IP Box Relief

Date 1 January 2019, under the Act amending the Personal Income Tax Act, the Corporate Income Tax Act, the Act - Tax Ordinance and some other laws 1 (Next: z.u.p.o.f.o.p.18) to Article 24d Act on 15 February 1992 on corporate income tax 2 (Next: the Corporate Income Tax Act) and Article 30ca Act on 26 July 1991 on personal income tax 3 (Further: u.p.d.o.f.) preferences were introduced for taxpayers engaged in innovative activities, resulting in the creation, development or improvement of qualified intellectual property rights (hereinafter: KPWI), the so-called IP Box – Innovation Box.

According to the intention of the legislators, new regulations give the right to tax revenue from the use of certain intellectual property rights at a tax rate 5%. It is possible to apply the preferences if the taxpayer and the intellectual property rights used by him fulfil certain conditions.

In addition, the MF issued tax explanations on preferential taxation of income generated by these rights[4].

1. Entities entitled to use IP Box preferences

According to Article 24a the Corporate Income Tax Act the taxable persons of that tax who earn eligible income from qualified intellectual property rights are entitled to benefit from the preferences. According to Article 30ca u.p.d.o.f. only taxable persons operating an economic activity, in which they earn eligible income from qualified intellectual property rights, may benefit from preferences, regardless of the legal form of carrying out an economic activity.

2. Terms of use of IP Box preferences

2.1. Qualified intellectual property right

According to Article 24d(1)(2) the Corporate Income Tax Act (by Article 30ca(1)(2) (u.p.d.o.f.) tax rate 5% the income obtained from the relevant NAP, which may be:

• 1) patent,
• 2) protective law on the utility model,
• 3) the right to register an industrial design,
• 4) the right to register topography of the integrated circuit,
• 5) additional protection right for patents on a medicinal product or plant protection product,
• 6) the right to register the medicinal product and the veterinary medicinal product authorised,
• 7) the exclusive right referred to in the Act of 26 June 2003 on the legal protection of plant varieties 5 ,
• 8) copyright to computer program

• subject to legal protection 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 its R & D activities (R & D).

Preferences shall also apply to the income from the licence to use the NAP to the taxpayer under a contract which prohibits the exclusive exercise of that right by the taxpayer, provided that the taxpayer has previously carried out the R & D work resulting from the NAP for which the licence was granted.

Example

The taxpayer conducts R & D activities on behalf of another entity. As a result, that other entity acquires an NAP which is subsequently made available under an exclusive licence to the taxpayer. The income obtained by the taxpayer from such a KPWI will be able to use IP Box.

2.2. Protection right to the NAP

According to the above, only rights can be included in the NAP exhaustively listed if the taxpayer has the right to protect them or expects to obtain such a right (according to Article 24d(12) the Corporate Income Tax Act and Article 30ca(12) (u.p.d.o.f.) from the date of filing the right or submitting the application to the competent authority. The explanations of the MF clarify that the rules for granting legal protection for individual categories of NAPs are in principle derived from the provisions of the relevant national laws.

The taxpayer may also rely on protection rights granted in another country if protection is granted in Poland through the Polish Patent Office in accordance with ratified international agreements to which Poland is party and other international agreements to which the EU is party.

Due to the direct application of EU regulations in Poland and in any other Member State, the condition of having the legal protection of KPWI in Poland will be met against those NAPs whose protection is granted directly and harmonised at EU level.

2.3. R & D activities and NAP

In addition, NAPs should be produced, developed or improved by the taxpayer in R & D activities. This means that only income from KPWI in which the taxpayer has invested (e.g. produced) in the course of its R & D activities can be preferred.

If the law was created by another entity (even if the law is listed in the catalogue), its acquisition (e.g.

as a purchase) is not sufficient to benefit from the preference unless it has been further developed or improved under R & D activities (except for the aforementioned exclusive licence for KPWI, which was originally created by the taxpayer).

As explained by the MF ‘creation’ of the protection object, it means the creation of a new NAP from scratch. This concept refers to the most obvious situation in which KPWI data did not exist at all and the taxpayer in R & D activities produced them.

The development or improvement of the subject of protection means, among other things, the expansion, extension of the functional scope or usefulness of the existing KPWI, whether the taxpayer has obtained additional protection for this development or improvement.

It is crucial to actually develop or improve the existing KPWI in any form, as long as it improves its usefulness or functionality.

The development, development or improvement should be carried out in the context of R & D activities. According to Article 4a(26) the Corporate Income Tax Act (Article 5a(38) u.p.d.o.f.) R & D activities are creative activities involving research or development, undertaken systematically to increase knowledge resources and use knowledge resources to create new applications. Subject to Article 4a(27) the Corporate Income Tax Act (Article 5a(39) (u.p.d.o.f.) research shall mean activities involving:

• 1) basic research, understood as empirical or theoretical works, aimed primarily at gaining new knowledge of the foundations of phenomena and observed facts without a direct commercial application,
• 2) application research, understood as work to gain new knowledge and skills, geared towards developing new products, processes or services or making significant improvements to them.

