Accounting of losses from previous years by corporate tax taxable persons

From 1 January 2018 neither the time has changed in which the taxpayer can exercise the right to reduce income by the value of the loss incurred in the tax year (five the tax years immediately following the tax year in which the loss was incurred), nor the percentage limit on the value incurred in the tax year of the loss by which, in one of the five subsequent tax years, the maximum reduction is possible to reduce income (50% loss incurred). However, it is mandatory to allocate the loss to one revenue sources.

Tax liability

one from solutions commonly known under the Corporate Income Tax Act 1 (Next: the Corporate Income Tax Act) and Personal Income Tax Act 2 (Further u.p.d.o.f.) is the right to deduct the loss incurred in the tax year on income realised in subsequent years.

Zone the Corporate Income Tax Act This special tax preference has been defined under Article 7(5).

In the legal state up to the end 2017 that provision established that the amount of loss in question under Article 7(2) the Corporate Income Tax Act (the excess cost of obtaining revenue over revenue achieved in the tax year) incurred in the tax year may be reduced in the next successively following, five tax years, except that the reduction in any of those years must not exceed 50% the amount of that loss.

However, this adjustment has been made, starting with 1 January 2018, significant modification as a result of the amendment introduced by the Act amending the Personal Income Tax Act, the Corporate Income Tax Act and the Flat-rate Income Tax Act on certain income generated by individuals[3] (Further: amendment of the laws).

Accordingly, in the light of the current wording of the regulation Article 7(5) the Corporate Income Tax Act, the amount of the loss from the source of income incurred in the tax year may be reduced by the revenue obtained from that source in the next successively following five tax years, except that the reduction in any of those years must not exceed 50% the amount of that loss.

The consequence of the proposed amendment to the regulation Article 7(5) the Corporate Income Tax Act is therefore necessary (from 1 January 2018) attributing the incurred loss to one of the separate sources of revenue and its accounting in subsequent years in the area of income from that source. This effect of the amendment of regulations Article 7(5) the Corporate Income Tax Act is also indicated in the explanatory memorandum to the draft amendment of the laws.

To illustrate this amendment to the regulation Article 7(5) the Corporate Income Tax Act it is worth pointing out, for example, the previous and revised tax rules for the settlement of the loss incurred.

Example

Tax collector, ABC sp. z o.o. In 2015 (tax year is calendar year) incurred a loss of 30,000 PLN. In 2016 the company in its business has achieved an income of 70,000 PLN, Whereas In 2017 This income was 120,000 PLN.

In the present situation, the loss incurred in the tax year may be settled in one of the five subsequent tax years immediately after the year in which the loss was incurred.

Hence, within the limits of the fixed limit, following the end 2017 content Article 7(5) the Corporate Income Tax Act, the loss in question could have been settled in years 2016-2020. As a result, the taxpayer could, for example, reduce the income achieved in 2016 and 2017 o 50% loss incurred In 2015, i.e.

rod 15,000 PLN in each of these years, accounting already in first two years all loss incurred In 2015

Obligation to assign the loss to one of the sources of revenue

From the obligation to assign a loss to a specific revenue source in the exercise of the entitlement from Article 7(5) the Corporate Income Tax Act it is necessary to clearly identify the source of revenue from which the loss was incurred.

Due to the regulation the Corporate Income Tax Act the distribution of sources of revenue to capital gains and other revenues, it is appropriate to indicate the scope of the separate source of revenue included in the legal order in question 1 January 2018, the revenue from capital gains is considered.

