The Financial Shield foresees that the Industrial Development Agency will offer various types of instruments to support current liquidity. Therefore, questions arise about their taxation.
Financial Shield support instruments are, inter alia, loans, leases or guarantees/guarantees during a pandemic as well as for a period up to 12 the months following its cancellation or until the negative economic impact on the business ceases. To this end, a change was made. Under Article 21a.
and added Article 21aa and 21ab to the Act dated 4 July 2019 on the system of development institutions (Journal of Laws, item 1572 as amended). The program assumes two types of financial support depending on the nature of the recipient:
Financial shield for micro-entrepreneurs – support of total value 25,000,000,000 PLN;
Financial shield for SMEs – support of a total value 75,000,000,000 PLN.
The implementation of the programme was entrusted to the Polish Development Fund S.A. (hereinafter: PFR) as a trustee of funds distributed under the project. Applications for support could have been submitted by 29 April 2020
The issue of taxation of the above-mentioned support still raises doubts. As the funds paid under the financial shield are a loan, they are tax-neutral[1]. Interest is not charged on this loan and there will also be no tax liability for the company as a possible tax payer.
This loan is also not subject to the tax on civil law activities as it is treated as a loan granted from special-purpose funds created by law[2]. In addition, there are no restrictions to treat the funds used from the loan in a special way and the expenditure financed by it will constitute the cost of obtaining revenue on a general basis.
However, the situation with redemption is different.
According to Article 12(1)(3) CIT Act and Article 14(2)(6) The PIT Act provides in particular for the value of decommissioned or expired liabilities, including loans or loans. The value of decommitment of the financial subsidy granted under the shield will therefore constitute a grant to the entrepreneur and thus a taxable income.
There are no possible systemic solutions to this problem, which is so strange that the deadline for applying for this support has long passed. The Ministry of Finance emphasises that it will consider, together with the PFR, the possibility of making 2021 a partial tax exemption for redemptions made.
The state of this uncertainty does not calm entrepreneurs. In the absence of such an exemption, many entrepreneurs will eventually receive less support than they expected, as they will have to pay an additional tax on it.
[1] According to Article 12(4)(1) Act dated 15 February 1992 on corporate income tax (i.e. Journal of Laws of 2019, item 865 as amended hereinafter: the CIT Act) and Article 14(3)(1) Act dated 26 July 1991 on income tax on individuals (i.e. Journal of Laws of 2019, item 1387 as amended Further: PIT Act).
[2] According to Article 9(10) point (f) Act dated 9 September 2000 on tax on civil law acts (i.e. Journal of Laws of 2020, item 815) This loan is exempt from taxation.
Author: Damian Kuszewski
The author is a graduate of the Warsaw School of Economics in Finance and Accounting, and is currently a law student at SWPS. From 2018 Associated with Russel Bedford Poland. His professional interests are tax law and, in particular, income taxes.