According to Article 4a(28) the Corporate Income Tax Act (Article 5a(40) (u.p.d.o.f.) shall mean activities involving the acquisition, merger, formation and use of knowledge and skills currently available, including information tools or software, for the planning of production and design and development of altered, improved or new products, processes or services, excluding activities involving routine and periodic changes made to them, even if such changes are of an improvement nature. At the same time, as explained by the MF, any R & D activity which will lead to the production, development or improvement of KPWI, regardless of its scale, frequency, level of creativity, systematicity or level of increase in knowledge resources and use it to create new applications, will constitute a qualified R & D activity for IP Box.

This means that the taxable person should:

• 1) have a list of KPWI to which the IP Box will apply, indicating on what basis and from/to when they are protected,
• 2) keep records for R & D activities to demonstrate for each NAP the costs of the work directly related to that NAP (more broadly) and
• 3) document the effect of the work in the form of the creation, development or improvement of a given NAP in the framework of research or development.
• 2.4. Loss of protection rights to NAP

Please note that according to Article 24d(13) the Corporate Income Tax Act (Article 30ca(13) (u.p.d.o.f.) in the event of withdrawal of a notification or application, refusal to grant a safeguard right, refusal of a registration application or rejection of a registration application, the taxable person is obliged to tax on a general basis the eligible income obtained from the date of notification or submission of an application until the date of withdrawal of the application or application, refusal of a safeguard right, refusal of the application or rejection of the registration application.

In this case the tax calculated on the total revenue shall be deducted from the tax paid at the preferential rate 5% for the entire period of benefit. Similarly, in the event of cancellation of the NAP, the taxpayer loses the right to preferences for the entire period of use. However, in the event of the expiry of a protective right (e.g.

due to the passage of time for which it was granted), the taxpayer loses the right to benefit from the preferences for the future from the expiry of that right (he is not obliged to adjust earlier accounts).

In view of the above, it is important that taxable persons wishing to apply preferential taxation to a given NAP be assured that it is protected.

3. Tax rules for IP Box

3.1. Method of calculating the tax base for IP Box

According to Article 24d(3) the Corporate Income Tax Act (Article 30ca(3) (u.p.d.o.f.) the tax base shall be the sum of eligible income from the NAP achieved in the tax year.

The regulation can be expressed as:

IP Box tax = 5% × [nexus#1 × (Tax revenue from KPWI#1 − direct and indirect tax costs related to NAP#1) + nexus#2 × (Tax revenue from KPWI#2 − direct and indirect tax costs related to NAP#2) + … Nexus#X × (tax revenue from KPWI#X - direct and indirect tax costs related to KPWI#X)]

This means that using the IP Box requires finding:

1) taxable income for each NAP separately,

1. a qualified income from a KPWI on the basis of the so-called nexus, i.e. the relationship between the inputs directly incurred on the production, development or improvement of the KPWI by the taxpayer and the income it derives from that right – this is a percentage rate to determine what part of the income from the KPWI is related to the taxpayer's innovation activity and may be subject to preferential taxation. Only eligible income is subject to preferential rate 5%.
2. 2. Determination of income from NAP

According to Article 24d(7) the Corporate Income Tax Act (Article 30ca(7) U.p.d.o.f.) income or loss from KPWI is the income or loss achieved by the taxpayer in the tax year (in the case of natural persons calculated according to Article 9(2) u.p.d.o.f. and from non-agricultural business activities:

• 1) the fees or charges resulting from the licensing agreement which concerns the NAP,
• 2) from the sale of KPWI,
• 3) from the NAP included in the sales price of the product or service,
• 4) compensation for violation of the rights deriving from the NAP if it has been obtained in disputed proceedings, including judicial proceedings or arbitration.

Example

The company operates an economic activity consisting in the creation and development of proprietary software (the business of the company meets the definition of R & D activities), which is made available to customers on the basis of a licence or sold.

In addition, the company's customers can use technical support services for additional remuneration. The question arises – will all income generated by the company benefit from preferential IP Box taxation? In response, one might point out that no.

The company should separate the income obtained directly from the licensing of KPWI and the sale of KPWI and separately the income from the technical support services provided, which is not directly obtained from KPWI. Similarly, the Director of KIS indicated in an individual interpretation from 22 October 2019 6 .

The rules laid down in transfer pricing rules shall apply mutatis mutandis to the determination of income (loss) from the NAP included in the sales price of the product or service (according to the Article 24d(8) the Corporate Income Tax Act, Article 30ca(8) u.p.d.o.f.) This means that it is necessary to justify how certain KPWI builds the value of a given product or service, for example by indicating how KPWI is included in the price. Where it is not possible to determine the income per individual NAP, the taxpayer may calculate the eligible income from the NAP of the same type of product or service or for the same group of products or services in which the NAP was used.

Example

The taxpayer hires engineers who have developed an innovative solution in R & D activities, applicable in various models of cameras produced by the taxpayer. As the distribution of labour costs to income generated from different models of cameras is difficult, it is possible to recognise income (losses) from KPWI for IP Box for the aggregate income generated from the sale of cameras.

The income from KPWI is the excess of the above-mentioned revenue from this right over the cost of obtaining income, achieved in the tax year. The cost of obtaining income includes costs which directly and indirectly contributed to this revenue. In the case of indirect costs, this will require the setting of an appropriate allocation key for a given NAP.