Namely, according to content Article 7b(1) the Corporate Income Tax Act, Capital gains revenue shall be considered as:

1. revenue from the participation of legal persons, subject to Article 12(1)(4b) the Corporate Income Tax Act, constituting revenue actually obtained from this share, including:

(a) dividends, balance sheet surpluses in cooperatives and the income received by participants in investment funds or mutual investment institutions of that fund or institution, where the statutes provide for the payment of such income without the redemption of units or the purchase of investment certificates,

(b) revenue from the redemption of shares or from the reduction of their value,

(c) revenue from the withdrawal of the shareholder from the company in question under Article 1(3) the Corporate Income Tax Act, which occurs in a different way from that specified in point (b),

(d) revenue from the reduction of the shareholder's capital share in the company in question under Article 1(3) the Corporate Income Tax Act, which occurs in a different way from that specified in point (b),

(e) the value of the property received in connection with the liquidation of the legal person or company in question under Article 1(3) the Corporate Income Tax Act,

(f) equivalent to the profit of the legal person and the company in question under Article 1(3) the Corporate Income Tax Act, intended to increase its share capital, the equivalent of the balance sheet surplus of the cooperative for the increase of the holding fund and the equivalent of the amounts transferred to that capital (fund) from other capital (funds) of such a legal person or company,

(g) payments received in the event of merger or division of companies by shareholders of the acquired company, joint or joint companies

(h) the income of the company's shareholder, if the assets acquired as a result of the division and, when separated by division, the assets acquired as a result of the division or assets remaining in the company, do not constitute an organized part of the undertaking,

(i) the payment in question under Article 12(4d) the Corporate Income Tax Act,

(j) the value of the undistributed profits in the company and the value of the profit transferred to other capitals than the share capital in the converted company, in the event of the transformation of the company into a non-legal person, except that the income is determined at the date of conversion,

(k) interest on the capital contribution paid to the shareholder by the company in question under Article 1(3) the Corporate Income Tax Act,

(l) interest on the loan granted to the legal person or company in question under Article 1(3), if the payment of interest on or the amount of such a loan depends on the gain of that legal person or company or on the amount of that profit (participation loan),

(m) revenue generated by transformation, merger or division of entities, including:

• • revenue of the legal person or company in question under Article 1(3) the Corporate Income Tax Act, the acquirer following the merger or division of assets or part of assets of another legal person or company,
• • revenue of the joint or joint venture,
• • revenue of the split company.

Capital gains revenue is also considered to be (Article 7b(1) the Corporate Income Tax Act):

1. revenue from the transfer to a legal person or company in question under Article 1(3) the Corporate Income Tax Act, non-monetary contribution;
2. other than specified Under points 1 and 2, revenue from participations in the legal person or company concerned under Article 1(3) the Corporate Income Tax Act, of which:

(a) revenue from the sale of shares, including disposals made for the purpose of their redemption,

(b) revenue generated by the exchange of shares;

1. revenue from the disposal of all rights and obligations in a company not a legal person;
2. revenue from the disposal of receivables previously acquired by the taxpayer and receivables resulting from the proceeds of capital gains;
3. revenue:

(a) of the property rights in question under Article 16b(1)(4-7) the Corporate Income Tax Act, excluding licence revenues directly related to the acquisition of revenue not included in capital gains,

(b) securities and derivatives of financial instruments, excluding derivatives of financial instruments to hedge income or costs not included in capital gains,

(c) for participation in investment funds or mutual investment institutions,

(d) from a lease, lease or other contract of a similar nature concerning the rights referred to in point (a)-c,

(e) the disposal of the rights referred to in point (a)-c.

It is worth noting the adopted rules on income/loss determination in tax capital groups (hereinafter PGK) in terms of their attribution to a specific source of revenue. Depending on the revised content Article 7a(1) the Corporate Income Tax Act in PGK, the income from the source of income is the excess income of all companies forming the group, obtained from the source of revenue over the sum of their losses from that source of revenue.

If, for a tax year, the sum of the losses incurred from a given source of income by the companies of PGK exceeds the sum of the revenue obtained from that source, the difference shall be PGK’s loss, borne from the source of revenue.

At the same time, the standard Article 7a(1) the Corporate Income Tax Act determines that the revenues and losses of companies are calculated in accordance with Article 7(2)(3) the Corporate Income Tax Act In turn, disposition Article 7a(2) the Corporate Income Tax Act indicates that the losses in question under Article 7a(1) the Corporate Income Tax Act, PGK’s income is not covered by the income of individual companies in the event of the expiry of the contract or after the loss of PGK status.

