Taxation of income generated by intellectual property rights

There are many conditions to benefit in practice from the preferential rate of taxation of income from the commercialisation of intellectual property rights (IP Box).

Provisions on this relief have entered into force 1 January 2019 by law of 23 October 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Act - Tax Ordinance and some other laws 1 (hereinafter ‘the Amending Act’). Late.

On 15 July 2019 there were, published by the Ministry of Finance, tax explanations on the application of this preference.

However, regardless of the extensive explanations of the ministry, relating in particular to the conditions for the classification of intellectual property rights as qualified IP, taxpayers should comply with the provisions of the above Act, including those relating to the registration of that right in the accounts.

1. Introduction

On 20 December 2019 The Director of National Tax Information found the applicant's position on preferential taxation of income generated by intellectual property rights to be incorrect.

The essence of the single-person business of the taxpayer is the provision of software services 2 , Among these are the design and execution of IT platforms needed to process massive data sets, as well as the reconstruction of existing platforms.

According to the applicant, the feature of his software is a work of great uniqueness, which is subject to copyright under the Law of 4 February 1994 about copyright and related rights 3 (Further: p.a.), and as part of the development, conversion and improvement of platforms, the taxpayer carries out certain experiments, studies aimed at selecting technologies to solve technical problems.

In his request for interpretation, the taxpayer asked four questions: 1) whether the revenue obtained from the abovementioned activities is subject to 5% Tax rate according to Article 30ca Act on 26 July 1991 on personal income tax 4 (Further: u.p.d.o.f.) 2) whether the expenditure related to the use of the infrastructure provided by cloud computing and cloud services is eligible costs, specified by the ‘a’ factor in the formula for calculating the indicator, under Article 30ca(4) u.p.d.o.f.

5 , 3) whether the expenditure on telecommunications services constitutes the above mentioned costs, and 4) Is this the cost of maintaining and amortising the car used to provide services? In the applicant’s assessment, its income generated by economic activities should be considered eligible.

2. The essence and taxation of qualified IP

It is worth reminding that according to Article 30ca(1) u.p.d.of. the tax on eligible income from qualified IP is 5% tax bases and one of these rights is (section 2 point 8) copyright to a computer program – subject to legal protection (such as other mentioned rights in this catalogue exhaustive) under the provisions of separate laws or ratified international agreements to which the Republic of Poland is party and other international agreements to which the EU is a party whose subject-matter of protection has been created, developed or improved by the taxpayer in the context of research and development activities.

On the other hand, the Ministry of Finance has pointed out in its explanations that the features of the IP Box (which is systematic, i.e. methodical, structured and planned) should be directed towards increasing knowledge resources for the creation of new, revised or streamlined products, processes or services (also in the form of new technologies); the creation of a subject of protection means creating a new qualified IP from scratch (this refers to the most obvious situation where so far qualified IP data did not exist and the taxpayer produced them in any form, regardless of the purpose and manner of expression.

The applicant for interpretation informed in addition to its conclusion that its services meet the above conditions, inter alia, that online platforms are designed, manufactured, extensively rebuilt, developed or improved; its activities are consistent with the definition of R & D activities included under Article 5a(38) u.p.d.o.f., of a systematic nature; the production, in-depth reconstruction, development or improvement of software is a manifestation of creative activity of an individual nature; the software created is protected in accordance with Article 74 p.a. 6 .

3. Registration of qualified intellectual property rights

In addition to the application, the taxpayer has stated that it does not currently keep records separate from the tax revenue and revenue books, it will be conducted as required. Under Article 30cb(1) u.p.d.o.f.

It should therefore be recalled that under this provision taxpayers are required, inter alia, to distinguish each eligible IP in the accounts; to conduct them in a manner that ensures that income, income and income costs (losses) are determined, per eligible IP; to distinguish the costs given under Article 30ca(4), for each eligible IP, in such a way as to ensure the determination of eligible income; to make entries in those books in such a way as to ensure the determination of total income from qualified intellectual property rights.

In the conclusion of the interpretation discussed here, the Director of KAS therefore stated that due to a failure to comply one from the conditions giving entitlement to a preferential rate of taxation of income from qualified intellectual property rights, namely the absence of separate records from the start of a qualified IP R & D activity, the applicant’s position is incorrect.

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