Example

The taxpayer carries out R & D activities in creating innovative computer applications (computer programs) and separate activities in the field of the sale of computer equipment, both within the framework one economic activity.

The taxpayer shall bear the costs directly related to the sale of the application and the sale of computer equipment (more than that, it shall keep records to allocate the costs directly to each application) and the costs generally related to the activity carried out, not directly attributable to specific revenues (e.g.

electricity charges, administrative personnel, etc.). The taxpayer decided to allocate indirect costs to a specific revenue based on the proportion of the revenue in total of all revenue (e.g.

First, the proportion is calculated on the basis of: indirect costs × revenues from innovative activities/sum of revenues, followed by indirect costs of innovative activities × revenues from the application (as a separate NAP)/ sum of revenues from all applications.

This approach was confirmed by the Director of KIS in an individual interpretation from 23 September 2019 7 .

If the revenue costs exceed the sum of revenues in a given year, the difference is a loss from a given NAP. The loss will be accounted for with the income obtained from the same KPWI, the same type of product or service, or the same group of products or services in which KPWI was used in the coming, successively consecutively 5 tax years.

This means that KPWI losses incurred in a given tax year can only reduce the income from this KPWI. Such a loss cannot reduce income from other sources taxed on general terms even if the taxpayer does not obtain In the next the tax year of income from KPWI.

3.3. Determination of nexus

After determining the income from individual NAPs, it is necessary to determine the eligible income from each NAP separately, using nexus. According to Article 24d(4) the Corporate Income Tax Act (Article 30ca(4) (u.p.d.o.f.) the amount of the eligible income from the NAP shall be determined as the product of the income from the NAP achieved in the tax year and the index applicable to it calculated according to the formula:

Individual letters shall mean the costs actually incurred by the taxable person for:

• a — the direct R & D activities of the taxpayer related to this NAP,
• b – acquisition of R & D results related to this NAP, other than those mentioned in point (d) below, from an unconnected entity within the meaning of the transfer pricing provisions,
• c – acquisition of R & D results related to this NAP, other than those mentioned in point (d), from a related party within the meaning of the transfer pricing provisions,
• d — the acquisition by the taxpayer of the NAP.

Example

The company engages staff in R & D activities on the basis of employment contracts, work contracts and commissions the provision of services to persons carrying on one-person business. In all cases, the company acquires all copyright rights to the effects of the work of the personnel involved.

For those involved on the basis of employment contracts, the cost of their employment should be recorded in the letter ‘a’ of the above formula.

It also seems rational that in this category there should be persons employed under work contracts, as not carrying out separate economic activities, in which the effect of their work could give the right to IP Box preferences.

If the effect of the work of persons carrying on a single business constitutes a copyright automatically protected on the basis of the relevant provisions (e.g. a computer program), its transfer to the company should be included in the letter ‘d’.

In practice, there is a position that, in the case of costs related to the conclusion of a civil contract with an entity carrying on a single business activity (B2B agreements), the remuneration associated with the acquisition of the service will be included in the ‘b’ of the template, unless the entity with which the contract is concluded is not a related entity.

This position was presented by the Director of KIS in an individual interpretation from 30 December 2019 8 . This is beneficial both for the provider of KPWI services within the framework of one-man business activity and their purchasers, as it may favour the right to benefit from IP Box preferences for both entities.

It should be stressed that the above position is controversial, given the literal content of the IP Box legislation and is not uniformly presented by the BIS, as evidenced by the position of Director of the CIS in the individual interpretation of 28 November 2019 9 .

Example

The company operates an economic activity consisting in creating and developing proprietary software (company services meet the definition of R & D activities) on behalf of another entity and in providing other services in the field of IT.

The proprietary software, created and developed by the company, is a work protected under the Act of 4 February 1994 about copyright and related rights 10 (Next: p.a.). The company bears various fixed costs related both to the production of proprietary software and to other services (e.g. car depreciation costs, telecommunications costs).

The company maintains records allowing detailed identification of the tasks performed, the time spent on their performance and the proportion of revenues from KPWI to revenues in total business activity. The company determines the proportion of revenues from KPWI to total revenues from its business activity on the basis of the proportion of the number of working hours per software development compared to the total working hours performed during the relevant trading period.

The question arises as to whether the company can use such an established proportion to determine to what extent fixed costs will be included in the costs actually incurred for R & D activities related to KPWI when calculating Nexus?

The tax interpretations state that expenditure on the operation of a car, its depreciation and other services, e.g.

telecommunications, with the proportion resulting from the breakdown of the number of hours devoted to the NAP in relation to the total working hours of the month, may constitute the costs referred to in point (a) Nexus formula, as costs related to KPWI. So stated the Director of KIS in an individual interpretation of 2 January 2020 11 .

Example

The company bears the costs for the direct R & D activity, such as:

• 1) hiring employees involved in R & D work,
• 2) depreciation of fixed assets and WNiP used in R & D,
• 3) R & D services,
• 4) expenditure on the purchase and maintenance of licences and software used in R & D work.

