Tax Review – August 2015
We are proud to present the next edition of our “Tax Review” which contains a selection of rulings and interpretations that had been issued or published in July 2015. We hope you will find the information provided here helpful and of interest.
Please see full Newsletter below for more information.
Download PDF
Tax Review
dentons.com
Dentons Poland
AUGUST 2015
Note from the editor
Dear Sirs,
We are proud to present the next edition of our “Tax Review” which contains a selection of rulings and interpretations
that had been issued or published in July 2015. I hope you will find the information provided here helpful and
of interest.
If you would like to share Dentons’ insights with friends or co-workers, please send their name, business position
and e-mail address to: dentonstaxadvisory@dentons.com
Sincerely yours,
Karina Furga-Dabrowska
Partner
Head of Tax Advisory Group
Dentons
2 dentons.com
Contents
Managing a foreign fund in a manner that differs from
the Polish model does not preclude the right to a
CIT exemption in Poland for the income of a foreign
investment fund
Principles of revenue and tax deductible costs
adjustment made in connection with issued/received
correction invoices
Civil law transactions tax consequences of the sale of
receivables due from a Polish company by a foreign
company to a Polish taxpayer
VAT tax point for construction and construction-
assembling services
Remuneration in consideration of loans extended and
calculated as a percentage of profits achieved is not
classifiable as tax deductible cost for the remuneration
paying company
No possibility to change the qualification of revenue
upon discharge of an obligation
4
6
10
12
14
8
Dear Sirs,
We are proud to present the next edition of our “Tax Review” which contains a selection of rulings and interpretations
that had been issued or published in July 2015. I hope you will find the information provided here helpful and
of interest.
If you would like to share Dentons’ insights with friends or co-workers, please send their name, business position
and e-mail address to: dentonstaxadvisory@dentons.com
Sincerely yours,
Karina Furga-Dabrowska
Partner
Head of Tax Advisory Group
Dentons
Ruling description
In its award of 24 July 2015, case no. II FSK 1455/13,
the Supreme Administrative Court stated that the CIT
exemption for the income of foreign funds is in place
even when the fund is managed by a manager, i.e. an
investment firm authorized to manage the fund’s assets
and make statements of will on behalf of the fund.
A private investment fund headquartered in Cyprus (the
“Fund”) applied for a tax ruling regarding the right to a CIT
exemption. Pursuant to the provisions of Art. 6 (1) point
10a of the CIT Law, collective investment institutions
with their registered office in a Member State of the
European Union other than the Republic of Poland or in
another Member State of the European Economic Area
are exempted from the corporate income tax if, without
limitation, they are managed by entities that operate
on the basis of a permission issued by the competent
financial market supervision authorities in the state where
their registered office is located (Art. 6 (1) point 10a letter
f of the CIT Law).
Specifically, the Fund was seeking confirmation that in
the event that the management of a fund is entrusted to
Managing a foreign fund in a
manner that differs from the Polish
model does not preclude the right
to a CIT exemption in Poland for the
income of a foreign investment fund
4 dentons.com
a manager, i.e. an investment firm with legal status, the
premise for the exemption referred to in Art. 6 (1) point
10a letter f of the CIT Law would be fulfilled.
The Head of the Fiscal Chamber in Warsaw pronounced
the Fund’s position to be incorrect. In the Chamber’s view,
the scope of an investment firm’s management is narrower
than the fund management referred to in Art. 6 (1) point 10
letter f of the CIT Law. The Provincial Administrative Court
in Warsaw upheld the unfavorable tax ruling on the above-
specified provisions. In the Court’s opinion, the decisive
factor involved the fact that the powers of the company
managing investment activity (Invest Manager) overlapped
with the powers vested in the management board of a
capital company as the body authorized to manage the
company’s affairs and represent the company externally.
The Supreme Administrative Court did not share the
opinion and set aside both the award and the tax ruling.
It emphasized that when an invest manager is authorized
to act on behalf of the fund, then one cannot state that
the manager’s powers are limited to the management of
investment funds only. Additionally, one cannot compel
the Fund to be organized and operate in exactly the same
manner as Polish investment funds. As a consequence,
the Fund has the right to a CIT exemption.
Comment
JIt is one of the first favorable awards of the Supreme
Administrative Court that corroborates the possibility
of applying a CIT exemption to income generated by
a foreign investment fund.
