corporate Income Tax Act it shall also clearly indicate the cost of transferring the risk of insolvency of the debtor incurred under liabilities arising from financial derivatives.

This means that limitation based Article 15e the Corporate Income Tax Act the cost of acquiring financial instruments in the form of CDS (Credit Default Swap), i.e. credit default swaps.

The legal definition of ‘credit risk swap’ includes Regulation (EU) 236/2012 to 14 March 2012 on short selling and selected aspects of credit default swaps[42].

According to it, a credit default swap means a derivative agreement under which one party pays a fee to the other the parties in exchange for payment or other benefit in the case of a credit event relating to the reference entity and any other default situation, in respect of that derivative agreement, which has similar economic effects.

The limitation refers to other (e.g. CDS) benefits/financial instruments resulting in the transfer of the debtor's default risk from loans (other than the loans provided by banks and the SKK), e.g. total return swap (TSR). This is because the recipe Article 15e(1)(3) the Corporate Income Tax Act uses the term ‘a similar statement’.

It also includes instruments that partially transfer the risk of insolvency and may include both arrangements in which the right of the satisfied creditor (subrogation) and those in which there is no legal effect.

Provision Article 15e(1)(3) the Corporate Income Tax Act only applies to contracts/instruments that carry the risk of default of the debtor in respect of loans granted to him.

Consequently, it is not covered by the costs of transferring the risk of occurrences other than the insolvency of the debtor, as well as the costs of transferring the risk of insolvency of the debtor related to liabilities other than loans (liability), e.g. commercial ones.

Subject matter Article 15e(1)(3) the Corporate Income Tax Act insurance and guarantee services are also excluded, but they are included in the specific catalogue under Article 15e(1)(1) the Corporate Income Tax Act (the costs resulting from them are also limited).

Restriction under Article 15e(1)(3) the Corporate Income Tax Act the costs of carrying forward the risk of debtors' indemnities in respect of loans granted by banks and credit institutions are not covered. Therefore, in order for the cost to be not limited, the lender must be either a bank or an SKOK.

Where a loan has been granted by another entity, the restrictive provisions shall apply.

1. Exemptions from the application of a reduction in the cost of obtaining revenue from the acquisition of certain services

This restriction will not apply to the cost categories listed. 15e section 11 the Corporate Income Tax Act, i.e.:

• 1) the cost of services, fees and charges included in the cost of obtaining revenue directly related to the production or acquisition by the taxable person of goods or services,
• 2) the cost of the services in question under Article 8(2a) Act on 11 March 2004 on tax on goods and services 43 (Next: the VAT Act) (costs reimbursed to the taxpayer),
• 3) insurance services provided by the entities concerned under Article 15c(16)(6) and 7 the Corporate Income Tax Act,
• 4) guarantees and guarantees provided by the entities concerned under Article 15c(16)(1-3), 6 and 7 the Corporate Income Tax Act

In addition, specific restrictions under Article 15e the Corporate Income Tax Act shall not apply to:

1) services/rights provided under PGK,

1. services, fees and charges for which the method of calculation of remuneration is indicated in the decision on the recognition of the correctness of the choice and application of the method for determining the transaction price between related parties (previous price agreements). The interpretation of the direct condition relating to the production or acquisition of goods or services by the taxable person indicates the judgment of the WSA in Wroclaw from 22 August 2018 44 .

Judgment

The applicant’s claim that the literal meaning of the term ‘costs of obtaining revenues directly related to the production or acquisition of goods or services by the taxable person’ (Article 15e(11)(1) the Corporate Income Tax Act) refers to the relationship between the costs incurred by the taxable person and the ‘production’, ‘purchase’ of goods or ‘service’ rather than ‘revenue’ (Article 15(4) the Corporate Income Tax Act).

The legislator therefore preferred to exclude from the scope of application Article 15e(1) those costs which have directly translated into the effect of the taxable person's activities relating to the costs incurred in the manufacture, acquisition or provision of the service.

Only such a selective understanding of the rule under consideration corresponds to the legislator's will to exclude from the restriction in question under Article 15e(1) the Corporate Income Tax Act those costs which affect the final price of the goods or services.

It cannot be excluded that other expenditure to which the exemption in question will not apply may be incurred in the distribution, production or provision of a service.

Therefore, the costs in question under Article 15e(11)(1) the Corporate Income Tax Act, should be accounted for by the taxable person in such a way as to leave no doubt as to their direct impact on the final price of the goods or services.

Scope Article 15e(11)(1) and Article 15(4) the Corporate Income Tax Act are not identical and therefore cannot be used interchangeably.

When interpreting Article 15e(11)(1) the Corporate Income Tax Act It should be taken into account that the concept of ‘cost directly linked to the production or acquisition of goods or the provision of services’ used in it is a concept which is broader than that used under Article 15(4) the Corporate Income Tax Act the term ‘cost directly linked to revenue’.