In addition, the company bears the costs of carrying out sales activities of products created as part of R & D works. Will all the above costs be directly linked to the NAP for nexus? No, because the costs of sales activities are not directly linked to KPWI and should not be taken into account when calculating the nexus index. This is what the Director of KIS indicated in an individual interpretation from 30 December 2019 12 .

It should be noted that R & D costs for IP Box are broader than eligible expenditure recognised for R & D relief. The costs for calculating the indicator should also not be identified with the cost of obtaining income for tax purposes.

The construction of IP Box rules encourages the taxpayer to bear as much as possible of the costs directly related to the production, development or improvement of the KPWI (e.g.

the cost of employees per contract of employment, work contract and contract-contract insofar as their work is related to the relevant KPWI, the ZUS contributions relating to these contracts).

In the interests of the legislators, the costs incurred by the taxpayer in the business activity are a separate pool of R & D costs, and the costs incurred directly by each NAP are a separate category (eligible R & D activities for IP Box).

As a result, R&D eligible costs for Nexus do not include costs which are not directly linked to KPWI, in particular interest, financial charges and real estate costs.

According to the explanations of the MF in the case of incurred costs related to R & D activities which do not produce the expected result, it is possible to include these costs in the calculation in the nexus formula, provided that the costs in question are related to the implementation of the broader R & D project, which has resulted in the development of income from KPWI. Where the value of the indicator calculated as indicated above is greater than 1 the value is assumed to be 1.

Example

A taxpayer active in computer applications creates an innovative computer program based on his own idea. The following expenditure shall be incurred in order to prepare the final programme:

• 1) salaries of programmers and other staff directly involved in R & D work – 200,000 PLN,
• 2) Remuneration for R & D work of additional programmers with unique knowledge and providing business services — 300,000 PLN,
• 3) acquisition of intellectual property rights on software elements (copyrights, licenses) from unrelated parties – 100,000 PLN.

The taxpayer did not acquire R & D results from related parties. In the above example, Nexus will be:

[(200,000 + 300,000) × 1.3] ÷ (200,000 + 300,000 + 100,000) = 1.083, Max. 1.

This means that all income generated by the taxable person of KPWI will be subject to preferential taxation.

In the event that the eligible income is lower than the total income obtained from the KPWI concerned, the eligible part of the income (in accordance with the Nexus ratio) would be taxed on a preferential basis and the remainder on a general basis.

Calculation of nexus takes into account only the costs actually incurred. It will not be at the expense of the actual cost of the taxpayer's own labour – this is a problematic issue, for example, for self-employed people who, outside their own work, have no other costs directly linked to the NAP.

Public debate calls for such a "cost" to be allowed. The cost will, on the other hand, constitute the cost which has been reimbursed to the taxpayer (e.g. through co-financing or subsidies). In some cases, costs incurred in the past may also be used to calculate the nexus index (i.e.

rod 31 December 2012, according to Article 24 z.u.p.o.f.o.p.18).

3.4. Practical instructions for calculating the tax base for IP Box

Since the eligible income is calculated on the basis of both the ratio of nexus and the standard income calculation of a given NAP, it is important that:

• 1) record revenue and costs for each NAP separately (only in exceptional cases) the Corporate Income Tax Act and u.p.d.o.f. allow collective recognition of KPWI),
• 2) justify the choice of the method for determining the income from KPWI included in the sales price of the product or service,
• 3) keep a record of the costs of R & D activities related to a specific NAP – in particular it will be helpful to describe the costs of the services purchased, acquired rights or to record employees' working time,
• 4) verify whether the expenditure is directly linked to R & D activities (e.g. rent of the building as not directly related to the creation of a specific CPR will not be included in the Nexus calculation),
• 5) verify, in each of the tax years of the use of preferences, changes in the nexus ratio applied to a given NAP (e.g. where part of the associated costs has been incurred in subsequent years).

Example

The taxpayer employs employees for R & D (engineering, analysts) whose working time is devoted to carrying out simultaneously several projects aimed at producing and developing various NAPs.

Moreover, the responsibilities of the R & D department manager, in addition to R & D activities, include general coordination of work, team management and administration.

In order to correctly establish the Nexus for each NAP, the taxpayer should keep records to determine the cost of the remuneration of employees was directly related to the work on a specific NAP, e.g.

the working time of employees employed in R & D activities, allowing to determine the proportion of working time on a given NAP in relation to the entire working time devoted to R & D activities. This proportion will allow the calculation of the share of the remuneration of a given employee in relation to work on a given NAP.

In addition, the head of the R & D department's working time records should record the time devoted to obligations not directly related to R & D activities. That part of his remuneration, which is linked to these obligations, should not be included in the calculation of nexus.

In addition, it should be pointed out that, as the Director of KIS stated in an individual interpretation from 9 April 2020 13 – the remuneration for leave/periods of illness, as not directly related to R & D activities, should not be included in the Nexus calculation.

3.5. Specific cases

3.5.1. Tax Capital Group (PGK)

A tax group may use IP Box, if at least one from the companies included in the PKK, it generates eligible income from the NAP. According to MF’s explanations, in such a case the companies of PGK are required to keep separate records for the purposes of calculating the eligible income.

Companies forming PKK report to the parent company the revenues, costs and revenues achieved under the IP Box, for each KPWI separately. The parent company combines reported data with its own revenues, costs and revenues obtained under the application of preferences.

