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Michał Gosek

Tax adviser (Poland)
Associate Partner
Phone: +48 61 624 49 39
E-Mail

Agnieszka Szczotkowska

Tax adviser (Poland)
Phone: +48 616 24 49 22
E-Mail

Special Economic Zones

Enterprises who already enjoy income tax exemptions granted because they operate in a special economic zone can still apply for additional subsidies for the same project. As part of the same investment project, enterprises may use various sources of state aid, e.g. EU subsidies, government grants, subsidies for the creation of new jobs, real property tax exemption etc. This is confirmed in the advance tax ruling issued by the Head of the National Tax Information Service on 13/03/2019 (file no. 0111 – KDIB1 – 3.4010.22.2019.1.APO). In this advance tax ruling, the applicant asked the tax authority whether he – as a general partner in a limited partnership carrying on business in a special economic zone– would be authorised to cumulate state aid in the form of income tax exemption granted on the basis of Article 17 (1) (34) of the CIT Act and aid in the form of subsidies.

In the description of the facts and circumstances of the case, the applicant indicated that the limited partnership was in the business of manufacturing construction materials (interior and exterior door woodwork) which it carried on in a special economic zone based on several permits. The applicant further pointed out that for its business, the limited partnership received two subsidies – one in the form of an R&D grant for a project outside the SEZ, and one for acquiring assets to be located in the plant in the SEZ and to be used for the conduct of the business there. The applicant also indicated that he had applied for another subsidy that also related to the project within the SEZ (subsidy 3). As of the date of filing the application for the advance tax ruling, the applicant was waiting for the decision about the award of subsidy 3.
The applicant explained that one of the awarded subsidies (subsidy 2) covered the acquisition of assets to be used for the conduct of business in the SEZ. He also pointed out that eligible expenses incurred as part of that subsidy were not the same as those included in the SEZ permit being the basis for calculating the pool of state aid available to the enterprise.

The applicant also underlined that it could not be ruled out that the eligible expenses relating to the business in SEZ would overlap with the eligible costs to be covered by the subsidy requested in the still pending application – it was probable that part of the eligible expenses, which the enterprise had committed to incur as part of the investment project in the SEZ, would be financed in future with funds obtained from subsidy 3.

Although the issue of cumulating state aid is extremely important from the point of view of enterprises, the only provision of local law that regulates it is Article 3 (8) of the Polish Regulation on aid. In accordance with this Article, state aid referred to in paragraph 1 may be granted jointly with other aid for new investment projects or for the creation of new jobs, regardless of its source and form, provided that the total value of this aid does not exceed the admissible aid threshold specified in Article 4 (i.e. the maximum aid intensity for regional investment aid). In the light of the quoted Article, the maximum aid intensity for regional investment aid, calculated as the ratio between the gross subsidy amount and eligible costs under that subsidy, is 50%, 40% or 30% (depending on the province).

EU legislation

At this point, reference should be also made to Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (hereinafter: “Regulation 651/2014”), which is a legal act superior to the Polish regulation. According to the EU legislation, aid with identifiable eligible costs exempted by Regulation 651/2014 from the notification obligation may be cumulated with any other state aid, as long as those measures concern different identifiable eligible costs.

Where different sources of aid are related to the same — partly or fully overlapping — identifiable eligible costs, cumulation should be allowed up to the highest aid intensity or aid amount applicable to that aid under this Regulation. If two aid measures that constitute regional investment aid (e.g. tax exemption under Article 17 (1) (34) of the CIT Act and subsidies) are being cumulated, then, the cumulated state aid intensity may not exceed the maximum regional investment aid applicable in the given region.
In the opinion of the applicant, in the case of funds obtained from subsidy 2 (where eligible costs incurred as part of the subsidy were not the same as the eligible expenses incurred as part of the SEZ permit), the cumulation of the two forms of state aid would be allowed. However, in the case of subsidy 3, where the eligible costs could overlap with those incurred as part of the SEZ permit, those aid measures could be cumulated only if the cumulation would not result in exceeding the highest state aid intensity.

