The objectives of the foundation were presented under Article 1 Act dated 6 April 1984 about foundations (i.e. Journal of Laws of 2020, item 2167). In accordance with this provision, it may be established in order to meet the essential interests of the Republic of Poland for social or economic purposes.
Further detailed objectives are outlined, i.e.: health, economic and scientific development, education and education, culture and art, social protection and assistance, environmental protection and care of monuments; the wording of the article indicates that it is not a closed catalogue.
This does not mean that those involved in socially useful activities are not taxed. However, they may rely, inter alia, on the exemption contained in the present case. Under Article 17(1)(4) Act dated 15 February 1992 on corporate income tax (i.e.
Journal of Laws of 2020, item 1406 as amended, hereinafter referred to as the Corporate Income Tax Act).
This provision stipulates that tax-free income is ‘taxable income, subject to section 1c[1], whose statutory objective is scientific, scientific and technical, educational activities, including training students, cultural, physical and sport, environmental protection, support for social initiatives for the construction of roads and telecommunications networks in rural areas and the provision of water, benevolence, health and social assistance, professional and social rehabilitation of disabled people and religious worship, in the part intended for these purposes." However, what do the "statutory objectives" mean?
When exactly is the income of the foundation exempt from taxation? These questions are answered, among others, by the sentence of the Provincial Administrative Court in Łódź dated 28 April 2021, reference no. I SA/Łed 216/21.
According to the Director of the Chamber of Tax Administration, the foundation, which is a party to the proceedings, has unduly benefited from the exemption referred to in the abovementioned provision.
The foundation had the following objectives in its status: to develop entrepreneurship and to increase competitiveness, to raise the qualifications of entrepreneurs and workers, to activate the unemployed educational activity. The problem is that the foundation ran in a controlled period (i.e.
In 2014) economic activity only in the field of the provision of accounting services; in addition, according to the Director of the Chamber of Tax Administration, no evidence was submitted in the course of the proceedings to support the activity entitled to benefit from the exemption.
The Provincial Administrative Court in Łódź found the tax authority right in this regard.
He referred to the wording of the above mentioned Article 17(1)(4) The Corporate Income Tax Act stressed that tax exemptions may be granted to taxable persons whose activities, defined as statutory objectives, have been listed in the provision in question, while not applying to those cases. Under Article 17(1c).
He then also recalled a passage of Judge Jack Brolik's voice to the Supreme Administrative Court's judgment dated 3 March 2009, reference no. II FSK 1728/07. In this judgment we can read that:
„When analysing these norms, it should be borne in mind that the legislator uses the term "statutory purpose" in it, not the term "target" of the kind mentioned in the statutes, for example. The wording of the law referred to is undoubtedly important, in particular when the statutory objectives of the taxable person in question citing the possibility of applying to his income Article 17(1)(4) the Corporate Income Tax Act, have been regulated in the law determining its existence and operation. In this state of affairs, this law defines the objectives - the tasks of the given entity, which are then indicated in its statutes. Therefore, not any provision of the Statute, but only the legal limits of the jurisdiction and purpose of the action of the addressee, constitutes the statutory objective in question under Article 17(1)(4) the Corporate Income Tax Act[2] Otherwise, if it did not accept the system interpretation of the law presented herein in principle, the taxpayer could, by means of specific statutory provisions, determine the scope of the tax exemption provided for in the law in question, in a relative way. Under Article 17(1)(4) the Corporate Income Tax Act, which should be considered inadmissible. Although it is of legal significance, it is no doubt not in this context. The specific recording of the statutory objective is not that purpose; it may and should reflect it, but that is the reason for the possibility and need to examine: whether it is an objective for a particular category of legal entities by the law provided for. It follows that the statutory objective has been standardised under Article 17(1)(4) the Corporate Income Tax Act it should be analysed in relation to the legal provisions defining for a category of operators the area and objectives of their activities within which they may indicate in the statutes the specific objectives of their activities."