It shall then sum up the common eligible income from a separate NAP and apply to such calculated income a preferential rate 5%. In the event of a loss, PGK may reduce the tax base by loss from the same KPWI. Loss can be settled consecutively 5 tax years.

It is important that PGK is obliged to exclude from the cost of obtaining revenue for the purpose of calculating income from KPWI the costs incurred directly or indirectly within the KPWI in question to other companies of PGK.

The value of the costs actually incurred in intragroup transactions should be taken into account in the calculation of the nexus ratio as expenditure to the related entity will negatively affect the amount of eligible income. In case of loss of PGK status, the past tax settlements should be corrected as if PGK never existed.

3.5.2. Fetch to a capital company

It may happen that the taxpayer will receive an NAP or the result of R & D work through a non-monetary contribution (port). In the case of export to a capital company (according to Article 12(1)(7) the Corporate Income Tax Act and Article 17(1)(9) (u.p.d.o.f.) the supply value should be set at the market price.

This price will affect the calculation of nexus. In general, the value of the item of the claim, as a transaction with a related entity, will negatively affect the amount of nexus (as in the case of the purchase of KPWI/B+R works from related entities).

3.5.3. Special Economic Zone

If a taxable person subject to an income tax exemption of income generated by taxable persons in the Special Economic Zones (hereinafter: SEZs) carries out activities entitling to benefit from the IP Box preferences, he shall be able to benefit from the preferences provided that he fulfils the conditions (in particular in terms of the use of the NAPs and the proper recording of the associated revenues and costs).

In this case, IP Box effect – preferential tax rate 5% revenue from KPWI – will affect the use of the exemption from the SEZ.

The available exemption pool under the SEZ will be "used" using a lower amount of income tax from KPWI, calculated according to the rate 5%, in relation to taxation of other income (or non-use of IP Box) on a general basis (basic rates, e.g. 19% either 9% CIT).

4. Accounting records for IP Box

4.1. Obligation to keep accounting records for IP Box

According to Article 24e(1)(2) the Corporate Income Tax Act (Article 30cb(1)(2) u.p.d.o.f.) taxpayers using IP Box preferences are obliged to:

• 1) separate each NAP in the kept accounting records,
• 2) keep this record in such a way as to ensure that revenue, cost of obtaining revenue and income (losses) per NAP,
• 3) identify the costs necessary for the calculation of the nexus per NAP to ensure the determination of eligible income,
• 4) make records in the accounts kept in such a way as to ensure the determination of the total income from these NAPs, where the taxpayer uses more than one The NAP, and in the accounts kept, cannot meet the conditions in question Under points 2 and 3,

1. make records in the accounts kept in such a way as to ensure that the income from the NAP is established for that product or service or for those products or services, where the taxable person uses one An NAP or more of these rights in a product or service or in a product or service, and the accounting records cannot meet the conditions in question Under point 2-4.

If, on the basis of the accounting records, it is not possible to determine the income (loss) from the NAP or the eligible income, the taxpayer will be required to pay the tax on a general basis.

Example

The company conducts an economic activity consisting in creating and developing proprietary software (company services meet the definition of R & D activities) on behalf of another entity. The proprietary software, created and developed by the company, is a work protected on the basis of p.a.

The Company intends to keep records for the purposes of recording events relevant to the application of IP Box preferences. Will the company therefore have the right to benefit from the preferences?

The answer will be negative if the company only keeps separate records in the future, it will not be entitled to benefit from the IP Box relief and tax on income from KPWI at a preferential rate.

According to the position presented by the Director of the CIS in an individual interpretation from 22 October 2019 14 , The records should be kept consistently throughout the period to be preferred.

In view of the above, proper record keeping is essential for the application of preferences. The rules do not specify in what form records should be kept for IP Box purposes. In practice, taxpayers using different methods of recording events in business can use different patterns.

Director of KIS in an individual interpretation from 23 September 2029 15 submitted the position that in the records any cost and revenue (at the level of a single invoice) is described in such a way to allow attribution to one of the KPWI.

Then, on the basis of the records kept, it is possible to determine the revenue, the cost of obtaining revenue and the income (losses) of each NAP.

4.2. Book of revenue and revenue

As explained by the MF, it is important that the records are kept in a sound manner so that the annual tax return can show the total amount of revenue, tax costs, losses, revenues, all taxable income at the rate 5% and income which will not be subject to preferential taxation. According to MF explanations, taxpayers not subject to full accounting may keep records for IP Box in the form of:

• 1) computer spreadsheets,
• 2) cumulative monthly compilations of supporting documents at the end of the month.

The compilations should cover expenditure from the start of R & D activities in terms of the production, development or improvement of KPWI, until the end of the calendar month concerned, in an ascending arrangement, for specific tasks. They should be based on a summary of documents confirming the expenditure incurred. Electronic records should be archived appropriately and the spreadsheet design will later allow the data to be restored at the end of each calendar month.