The head of the National Tax Information Service concurred with the argumentation presented by the applicant, and, in our opinion, rightly so.
Such a stance of the tax authorities gives rise to questions of practical nature – will the taxpayer be able to classify expenses incurred for the acquisition of assets referred to in Article 6 of the Polish Regulation on aid, financed in part or in whole from subsidies, as expenses eligible for funding, on the basis of which the permissible amount of tax exemption referred to in Article 17(1)(34) of the CIT Act is calculated?

According to Article 3 (1) of the Polish Regulation on aid, state aid is granted to enterprises in form of tax exemptions on the basis of Article 17(1)(34) of the CIT Act, and constitutes regional investment aid (e.g. aid granted to finance costs of a new investment project) whose amount is calculated as the product of the maximum aid intensity defined for a specific region and eligible investment costs specified in Article 6 of the Polish Regulation on aid.

Amount of exemptions available to enterprises

At the same time, neither the provisions on SEZ nor the implementing acts adopted on their basis makes the eligibility of expenses incurred for the acquisition of assets dependent on whether the assets were purchased from the taxpayer's own funds. The only restriction relating to obtaining external financing arises from Article 3 (2) of the Polish Regulation on aid. This Article sets out a requirement where –in order to receive aid for a new project– the enterprise should contribute its own funds to the project, i.e. funds that were not obtained as part of the granted aid and that are at least 25% of total eligible costs of that project. In other words, the legislator has made the definition of an eligible cost dependent on what the cost was incurred for, making the source of financing irrelevant (on condition that the minimum own contribution amount defined in the law is observed).

Thus, the provisions do not say that expenses financed from subsidies may not constitute eligible expenses specified in the taxpayer’s permit. All the more so as neither the provisions of the SEZ Act nor the acts implementing this Act provide for any list of acceptable sources of financing for expenses eligible for state aid. The only requirement specified by the legislator is that the income tax exemption increased by the amount of state aid obtained from other sources, which as a whole is a form of state aid, must not exceed the maximum aid intensity for regional investment aid (i.e. the maximum aid amount).

The above requirement means that when calculating the amount of the tax exemption, the applicant should add up the investment expenses incurred in the SEZ in relation to the new investment project, determine the limit of state aid and then calculate the amount of state aid used and of the remaining state aid to be used in the form of tax exemption. We concur with the standpoint of the head of the National Tax Information Service adopted in the advance tax ruling of 27/03/2017 (1462-IPPB3.4510.34.2017.1.MS) saying that new investment costs meeting the requirements of Article 6 (2) of the Polish Regulation, including investment costs specified in funding applications, should be classified as eligible expenses forming the basis for calculating the state aid limit.

Unfortunately, the head of the National Tax Information Service issued an advance tax ruling (0111-KDIB1-2.4010.31.2019.2.BG) where a different standpoint was adopted, according to which an eligible expense financed from subsidies forms a basis for calculating the pool of state aid available to an enterprise only in the part in which that eligible expense has not been covered by the subsidy.  

The tax authorities are right to state that when calculating the amount of income tax exemption for operating in a SEZ, the taxpayer should take into account both the value of the maximum aid intensity for regional investment aid and the amount of state aid received from other sources (in this case, the subsidy and the real property tax exemption). In our opinion, the method for cumulating state aid should be as follows: when calculating the amount of the tax exemption, the taxpayer should add up the investment expenses incurred in the SEZ in relation to the new investment project, determine the limit of state aid and then calculate the amount of state aid used (i.e. the funds obtained from subsidies) and of the remaining state aid to be used in the form of tax exemption. In no case, however, should the pool of incurred eligible expenses be reduced by the amount of the received subsidy.

If you want to know more on Special Economic Zones topic, Rödl & Partner's experts in Cracow, Gdansk, Gliwice, Poznan, Warsaw or Wroclaw will be glad to help you.

Michał Gosek,

Agnieszka Szczotkowska,

09.07.2019