A year ago 2019 it is possible to benefit from the so-called reduction of the retained profit. It is, of course, a provision made under Article 15cb Act dated 15 February 1992 on corporate income tax (CIT Act), which gives the possibility to consider as a cost of income in the company the amount of hypothetical interest on own financing. This solution concerns the amounts transferred to the increase in reserve or reserve capital and the amounts resulting from contributions from shareholders.
According to this article, the amount corresponding to the product of the reference rate of the National Bank of Poland in force on the last working day of the year preceding the tax year plus 1 the percentage point and the amount of profit transferred to the company’s reserves or reserves.
This cost of obtaining income shall be due in the year of payment of the aid or increase of the reserve or reserve capital and in subsequent years two directly following tax years.
However, before we proceed to clarify the method of calculating the above formula, we should mention the conditions that exclude the possibility of using this mechanism. The legislator provided that additional costs of obtaining income would not be incurred if:
- the profit will be allocated to cover the balance sheet loss,
- the payment of profit will take place before the expiry of the 3 years from the end of the tax year in which the resolution on the retention of profits in the company was adopted,
- the company will be acquired, either as a result of a merger or a division or as a non-legal entity before expiry 3 years from the end of the tax year in which the resolution was adopted to retain profits in the company.
If there are no obstacles to the inclusion of subsidies or profits transferred in the cost of obtaining income, a calculation shall be made in accordance with the model established by the legislator. It is quite simple – we add to the NBP reference rate 1 the percentage point then multiplied by the amount of retained profit in the year.
The NBP reference rate shall be determined on the last working day preceding the tax year.
Example: Beta Sp. z o.o. In 2019 Made a profit of 4,000,000 PLN. In 2020 the shareholders of the company transferred 2,000,000 PLN of this amount for reserve capital (the financial year of the company corresponds to the calendar year). As a result, the cost of obtaining revenue has been examined:
(1.5% + 1 p.p.) x 2,000,000 = 50,000 PLN
Also remember the existing limit - the total amount of the cost of obtaining revenue deducted in the tax year from the titles mentioned above may not exceed the amount 250,000 PLN. Given the possibility of being credited with the costs of the retained profit by two subsequent years, the maximum amount shall be 750,000 PLN.
The Act provides that repayment or distribution and payment of profit should not take place before the expiry of the 3 years from the end of the tax year in which this surcharge was paid to the company or a resolution was adopted on the retention of profits in the company. However, if this event occurs, in the tax year in which the profit was paid out, income corresponding to the previously deducted revenue costs should be recognised.
Example: Gamma Sp. z o.o. has adopted a resolution In 2020 on the transfer to reserve capital 1,000,000 PLN. Therefore, in years 2020 – 2021 the costs are recognised as:
- 2020: (1.5% + 1 p.p.) x 1,000,000 = 25,000 PLN
- 2021: (0.1% + 1 p.p.) x 1,000,000 = 11,000 PLN
Then In 2022 the distribution and distribution of profits have been made. Therefore, in the year’s income recognition 2022 Gamma Sp. z o.o. will have to include additional 36,000 PLN, which were included in the cost of obtaining income in previous years.
Leszek Dutkiewicz
Partner. Director of the office in Katowice. From 2011 related to the firm Russell Bedford Poland. In years 2008 – 2011 worked for leading consulting companies (Ernst&Young, KPMG, BDO) providing tax advisory services.