As explained by the MF, taxpayers operating R & D should keep records of the R & D project (especially in the case of work on several NAPs at the same time), which may include:

• 1) a description of the project,
• 2) the start and end times of the project,
• 3) a list of persons involved in the work of the individual project,
• 4) a list of works created in a given project with a name assignment to a particular person performing the work.
• 4.3. Accounting books

For taxable persons keeping accounts, separate records (with characteristics such as those described Under point 5.2) may mean the separation of economic operations in the accounts of the auxiliary accounts or of separate analytical accounts. This requires an appropriate modification of the unit's accounting policies and account plan.

As explained by the MF, the taxable person should, before the cost of obtaining revenues related to the relevant NAP, plan and introduce an appropriate separate accounting record in the accounting area, taking into account:

• 1) information needs related to reporting on eligible expenditure in projects (division of costs into relevant categories according to the approved project budget),
• 2) the applicable legislation, in particular: the Corporate Income Tax Act, Act on 11 March 2004 on tax on goods and services 16 (Come on. the VAT Act), Act on 29 September 1994 on accounting 17 (hereinafter: u.o.r.) and the implementing rules for those laws,
• 3) the technical possibilities of his accounting system.

In particular, separate records are required for both revenue accounts, revenue costs, income (loss) from the NAP, fixed assets accounts and settlements.

4.4. Practical instructions for keeping accounting records for IP Box

It should be noted that the IP Box rules and MF explanations indicate that the records in question under Article 24e(1) and 2 the Corporate Income Tax Act (Article 30cb(1)(2) u.p.d.o.f.), is correlated with the records kept for R & D activities. At the same time, according to Article 9(1b) the Corporate Income Tax Act (Article 24a(1b) (u.p.d.o.f.) taxpayers engaged in R & D activities are required in the records (books or accounts in u.p.d.o.f.) referred to under Article 9(1) the Corporate Income Tax Act (Article 24a(1) U.p.d.o.f.), separate R & D costs.

According to the above, if the taxpayer is already keeping records of R & D activities, it can use it for IP Box purposes.

It should be remembered that R & D activities have a different scope than the IP Box preferences, so it is necessary to adjust the records kept for the purposes of R & D activities, inter alia, in respect of separate records for individual CPRs and accounting policies, so that they can properly identify the costs and revenues associated with the IP Box preferences.

In the event of creating a completely new IP Box registration, you can rely on existing standards or developments for R & D activities by modifying them accordingly.

Since the application of the IP Box rules can also take into account costs incurred historically (after 31 December 2012) it is worth a comprehensive analysis to properly identify the components for existing KPWI already at the beginning of the IP Box preferences and to include them in the records. In turn, due to the cumulative method of calculating the proportion directly affecting the extent of the tax preferences available (nexus), data should be adequately recorded both In the first the year of IP Box usage, as well as the following years.

5. Annual statement and date of payment of tax

Tax payers using IP Box are required to demonstrate income (losses) from KPWI in a statement for the tax year in which that income was achieved (loss was incurred).

The application of the IP Box regime generally does not affect the current tax liability during the year, but only the final settlement (exceptions in this respect were introduced by law with 31 March 2020 amending the Act on Special Solutions for Prevention, Prevention and Control COVID-19, other infectious diseases and their emergency situations and certain other laws 18 , What to do next).

Where the IP Box involves overpayment of tax for a given tax year, the taxpayer will be able to settle the excess of tax arrears or advances on current tax obligations and, in their absence, the excess should be reimbursed to the taxpayer unless he requests to settle it with future tax obligations (the MF explanations indicate that the IP Box does not affect the amount of advance on the tax that should be calculated on a general basis).

The amount of the losses incurred by KPWI in the tax year shall be reduced by the income achieved in the next successively consecutive stages. 5 the tax years of the same NAP, the same type of product or service or the same group of products or services in which the NAP was used.

Thus, the losses achieved under the IP Box will not be settled with other income taxed on a general basis or with income from other NAPs. Similarly, a taxpayer who suffered a loss on a general basis before the IP Box preferences were implemented will not be able to use it to reduce income from KPWI.

5.1. Obligation to submit CIT/IP information

CIT/IP information is an annex to the testimony CIT-8 and CIT-8 AB.

The obligation to complete and submit CIT/IP information is not directly attributable to provisions which under Article 24d(11) the Corporate Income Tax Act indicate only the obligation to demonstrate income (loss) from KPWI in the statement for the tax year in which that income was achieved (loss incurred).

However, it should be assumed that the preparation of a separate annex to the declaration CIT-8 and CIT-8 AB aims to avoid making these statements complicated.

The current pattern of information follows the MF Regulation from 9 April 2020 amending the Regulation on the definition of corporate income tax statements, statements, statements and information[19].

5.1.1. Tax payers obliged to submit CIT/IP information

The obligation to prepare CIT/IP information is covered by a taxable person who enjoys the right to tax income from the use of certain intellectual property rights with a preferential tax rate 5%.

Such taxable person shall be obliged to join the statement referred to under Article 27 the Corporate Income Tax Act, CIT/IP information, including aggregated data allowing, inter alia, to determine the amount of income (loss) from KPWI.

Tax payers shall fill in the CIT/IP Annex upon prior calculation of income (losses) for each NAP separately. According to the system of forms, in testimony CIT-8 and CIT-8 AB does not show income, costs and income (losses) on KPWI, whereas the aggregated due tax on KPWI is to be shown in a separate cell of testimony CIT-8 either CIT-8 AB.