This means that ‘costs directly linked to manufacturing’ may consist not only of costs directly but also indirectly linked to obtaining revenue, which, however, are directly related to the production (acquisition) of goods, products or services.

In other words, the cost of obtaining revenue directly related to the revenue in question under Article 15(4) the Corporate Income Tax Act, they are always ‘costs directly related to the manufacture or acquisition of goods or the provision of services’ with Article 15e(11)(1) the Corporate Income Tax Act, which in addition include costs indirectly linked to income, but directly related to production.

Thus, the applicant’s allegations relating to the defect in interpretation as regards the use of the under Article 15e(11)(1) the Corporate Income Tax Act the concept of ‘costs of obtaining revenue directly related to the production or acquisition’ by the taxable person of goods or services (end of judgment).

With regard to the understanding of the concept of services which the taxable person refers to, it should be noted that it is services acquired in its own name but on the account of another related entity.

Therefore, the exemption may relate in particular to a situation where a related entity acquires a service from another related entity and then re-uses it further to other entities in the group (e.g. the purchase of the service by the CIU of the related entity and the further refakture to regional centres).

This is confirmed by the Director of KIS in the following individual interpretation.

Individual interpretation of the Director of KIS from 5 July 2018 45

At this point, it should be stressed again that Article 15e(11)(2) the Corporate Income Tax Act will be used only where the taxable person (the Applicant), acting in his own name but for the benefit of the related entity, acquires a service the cost of which then reflects on the related entity.

However, in the application described in the case, the applicant acts as the entity to which the related entity acquires and re-reflectes the services indicated in the request.

It must therefore be concluded that the legal situation of the Applicant in the present case does not correspond to the one to which it refers Article 15e(11)(2) the Corporate Income Tax Act

5. Entities for which the costs of intangible services incurred are restricted

Specific costs under Article 15e(1) the Corporate Income Tax Act are subject to restrictions only if they are directly or indirectly incurred for a particular category of entities (eligible entities), i.e.:

1. related entities referred to under Article 11a(1)(4) the Corporate Income Tax Act,
2. entities domiciled, established or managed in the territory or in the country mentioned in the legislation issued pursuant to Article 11j(2) the Corporate Income Tax Act, i.e. in the Regulation of the Minister of Finance of 28 March 2019 on the identification of countries and territories applying injurious corporate tax competition[46].

Costs incurred indirectly to qualified entities shall be considered to be costs incurred to an entity unrelated to the taxpayer if the actual owner of the claim on the service titles and rights to be limited or part of it is a related entity to the taxable person or entity resident, established or managed in the territory or country referred to in that Regulation.

The basic category of eligible entities is related entities within the meaning of Article 11a(1)(4) the Corporate Income Tax Act It is therefore the same category of entities to which transactions require analysis in terms of the obligation to draw up transfer pricing documentation under Article 11k the Corporate Income Tax Act

6. Method of calculating the cost limit

The legislator has set a quota limit above which the costs of intangible services are excluded from the cost of obtaining revenue. This limit consists of two Parts as sum:

• 1) Amount 3,000,000 PLN (excluding VAT),
• 2) amount fixed as 5% EBITDA tax.

Fixed percentage, with free amount 3,000,000 PLN, is a global limit on the maximum value of the costs which the taxpayer may charge in the tax settlement for payment of the abovementioned rights and values to qualified entities. This means that the costs of intangible services incurred to entities eligible for value per year 3,000,000 PLN net are revenue costs (if, of course, they meet the general conditions for their inclusion in revenue costs).

Example

The CIT taxpayer, whose tax year is the same as the calendar year, incurred an advertising service cost of 2,000,000 PLN to an entity directly linked to it (mother company). This taxpayer has not incurred any other limited costs within a year on the basis of Article 15e the Corporate Income Tax Act Therefore, it will be able to classify the entire cost of this service as revenue costs.

Surplus over 3,000,000 PLN is subject to limitation according to established rules. Name of the limit 5% EBITDA tax according to the following formula:

5% × [(P – PO) – (K – depreciation – KO)]

where:

• P — sum of revenue taxed from all sources of revenue,
• PO — Interest tax revenue,
• K – total cost of obtaining revenue,
• depreciation — depreciation written down in question under Article 16a-16m the Corporate Income Tax Act,

KO — costs of obtaining interest income.

Example

The CIT taxpayer, whose tax year is the same as the calendar year, incurred an advertising service cost of 5,000,000 PLN to an entity directly linked to it (mother company). The taxpayer may, without any limitation, charge a part of its revenue 3,000,000 PLN. To a surplus over that amount, i.e. to the others 2,000,000 PLN, must apply the limit.