A similar sentence was also presented in the Supreme Administrative Court judgments:
dated 12 April 2018, reference no. II FSK 2427/17 – „The term 'statutory objective' used in this provision shall be understood as the purpose of the action of the entity which assigns it, as a statutory objective, a law governing the principles of its origin, organisation and operation, and not every objective enshrined in the statutes of that entity."
dated 10 November 2020, reference no. II FSK 1853/18 – „the phrase "statutory objective", used under Article 17(1)(4) the Corporate Income Tax Act, should be understood as the purpose of the action of the entity which assigns it as a statutory objective, a law governing its operation, and not every objective enshrined in its statutes.
It is therefore the objective of an entity that allocates revenue to the purposes listed in the Tax Act, rather than the revenue allocated to other entities. The possibility to acquire an exemption shall be determined by the specific activities carried out by the entity concerned and not by another entity whose activities are supported.’
The Provincial Administrative Court in Łódź, referring also to the aforementioned judgments, stressed that the term "legal purpose" used in this provision should be understood to mean the statutory purpose of the action of the entity concerned, which attributes to it the Act governing its functioning, and not to any objective enshrined in its statutes.
It is therefore a question of the objective of an entity that allocates revenue to the purposes listed in the Corporate Income Tax Act, not to other entities. You can also read:
„The possibility to acquire an exemption is determined by the specific activity of the entity concerned and not by another entity whose activities are supported. This Corporate Income Tax Act defines the fulfilment of which statutory objectives of an entity are tax-free. This tax exemption is an instrument by which the legislator supports and facilitates the achievement of the social objectives indicated by the legislator. exhaustively under Article 17(1)(4) the Corporate Income Tax Act (…) This exemption should pursue the objective pursued and preferred by the legislator. The reference in the above provision for statutory purposes (...) means that the exemption may concern only those statutory purposes. If, therefore, the statutes of an entity provide for the fulfilment of the objectives not mentioned in the Act, the revenue allocated to them will not be exempt.’
The judgment in question noted that the foundation, despite the statutory objectives mentioned in the earlier part, In 2014 It only carried out economic activities in the provision of accounting services, in addition to which it was paid.
Although the Foundation argued that she had run a vocational school, collaborated with another foundation and signed a contract with the university, it was noted that the fact of such cooperation does not mean that it served educational purposes.
In addition, as determined by the tax authority, costs incurred by the foundation In 2014 are divided into the following groups: business travel, fuel, telecommunications, office equipment, banking services, IT services, car operation, other taxes and charges, other automotive materials, office supplies, press and publications.
In the light of the above, the Provincial Administrative Court in Łódź stated that the foundation did not show that the costs incurred for the fulfilment of the statutory educational objective had been incurred and that it was therefore not exempted from Article 17(1)(4) Corporate Income Tax Act.
The judgment under discussion in this article, as well as those cited in it, draws attention to how the term ‘statutory objectives’ used in the above-mentioned provision of the Corporate Income Tax Act should be understood, and which income of the foundation may be regarded as tax-free.
Michał Zdanowski
Tax consultant At Russell Bedford Poland. Graduate of the Faculty of Law and Administration
University of Warsaw, Graduate of the Postgraduate Tax and Tax Law Study of the University of Warsaw, Graduate of the Postgraduate Accounting and Finance Studies of the Warsaw School of Economics. By
the period of study gained experience in law and tax law firms. Since September 2013 is associated with the law firm Russell Bedford Poland. It specialises in documenting transactions between related parties.
[1] Article 17(1c) lists the entities in which the provision Article 17(1)(4) does not apply, i.e.:
- 1) in state enterprises, cooperatives and companies,
- 2) in municipal undertakings having legal personality for which local self-government units or their ancillary bodies are acting as the founding body,
- in local budget institutions and non-legal entities which are taxable persons of corporation tax - if the subject of their business is to meet public needs indirectly related to the protection of the environment in the areas of: water and sewage, municipal waste water, landfills and the disposal of municipal waste and collective transport.
[2] This and other markings – mine [Michał Zdanowski].