After the day on which Art. 6 (1) point 10a of the CIT
Law took effect, the tax authorities frequently refused
to issue a tax ruling or acknowledge tax overpayment
acting based on the assumption that foreign funds
operate in other conditions than Polish funds and it
is not possible to fulfill the premises contained in the
provision at hand. Harmonized funds of the UCITS type
were an exception of a kind. Owing to the award, there
is a chance for a change in that practice so that a larger
number of funds (including also alternative investment
funds and Luxembourg funds in the form of SICAV) may
enjoy the tax exemption. Hence, it is worth considering
filing an application for an individual tax ruling or the
acknowledgement of a tax overpayment.
Rafał Mikulski
Advocate
rafal.mikulski@dentons.com
5dentons.com
Principles of revenue and tax
deductible costs adjustment made
in connection with issued/received
correction invoices
Ruling description
The Provincial Administrative Court in Gliwice in its
rulings of July 15, 2015 (case file number I SA/GI 112/15,
I SA/Gl 113/15) ruled that, if a company issues invoices
to its contractors at the time it accepts their orders and,
consequently, on the basis of provisions of a framework
agreement and following arrangements made between
the parties, the company increases or decreases the price
for the sold goods, and hence issues correction invoices,
the said invoices should refer to the original invoices
making it impossible to settle them “on an ongoing basis”.
The same principle should refer to invoices received by
the company and then corrected by its contractors. In
view of the above, the company should retroactively
adjust both revenue and tax deductible costs.
Comment
Provisions of the Personal Income Tax Act and Corporate
Income Tax Act do not specify when the taxpayer should
adjust revenue or costs in connection with received
or issued correction invoices. At present, the stance
presented by the tax authorities is that a correction
invoice issued as a result of a circumstance which
occurred following a sale or purchase does not evidence
a separate, independent economic event but refers only
to the status which existed in the past, hence to
6 dentons.com
the original invoice. Consequently, subsequent issuance
of a correction invoice (or any other document) does
not result in a change of the date when the revenue or
cost arose but influences only the amount of the said
revenue or cost. This means that the taxpayer is required
to adjust revenue and tax deductible cost on the date
when the said revenue and tax deductible cost arose.
The Provincial Administrative Court in Gliwice also
expressed this view in the commented ruling.
Nevertheless, starting from January 1, 2016 the above
stance should be changed substantially. The Act of July
24, 2015 on Amendment of Certain Acts in Connection
with Supporting Amicable Methods of Dispute Resolution
introduces certain regulations regarding the time of
adjusting revenue and tax deductible costs taking into
account the reason for the said adjustment. The new
provisions introduce a principle that, if an original
invoice correctly evidenced a given economic event
and a correction invoice was issued by the seller as a
result of the subsequently occurring circumstances,
e.g. reduction of price, granted discount, return of goods
or guarantee/warranty, entrepreneurs would settle the
correction invoice in a given settlement period (i.e. on the
date when the correction invoice was issued or received).
If, however, the original invoice contained errors, hence
erroneously evidence the facts, the entrepreneur would
have to be required to assign the correction to the
date when the due revenue occurred (respectively,
the date when the cost was incurred), as it follows
from the original document. The provisions regarding
corrections of tax deductible costs will apply accordingly
to adjustments of depreciation write-offs.
The proposed changes should be perceived as favorable.
In general they would allow the elimination of a number of
difficulties encountered by entrepreneurs and connected
with, for example, the need to correct tax returns from
previous years and pay outstanding tax liabilities in
this respect, including default interest (in the event of
reduced tax deductible costs or increased revenue)
or the need to pay interest on advance payments for
income tax (in the event of reduced tax deductible
costs or increased revenue in the same tax year).
Marcin Czajkowski
Associate
marcin.czajkowski@dentons.com
7dentons.com
Civil law transactions tax
consequences of the sale
of receivables due from a
Polish company by a foreign
company to a Polish taxpayer
Ruling description
The Provincial Administrative Court in Łódź in its
judgment of July 16, 2015 (case no. I SA/Łd 517/15)
resolved that due to the fact that the Act on the Civil
Law Transactions Tax does not contain any definition
of a “place of exercise of property rights” it should be
assumed in the case of cash receivables that this term is
equivalent to the “place of performance” in the meaning
of Art. 454 of the Civil Code (hereinafter: “k.c.”). In the
discussed case the cash receivables acquired by a
Polish tax resident as a should be repaid to the hands
of a assignor (company seated abroad) i.e. abroad.
The fact that after the assignment the Polish debtor
becomes obligated to pay the receivables to the hands
of the taxpayer residing in Poland does not affect the
assessment of the tax effects of the assignment of
receivables in light of the civil law transactions tax
(hereinafter “PCC”). In this case, at the time of concluding
the agreement for the sale of the receivables, the object
of the sale shall be the property rights, with the place
of performance being abroad. Therefore, the said
transaction is not subject to PCC if the sale agreement
is concluded abroad.
