Iwona Łaska-Rutkowska

Tax adviser (Poland)
Senior Associate
Phone: +48 22 244 00 56

On 26/04/2016, the Director of Tax Chamber in Katowice issued a taxpayer-unfriendly advance tax ruling (file no. IBPB-1-3/4510-266/16/JKT) stating that indemnity received by an enterprise pursuing a business activity in a Special Economic Zone in Poland ("SEZ") could not be recognised as revenue generated in the zone. 

A company (the Applicant) wanted to take out property insurance for its manufacturing plant located in the SEZ. Therefore, the company asked the tax authority if indemnity paid by the insurance company following certain specific fortuitous events (such as fire, flood) to compensate for damage to property and lost profit/opportunity (resulting from inability to generate profit due to downtime for the time needed to repair the damage) could be treated as revenue under a tax-exempt activity.

In rejecting the company's viewpoint the tax authority pointed out that the income tax exemption applied exclusively to the revenue earned from the business activity pursued within the SEZ in the scope specified in the permit. It is not the "income related to a business activity" that is eligible for tax-exemption, but the "income from the business activity" specified in the permit and pursued in the SEZ that is. 

The tax authority emphasised that the exemption under Article 17(1)(34) of the CIT Act was not a personal exemption. Therefore, it did not apply to the entire income of the enterprise operating in the SEZ, but only to the income earned from the activity specified in the permit.

Such an opinion can also be found in the prevailing line of judgements of administrative courts. For example, the Supreme Administrative Court in its judgement of 09/10/2013 (file no. FSK 2766/11) stated that revenue in the form of indemnity was not generated by the production activity but resulted from a separate contract concluded with an insurance company. Income from other operating activities of a company and other income are not tax-exempt.

The ruling of 26/04/2016 marks a U-turn in the hitherto-friendly approach of the tax authorities. In the past, contrary to the approach adopted by courts, the tax authorities allowed indemnity received from an insurance company (for example, following fire in a production plant in a SEZ) to be recognised as a tax-exempt revenue (see the advance ruling of the Director of Tax Chamber in Łódź dated 25/08/2015, file no. IPTPB3/4510-184/15-2/IR, and of the Director of Tax Chamber in Katowice dated 24/08/2011, file no. IBPBI/2/423-612/11/AP).

In view of this change in the approach of the tax authorities, we recommend that you review the way you have accounted for the received indemnities so far in order to avoid potential tax risks.

In case of further questions, please do not hesitate to contact us. Our tax advisers in Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw will gladly review your documentation related to your investment in the Special Economic Zone in Poland and propose a solution to minimise your tax risks. We are also on hand to answer any other tax-related questions you may have. Our offices offer legal advice in Poland with conducting business within a SEZ and with any other aspects of your operations. We take this opportunity to encourage you to contact us.