Such a dilemma was faced by a taxable person who negotiated from his counterparty a period of idle use of warehouses, rented for the purposes of his business. Agreement between these entities on 3 years assumed that by first five months the tenant will only regulate operating charges.
This fact was the basis for the request for an individual interpretation to the Director of National Tax Information.
On the ground of this case, it was necessary to examine how the concept of ‘free benefit’ should be understood, since it is not precisely defined in the CIT Act.
The taxpayer wanted to reply to the question whether the period negotiated by the company for the inactive use of the property should be recognised as an unpaid benefit from the landlord and thus result in income recognition based on Article 12(1)(2) CIT Act.
In the assessment of the taxpayer, the negotiated period of inactive rental results in a reduction in the price for renting the property during the period covered by the contract and thus will not constitute an unpaid benefit within the meaning of Article 12(1)(2) CIT Act.
The Director of the National Tax Information agreed with the taxpayer, recalling the provision of the CIT Act, according to which in particular: the value of the goods or rights received – free of charge or in part – and the value of other unpaid or partially paid benefits. Exceptions are benefits related to the use of fixed assets received by local government budget institutions (within the meaning of the Act of 27 August 2009 on public finances and public utility companies with exclusive participation of local government units or their associations from the Treasury, local government units or their associations in free management or use (Article 12(1)(2))).
On the ground of this case, it was necessary to examine how the concept of ‘free benefit’ should be understood, since it is not precisely defined in the CIT Act. In the opinion of the Director of National Tax Information, ‘for tax purposes for unpaid benefits, all legal and economic events resulting in free of charge, i.e. not related to costs or other forms of equivalent, must be accepted in the assets of the taxpayer having a specific financial dimension’.
It was therefore accepted that the benefit was considered free of charge (within the meaning of Article 12(1)(2) The CIT Act) is necessary to have a legal relationship on the basis of which one party makes a specific benefit, and second that benefit is paid free of charge. The Director of National Tax Information noted that the condition for the benefit to be considered unpaid is the absence of a mutual benefit.
It is worth noting here the position of the Director of National Tax Information, who noted that, under the CIT Act, ‘any benefit obtained by an entity when that entity performs a similar benefit to the entity from which it receives the benefit is not free of charge’.
Based on this interpretation of the provision from Article 12(1)(2) The CIT Act concluded that the negotiation of an idle rental period in the event that the contract in question is a continuous provision governing the obligations of the parties for the period 3 years, should be considered as a reduction in the price of rent during the duration of the contract.
Therefore, it cannot be considered that the taxable person should recognise the income from the unpaid benefit. On the basis of this interpretation, the taxpayer was granted the right.
Individual interpretation of the Director of National Tax Information on 18 January 2018 No 0111-KDIB1-3.4010.460.2017.2.IZ