For some financial institutions, interest is not included in the calculation of the limit (either on the revenue side or on the cost side). This includes:

• 1) banks,
• 2) SKOK,
• 3) National Credit Union,
• 4) financial institutions within the meaning of Article 4(1)(7) p.b.

Example

A taxable person engaged in commercial activities incurred costs of services and rights subject to limitation on the basis of Article 15e the Corporate Income Tax Act total amount 8,000,000 PLN. The tax year of the taxpayer shall coincide with the calendar year.

This taxpayer achieved revenue in the tax year of 200,000,000 PLN, of which interest income amounted to 5,000,000 PLN. The total amount of costs incurred by the taxpayer (including costs of the services and rights mentioned above) was 150,000,000 PLN, of which depreciation is 30,000,000 PLN, and interest paid – 10,000,000 PLN.

Once these amounts are inserted into the above formula, we get the following equation:

limit = 5% × [(200 – 5) – (150 – 30 – 10)] = 0.05 × (195 – 110) + 3,000,000 = (0.05 × 85) = 4,250,000 PLN.

Amount 4,250,000 PLN increase by 3,000,000 PLN, which gives a limit on the cost of obtaining revenue from intangible services for eligible entities 7,250,000 PLN. If the taxable person incurred costs for intangible services to qualified entities in the amount 8,000,000 PLN, it's a surplus over the amount 7,250,000 PLN (i.e. 750,000 PLN) it will not be eligible for revenue.

Limitation resulting from Article 15e the Corporate Income Tax Act should be used already during the tax year for the calculation of advance tax. In practice, the obligation to apply the cap during the year applies to taxpayers who pay advances on a general basis (i.e.

in terms of the value actually obtained since the beginning of the year of income). This does not apply to those who pay simplified advances on the basis of Article 25(6) the Corporate Income Tax Act; in the case of the latter taxpayers, the advance is fixed on a flat-rate basis on the basis of tax from previous years.

The amount of the costs for the acquisition of intangible services, not deducted in the tax year, may be deducted in subsequent five tax years, in accordance with and within the limits of the application of the applicable year Article 15e the Corporate Income Tax Act

7. Different sources of revenue

From 1 January 2018 In the Corporate Income Tax Act the principle of dividing revenue into sources of income. Capital gains and other revenues were specified. This fact also affects the way the limit on the cost of intangible services is applied. Namely, the cost of obtaining revenue exempted on the basis of Article 15e the Corporate Income Tax Act The revenue source shall be taken into account in proportion to the eligible costs incurred under the revenue source concerned.

Example

A taxable person engaged in commercial activities incurred costs of services and rights subject to limitation on the basis of Article 15e the Corporate Income Tax Act total amount 8,000,000 PLN, of which 2,000,000 PLN concerned the costs attributed to the source of the ‘capital gains’ and 6,000,000 PLN – costs of other (operational) activities.

Assuming that a limit on the cost of services and rights subject to limitation on the basis of Article 15e the Corporate Income Tax Act (taking into account the threshold 3,000,000 PLN) is 7,000,000 PLN, the taxpayer will be forced to reduce the total costs 1,000,000 PLN. This reduction will apply to costs from both sources of revenue in the proposal resulting from a comparison of the costs of these services and rights included in the source, i.e. 1:3.

This means that the costs prescribed to the source of the ‘capital gains’ must be reduced by 250,000 PLN. Other excluded costs (750,000 PLN) will cover the remaining costs of the taxpayer's business.

The final cost of obtaining revenues for qualified services and rights under both revenue sources will be respectively 1,750,000 PLN and 5,250,000 PLN.

8. No transitional provisions

It is worth noting that the amending Act, introducing the amendments described above, did not provide for any transitional provisions compared to the limitation in law to the costs of obtaining revenue of an intangible nature.

The novel came into force 1 January 2018 – applies to costs included in the cost of obtaining revenue from that date. This means that the reduction in revenue costs relates to intangible expenditure regardless of the moment the contract is concluded (the acquisition of a service or a right) under which the costs are incurred.

It is only important that costs are incurred In 2018 This also applies to depreciation write-offs, i.e. limits are subject to depreciation write-downs made In 2018 – also where the asset has been put into service before 1 January 2018

Exception in this respect is due to Article 4(2) Amending Act according to which taxpayers whose tax year started before 1 January 2018 is different from the calendar, apply the provisions for its completion the Corporate Income Tax Act in the version to date. The tax payers are therefore obliged to apply this regulation only at the beginning of the tax year starting after 1 January 2018

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Source note 15: This is the position taken by the Minister of Finance in explanations available on the website https://www.mf.gov.pl/documents/764034/6350781/2+Kategoria+us%C5%82ug+objetych+art.15e+ust.1+%28final%29 (access: 16 April 2019).