5.1.2. Date of submission of CIT/IP information

Information shall be provided together with an appropriate statement as an annex.

5.1.3. Tax office competent to provide information

The competent tax office shall be the tax office to which the statement to which the CIT/IP information will be attached shall be addressed.

5.1.4. Information provided in CIT/IP

CIT/IP information shall include, inter alia, the type of KPWI, the aggregated revenue and costs associated with KPWI, resulting from the relevant records and information on exemptions or decisions on support for KPWI data on the basis of Article 17(1)(34)(34a) the Corporate Income Tax Act

5.2. Obligation to submit PIT/IP information

PIT/IP information is attached to the testimony PIT-36, PIT-36S, PIT-36L either PIT-36LS. The obligation to complete and submit PIT/IP information is not directly attributable to provisions which under Article 30ca(11) u.p.d.o.f.

indicates only the obligation to show income (loss) from the NAP in the statement for the tax year in which that income was achieved (loss incurred). However, it should be assumed that the preparation of a separate annex to the PIT declaration[36], PIT-36S, PIT-36L either PIT-36LS The purpose of this statement is to avoid any confusion.

The current pattern of information follows the MF Regulation from 11 December 2019 on models of tax returns applicable to personal income tax[20].

5.2.1. Tax payers obliged to submit PIT/IP information

The obligation to prepare PIT/IP information is covered by a taxable person who enjoys the right to tax income from the use of certain intellectual property rights with a preferential tax rate 5%. Such a taxpayer shall be obliged to add to the relevant business statement, PIT/IP information, including aggregated data allowing, inter alia, to determine the amount of income (loss) from the NAP. Tax payers shall complete Annex PIT/IP upon prior calculation of income (losses) for each NAP separately.

According to the system of forms, in testimony PIT-36, PIT-36S, PIT-36L either PIT-36LS no income, costs and income (losses) from KPWI, the aggregate tax due from KPWI is, on the other hand, to be shown in a separate cell of testimony PIT-36, PIT-36S, PIT-36L either PIT-36LS. It should be noted that the spouses, irrespective of the method of annual settlement (individually or jointly with the spouse), make separate Annexes to the PIT/IP.

5.2.2. Date of submission of PIT/IP information

Information shall be provided together with an appropriate statement as an annex.

5.2.3. Tax office competent to provide information

The competent tax office shall be the tax office to which the statement to which the PIT/IP information will be attached will be addressed.

5.2.4. Information provided in PIT/IP

The PIT/IP information shall include, inter alia, the type of KPWI, the aggregated revenue and costs associated with KPWI resulting from the relevant records and information on exemptions or decisions to support KPWI data based on Article 21(1)(63a)) and 63b) u.p.d.o.f. or the tax exemption of a given year by a taxable person who for the time being first started non-agricultural business (Article 44(7a) u.p.d.o.f.).

6. IP Box a R & D relief

According to MF’s explanations, the R & D reduction is not included in the calculation of the taxable amount to be taken into account 5% IP Box tax. That means those two the preferences cannot be applied cumulatively to the income from the relevant NAP (the R & D costs of this NAP will not be included in the R & D relief if the income from this NAP is covered by the IP Box). At the same time, MF’s explanations indicate the possibility that in one tax year or several tax years:

• 1) apply only the R & D relief, accounting for all income on a general basis, or
• 2) only use 5% IP Box taxation, or
• 3) benefit from both the R & D relief and the IP Box preference for different categories of income (R & D against general income and IP Box against KPWI income).
• 7. IP Box and tax scheme information (MDR) and tax circumvention clause (GAAR)

In the MF's tax explanations on provisions introducing the obligation to report tax schemes (MDRs), published 31 January 2019 21 , it was pointed out that the use of tax credits and preferences, such as IP Box, would not in principle be subject to reporting obligations.

Reporting may occur if the conditions for considering the arrangement as a tax scheme are met, e.g. the main benefit criterion (the main objective or one The main objectives of the expenditure are to benefit from the tax preferences) and the promoter's remuneration in the agreement is based on the principle of success fee.

As explained by the MF (IP Box) the obligation to report on all MDR activities effectively qualifying for preferential application 5% the tax rate in accordance with IP Box rules will generally not occur. However, it cannot be a priori excluded. Therefore, taxpayers should not in principle be obliged to report on the implementation of IP Box when transferring MDR or to submit an annual report on the benefits of using preferences.

Furthermore, MF’s explanations indicate that the application of the General Tax Avoidance Clause (GAAR) or other restrictive contractual advantages to the IP Box ‘has trace amounts of probability but cannot be excluded’.

According to the MF, it is difficult to imagine that the taxpayer's R & D activities, which result in the creation, development or improvement of a qualified IP, are linked to his artificial activities aimed at tax avoidance.

Consequently, even if the tax advantage is taxed at a tax rate 5% will be recognised by the tax authority as one of the main motives for the taxpayer to carry out R & D activities, this type of activity will in principle not fulfil the conditions of artificiality necessary for the effective application of the above clauses.