Comment
The commented judgment is particularly important for
entrepreneurs acquiring receivables due from Polish
entities. Generally, the sale of receivables due from Polish
entities may be subject to 1% PCC if these receivables
constitute (i) property rights exercised in Poland or (ii)
property rights exercised abroad if the acquirer resides
or is seated in Poland and the civil law transaction took
place in Poland.
Neither the Act on civil law transactions tax nor other tax
laws define the place of exercise of property rights. In
practice it is assumed that in the case of cash receivables
one should rely on the civil law notion of the place of
performance, referred to in Art. 454 k.c. Pursuant to the
above regulation, the place of performance should be
specified in the content of a legal relationship creating
the obligation of a given performance or it should
arise from the nature of the obligation. If the place of
performance was not specified or it does not arise from
the nature of an obligation, the cash obligation should
be performed at the place of residence or seat of the
creditor at the time of performance.
8 dentons.com
In the said judgment the court rightly pointed out that
the receivables acquired by a Polish taxpayer should be
originally repaid to the assignor (the company seated
abroad). In light of Art. 454 k.c. the place of performance
(place of exercise of the property right for PCC purposes)
as of the date of acquisition on the receivables was
situated abroad. Additionally, the sale agreement was
concluded abroad. Therefore, the abovementioned
prerequisites of PCC taxation of the sale of receivables
(the sale of property rights) were not fulfilled and the
transaction should not be taxed with PCC in Poland.
The said judgment should contribute to the change
and unification of tax rulings issued by tax authorities in
this respect. In practice, the tax authorities often take a
stance that the assessment of the place of performance
of property rights should take into consideration whether
the receivables, when acquired, will be repaid to the
bank account of the acquirer of the receivables in Poland
or abroad. A proper structure of the acquisition of
receivables from a foreign entity allows to avoid PCC
on this transaction even in light of such interpretation.
Tomasz Krasowski
Tax Advisor
tomasz.krasowski@dentons.com
9dentons.com
VAT tax point for construction and
construction-assembling services
Ruling description
In its ruling of 30 July 2015 (case no. III SA/Wa 393/15),
the Province Administrative Court in Warsaw (WSA)
pronounced that, for the purposes of VAT, construction
and construction-assembling services should be
deemed to be performed at the moment of their
physical completion and not at the moment of
drawing up the acceptance protocol for the works.
Pursuant to the provisions of Art. 19a (5) point 3 letter
a of the Act of 11 March 2004 on the tax on goods and
services (hereinafter “VAT Law”), the VAT tax point for the
provision of construction and construction-assembling
services arises at the moment of issuing an invoice.
Pursuant to Art. 106i of the VAT Law, an invoice for
construction and construction-assembling services is
issued no later than on the 30th day following the day
of performing such services. Hence, the interpretation
of the notion of the “provision of construction and
construction-assembling services” is of key significance
when determining the moment of issuing the invoice
and, consequently, the occurrence of the tax point.
10 dentons.com
In the case analyzed by the WSA, a company was
performing construction and construction-assembling
services under contracts executed on the basis of FIDIC
Terms and Conditions. The taxpayer asserted that the
moment of completing the service takes place only
when the services are accepted by the contracting
authority. The acceptance of a service by the contracting
authority takes place when the interim payment
certificate is accepted or the final payment certificate
is accepted, as the case may be. The tax authority that
was addressed by the taxpayer with a request for a tax
ruling pronounced the taxpayer’s position to be incorrect.
The tax authority stated that the actual completion of
works will be the pivotal factor used to determine the
completion of construction and construction-assembling
services instead of the acceptance of such services by
the contracting authority on the basis of release and
acceptance protocols or other documents (such as a
take-over certificate, completion certificate, or interim
or final payment certificate). The WSA shared the tax
authority’s position
.
Comment
The WSA ruling should be evaluated negatively. In the
construction sector, the cooperation of the contractor and
the contracting authority is needed to determine whether
the works have actually been completed. The completion
of construction work is not an objective event since the
contracting authority must confirm that the contractor
actually performed the commissioned work. Making the
occurrence of the tax point and the moment of issuing
the invoice contingent on the physical completion of
works may lead to the situation where the contractor will
be forced to issue an invoice and pay VAT despite the fact
that the contracting authority does not accept the works
and the invoice so issued. Hence, the contractor will be
exposed to the risk of losing its liquidity due to the need
to pay VAT to a revenue office at the time when no monies
are remitted by the contracting authority. We recommend
our clients from the construction sector to observe tax
practice and act with prudence when drafting contractual
provisions that determine the moment of completing
construction works.