Regulation Article 7a(3) the Corporate Income Tax Act provides that PGK’s income does not cover the losses incurred by the companies of the group before the group was established. The above rules result from the principle of assigning income/losses of individual PGKs to separate sources of revenue, which is also important in terms of settlement of losses from previous ones, according to the regulation Article 7(5) the Corporate Income Tax Act This qualification is indicated in the justification for the proposed amendments Article 7a(1)(2) the Corporate Income Tax Act, Amended laws.

Therefore, when exercising the powers indicated in the content Article 7(5) the Corporate Income Tax Act (The deduction of the loss incurred on income in subsequent tax years) for the PGK must be paid due attention to the exemptions provided for in this respect, showing, respectively:

• 1) the prohibition on covering the losses incurred by PGK on the income of individual companies in the event of the expiry of the contract or after the loss of the status of PGK (Article 7a(2) the Corporate Income Tax Act),
• 2) the prohibition on covering PGK's income the losses of the companies of the group incurred by them before the group was established (Article 7a(3) the Corporate Income Tax Act).

At the same time, indicating the content Article 7a(3) the Corporate Income Tax Act the prohibition on covering PGK's income the losses of the companies in the group incurred by them in the period before the formation of PGK, it is worth noting that no provision the Corporate Income Tax Act does not restrict the company in the exercise of the power referred to in the content Article 7(5) the Corporate Income Tax Act, if the term of the PGK agreement expires or if PGK status is lost.

To this qualification of regulation Article 7a(3) the Corporate Income Tax Act indicated, among others, the Director of the Tax Chamber in Poznań.

Individual interpretation of the Director of the Tax Chamber in Poznań with 20 December 2016 4

In view of the above, according to the Applicant, it will have the right to settle the tax losses shown by the Company before the creation of the PGK by the nearest successively following 5 tax years, according to Article 7(5) the Corporate Income Tax Act, also after the expiry of the contract for the creation of PGK or after the loss of corporate tax tax status by PGK, and for the purposes of the Company's settlement of losses by ‘the closest successive tax years’ within the meaning of Article 7(5) the Corporate Income Tax Act the period not taking into account the Company's membership of PGK (i.e.

period 1. the date of the tax year of the PGK until the last day of the tax year of the PGK, the date on which the agreement to establish the PGK expires, or the date on which PGK loses the status of taxable person.

Pre-loss settlement rules 2018

Under this issue, it is important to settle losses before 2018 It is worth reminding that it is valid to the end 2017 Regulations the Corporate Income Tax Act they did not determine under that law separate sources of revenue, which also had consequences in the settlement of losses incurred by the taxpayer in subsequent tax years, according to the previously applicable content of the regulation Article 7(5) the Corporate Income Tax Act

The question therefore arises whether, as a result of the amendment of regulations, Article 7(5) the Corporate Income Tax Act (introduced by the amendment of the laws) is it necessary to establish, in a way, the artificial, retroactive nature of the losses incurred in previous years in terms of attributing them to individual sources of revenue, in order to exercise the power to reduce the income achieved in subsequent years by the value of the loss incurred in previous years?

When examining this issue, the content must be indicated Article 6 amendments to the laws. According to it, the losses incurred by corporate income tax taxable persons for tax years preceding the tax year started after 31 December 2017 are deducted from the income in question under Article 7(1) the Corporate Income Tax Act as amended by amendments to the laws, in accordance with and at the level of the provisions the Corporate Income Tax Act in the version to date.

Summary

The right to settle losses from previous years in the current tax account constitutes one from significant tax preferences that allow for the recovery of tax burden on income taxes over the period adopted during which these losses can be settled.

However, due to the significant amendments to the Corporate Income Tax Act, among others, in terms of income separation, in the year 2018 The procedure for the settlement of losses from previous years has also been substantially amended.

It is therefore necessary to identify the source of revenue from which the loss has been incurred, and it is also appropriate to draw attention to the application of transitional rules, in relation to those losses incurred during the preceding periods.

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