8. Amendments made to the provisions on Covid-19

By law.uCOVID-19 added Article 52u(1) u.p.d.o.f. and Article 38m(1) the Corporate Income Tax Act According to them, the taxpayers concerned under Article 30ca u.p.d.o.f. and 24d.

the Corporate Income Tax Act, reaching In 2020 Eligible revenue from NAPs used to counter COVID-19, referred to under Article 2(2) Act on 2 March 2020 specific prevention, prevention and eradication solutions COVID-19, other infectious diseases and the resulting crises 22 (Next: uCOVID-19) may apply, during the tax year, the rate of tax referred to in that provision to those revenue when calculating the advance on income tax.

According to Article 52u(2) u.p.d.o.f. and Article 38m(2) the Corporate Income Tax Act the amount of advances shall be calculated as follows:

1. first the advance is calculated from the sum of eligible income from the NAP achieved from 1 March 2020, at the rate referred to under Article 30ca(1) u.p.d.o.f. and 24d. section 1 the Corporate Income Tax Act;
2. advances for subsequent months or quarters shall be calculated as the difference between the tax calculated at the rate in question under Article 30ca(1) u.p.d.o.f. and 24d. section 1 the Corporate Income Tax Act, of the total eligible income from the NAP, achieved from 1 March 2020, and the sum of the advance payments due for the previous months or quarters calculated on that income.

Those provisions shall also apply where the taxable person does not have an NAP or an exspect of obtaining an NAP, subject to the notification or application for such protection to the competent authority, within the time limit 6 months from the end of the month for which he applied the tax advance in the calculation 5% tax rate.

1. Clarifications to the model instructions for compliance with obligations under the rules on taxation of income from qualified intellectual property rights
2. 1. Use of instructions

The instruction shall be used where the CIT taxpayer or the non-agricultural economic activity of the PIT taxpayer benefits from the tax preferences for income from the NAP.

9.2. Operators following the instructions

The instructions are given by corporate tax payers and non-agricultural business tax payers.

9.3. Legal acts used in the instructions

Tax collectors implementing the instruction shall use:

• • Article 5a(38-40), Article 9(2), Article 17(1)(9), Article 24a(1b), Article 30ca, Article 30cb(1)(2), Article 30f(9) u.p.d.o.f.,
• • Article 4a(26-28), Article 9(1b), Article 12(1)(7), Article 24a(8), Article 24d, Article 24e(1)(2) the Corporate Income Tax Act
• 10. Model instructions for compliance with obligations under the income tax provisions of qualified intellectual property rights

__________________________________________________________

1 Journal of Laws of 2018, item 2193.

4 Tax explanations with 15 July 2019, on preferential taxation of income generated by intellectual property rights — IP BOX, https://www.gov.pl/web/finanse/objasnienia-podatkowe-dot-preferencyjnego-opodatkowania-dochodow-wytwarzanych-przez-prawa-wlasnosci-intelektualnej-ip-box (access: 8 October 2019), hereinafter referred to as the MF explanations.

6 reference no. 0114-KDIP2-1.4010.335.2019.2.MR, Legalis.

7 reference no. 0111-KDIB1-1.4010.220.2019.2.MG, Legalis.

8 reference no. 0111-KDIB1-3.4010.582.2019.1.MBD, Legalis.

9 reference no. 0111-KDIB1-1.4010.394.2019.2.BS, Legalis.

[10] i.e. Journal of Laws of 2019, item 1231 as amended

11 reference no. 0115-KDIT3.4011.368.2019.3.WM, Legalis.

12 reference no. 0111-KDIB1-3.4010.583.2019.1.MBD, Legalis.

13 reference no. 0111-KDIB1-3.4010.583.2019.1.MBD, Legalis.

14 reference no. 0115-KDIT2-1.4011.322.2019.2.MK, Legalis.

15 reference no. 0114-KDIP3-1.4011.406.2019.2.MG, Legalis.

16 Journal of Laws of 2017, item 122.

18 Journal of Laws of 2020, item 568, Continue:uCOVID-19.

19 Journal of Laws of 2020, item 677.

20 Journal of Laws of 2019, item 2434.

21 Tax explanations with 31 January 2019 Information on tax schemes (MDRs), https://www.podatki.gov.pl/media/4417/obja%C5%9Bnienia-podatkowe-mdr-z-dnia-31-01-2019.pdf (access: 10 October 2019).

22 Journal of Laws of 2020, items 374, 567.

Legal basis

1) Article 14n(4)(1) Act on 29 August 1997 - Tax Ordinance[23],

1. Article 5a(38-40), Article 9(2), Article 17(1)(9), Article 24a(1b), Article 30ca, Article 30cb(1)(2), Article 30f(9) u.p.d.o.f.,
2. Article 4a(26-28), Article 9(1b), Article 12(1)(7), Article 24a(8), Article 24d, Article 24e(1)(2) the Corporate Income Tax Act,
3. Article 24 z.u.p.o.f.o.p.18.

The article comes from the book C.H. Beck "Bookkeeping and Tax Instructions" under ed. prof. nadzw. dr. hab. Artur Hołda, plus CD, ed. 2, 2020, https://www.ksiegarnia.beck.pl/19340-instrukcje-ksiegowe-i-podatkowe-artur-holda