Sylwia Kulczycka
Tax Advisor
sylwia.kulczycka@dentons.com
11dentons.com
Remuneration in consideration of
loans extended and calculated as a
percentage of profits achieved is not
classifiable as tax deductible cost for
the remuneration paying company
Ruling description
In June 2015 the Supreme Administrative Court (NSA)
handed down a judgment (case no. II FSK 3272/14)
concerning the classification for tax purposes of the part
of the remuneration paid by the borrower to the lender
calculated as a percentage of the profit achieved by
the borrower.
The Company (the Borrower) entered into a loan
agreement with a foreign entity (the Lender) for the
sole purpose of financing a development project.
Under the agreement, the Lender was to receive interest
on the principal at an annual rate of 15% and on top
of that the Borrower was to pay the Lender 20% of the
profit it achieves, if any (a fee known as interest under
profit participating loans).
The Borrower applied for a tax ruling to clarify the
consequences its payments of interest under profit
participating loans will have on the grounds of tax laws,
arguing that these amounts shall be qualified as its tax
deductible cost.
The Borrower argued that this interest is payable under
the loan agreement and is an expense that is reasonable
and legitimate in its line of business. In particular, the
Borrower explored other financing options, involving
other lenders, and proposed that the manner of
calculating these particular interest amounts does
nothing to alter their status as tax expense given
that parties to agreements are free to set interest
rates in whatever way they see fit (as fixed or variable
rates, or based on more complex instruments).
The Minister of Finance disagreed with the Borrower,
finding that the agreement made by the Borrower
cannot be deemed an agreement for a loan in the
meaning of Article 720 of the Civil Code and that,
therefore, the amounts payable thereunder, calculated
as a percentage of the Borrower’s profit, if any, cannot
be classified as interest.
The competent Provincial Administrative Court (WSA)
agreed with the argumentation of the Minister of Finance.
With its June judgement the NSA upheld the positions
taken by the Minister of Finance and the WSA, denying
the Borrower the option to classify the paid amounts
of interest under profit participating loans as its tax
deductible costs. These expenditures are directly linked
to obtaining the loan and they were incurred in order
to obtain this tax-neutral gain rather than to generate
some specific revenue. The NSA also found that
since the Lender’s rights in this case greatly exceed
those it would have under a loan agreement made
12 dentons.com
pursuant to Article 720 of the Civil Code, the agreement
considered here is essentially an agreement for the joint
implementation of a project serving to jointly benefit the
Parties concerned which shoulder the risks that go with
the project jointly and severally.
Comment
The position taken by the NSA in the judgment
considered here is untenable. The business purpose
of financing is to pay for business activities geared, by
assumption, to generating tax revenue. One must also
dispute the Court’s finding that interest under profit
participating loans is not classifiable as a tax deductible
cost since the Lender incurs an additional business risk
by making part of its profit from funding the Borrower’s
operations conditional on the business success of the
given venture. There can be no doubt that the lender
takes on a credit risk whenever it extends a loan, as
the risk may materialize if the project financed with it
fails. The projections of the severity of the risk involved
may have a direct impact on the proposed amount and
manner of calculation of the remuneration due to the
lender – as was the case here when the higher risk taken
on by the Lender (due to the likelihood of the Borrower
failing to achieve profit) was compensated for by the
Lender’s entitlement to a specific percentage of the
Borrower’s profits.
Also, the fact that the interest rate that was calculated
based on the Borrower’s profit should not in itself prompt
the conclusion that the loan is now no longer a debt
instrument and that the interest now becomes a dividend
– which is a direct consequence of the Court’s verdict.
The Lender’s legal position will at all times definitely differ
from that of a shareholder.
This is not the first judgment of this kind coming from the
NSA, which suggests that caution must be exercised when
entering into participating loan agreements. An important
point to make here is that it is possible to come up with an
interest formula that will make the interest classifiable as
a tax deductible cost even if its amount is indirectly linked
to the borrower’s profits – as follows from some of the tax
rulings issued by the Minister of Finance.
Dariusz Stolarek
Tax Advisor
dariusz.stolarek@dentons.com
13dentons.com
No possibility to change the
qualification of revenue upon
discharge of an obligation
Ruling description
In an award of 29 July 2015, the Province Administrative
Court in Warsaw (“WSA”) held that the company does
not have the possibility to make an adjustment of
revenue that was previously ascertained as a result of an
inspection. The lack of such possibility results from the
fact that there is no possibility to qualify such revenue
otherwise in the course of an interpretation proceeding.
A company carrying on business activities involving the
construction of premises for rent (“Company”) applied
for a written tax ruling on the corporate income tax
it paid. In 2008, the Company signed a preliminary
lease agreement (“Agreement”) with a future lessee
(“Business Partner”). Pursuant to the Agreement, the
Company issued a promissory note to the Business
Partner in exchange for the monies to be used to finance
the construction of the premises to let. The Company
agreed with the Business Partner that the monies would
be returned by it in the form of deductions from the
lease rent to be paid in the future. The Agreement also
stipulated that in the event that the promised agreement
were not executed or the lessee were in default with the
payment of the amounts due, then the amounts paid
by the Business Partner to acquire the promissory note
would become the compensation for the Company.
In the case at hand, the last of the clauses listed above
was applied since, as a result of the economic slowdown,
the promised agreement was never signed. Soon
afterwards, the Tax Control Authority (UKS) made an
inspection at the Company and, in the course of the
inspection, the Authority qualified the monies paid
by the Business Partner as a compensation paid out
pursuant to the Agreement. As a consequence, the
Company recognized revenue on that account.
A few years later, due to improved business prospects,
the Company and the Business Partner expressed their
intent to execute the promised lease agreement that
14 dentons.com
was originally abandoned. The Company addressed a
question to the Head of the Tax Chamber in Warsaw as
to the possibility to requalify the revenue that it obtained
as the compensation in relation to the Agreement, and
the potential revision of its tax return. According to the
Company, execution of the promised agreement will
result in an obligation to make an adjustment of revenue
generated in 2008.
The interpreting authority did not share the Company’s
position, in response to which the Company made an
appeal to the WSA.
The WSA dismissed the Company’s appeal and
expressed the view that the fact of the UKS making
the inspection proceeding is crucial for resolution of
the case. According to the Court, in its interpretation
proceeding, the tax authority is bound by the findings
made by the tax control authority. Otherwise, the
individual tax ruling would be deprived of its guarantee
function. Hence, it should be stated that the facts of the
case established by the UKS are a definitive element that
is not to be modified as a part of the application for an
advance tax ruling or in the course of the interpretation
proceeding. For that reason, the Company does not have
the right to a potential adjustment since the interpreting
authority was obligated by law to treat the revenue in
question as compensation.
Comment
While the award of the WSA is correct as regards the
merits of the case, it raises a number of doubts. The
Company has no basis to revise the tax return. However,
the source of its inability is totally different than the
reason to which the Court pointed.
Under civil law, the renewal planned by the Company
is not possible due to the performance of the obligation.
The parties agreed that the compensation was paid, and
for that reason the Company’s position regarding the
possibility to make the adjustment of revenue (in the form
of compensation) was wrong. However, one cannot agree
with the statement by the Court and the tax authority that
the sole right to rectify a tax return is excluded as
a consequence of issuing the results of a tax control.
Art. 81b par. 1 Clause 2 of the Tax Ordinance clearly reads
that the taxpayer is entitled to rectify a tax return: a) “even
after the completion of a tax inspection” and b) “even after
the completion of a tax proceeding – to the extent not
covered by the decision defining the amount of liability”.
Additionally, the issuance of a tax inspection result does not
preclude the possibility to apply for an individual tax ruling.
Maciej Sopel
Consultant
maciej.sopel@dentons.com
15dentons.com
© 2015 Dentons.
Dentons jest globalną firmą prawniczą, świadczącą usługi na całym świecie poprzez swoje oddziały i kancelarie z nią stowarzyszone. Niniejsza publikacja nie stanowi
porady prawnej ani innej usługi doradczej, a jej treścią nie należy posługiwać się przy podejmowaniu lub wstrzymywaniu się od podejmowania określonych czynności.
Patrz zastrzeżenia prawne znajdujące się na stronie dentons.com.
CS28302-Warsaw Tax Report-English — 26/08/2015
Contact
Karina Furga-Dąbrowska
Partner
Head of Tax Advisory Group
D +48 22 242 57 63
karina.furga-dabrowska@dentons.com
Dentons
Rondo ONZ 1
00-124 Warsaw
T +48 22 242 52 52
F +48 22 242 52 42
dentonstaxadvisory@dentons.com
dentons.com
Cezary Przygodzki
Partner
D +48 22 242 57 78
cezary.przygodzki@dentons.com
Download PDF[586KB]
Email
Report
Note close
Firefox recommends the PDF Plugin for Mac OS X for viewing PDF documents in your browser.
We can also show you Legal Updates using the Google Viewer; however, you will need to be logged into Google Docs to view them.
Please choose one of the above to proceed!
LOADING PDF: If there are any problems, click here to download the file.