Contact
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

CIT, SSE

In the period of using public aid and in the case of generating tax-exempt income referred to in Article 17(1)(34) of the CIT Act, a taxpayer may plan to use a temporarily reduced depreciation rate for a fixed asset. Then, after exhausting the limit of the granted public aid, the taxpayer may return to using the higher rate (i.e. the higher tax deductible costs). Thus, the taxpayer may influence the amount of the tax-exempt and the taxable income.

To meet the requirements indicated in the permit for conducting a business activity in a special economic zone (SEZ), taxpayers are often faced with substantial investment expenditures. In addition, when considering the fact that the limit of public aid (in form of tax exemption) should be exhausted until the end of 2026, then many enterprises may find it difficult to use the whole of the public aid they are entitled to.  
This problem particularly affects entities operating in low-margin sectors.

Therefore, enterprises more and more often look for ways of how to optimise taxation without breaching Polish tax law. More specifically, they look for ways of how to use the tax exemption more quickly without any risk of the tax authorities challenging their tax accounts. This is no easy feat, given the constant efforts of the legislator to tighten up the tax system, manifested, for example, in the increasing tightening of the General Anti-Abuse Rule, and the increasingly pro-fiscal stance of the tax authorities.

Possibility of modifying depreciation rates in the light of the CIT Act

If the CIT exemption should be used until 31/12/2026, then the optimal solution would be to increase the tax-exempt income in the period of using the exemption and decrease the taxable income after the public aid is used. One of the easiest ways of doing it is to modify the depreciation rates of fixed assets used for conducting business activities in a SEZ. 

Tax depreciation is a means of reducing the level of taxation over time by writing off against profits the value of assets subject to wear and tear used in the course of business.   The depreciation period is usually similar to the standard useful life of a fixed asset, which is reflected in the depreciation rates specified in the List of depreciation rates included in the CIT Act.

For enterprises, depreciation rates have a significant influence on the tax-deductible costs. As per Article 15 (6) of the CIT Act, tax-deductible costs include depreciation charges for the use of fixed assets as well as amortisation charges for the use of intangible assets (depreciation and amortisation charges). Depreciation and amortisation charges are thus nothing other but a spread-over-time recognition of the relevant expense as a tax-deductible cost that, in turn, can effectively reduce the tax base. 

In accordance with Article 16i (5) of the CIT Act, taxpayers may apply reduced depreciation rates for certain fixed assets specified in the List of depreciation rates included in the CIT Act. A modified depreciation rate can be used starting from the month in which the relevant fixed asset was entered into the record of fixed assets or from the first month of every next tax year. When interpreting the above-mentioned provision, one can see that the legislator has not introduced any lower limit for a reduced depreciation rate. Thus, it is possible to arbitrarily determine the rate of depreciation, provided that it cannot be higher than the rates specified in the List of annual depreciation rates.

Also the standpoint represented by the tax authorities is favourable for taxpayers in this respect. In advance tax rulings, the head of the National Tax Information Service has confirmed many times that taxpayers may use temporarily reduced depreciation rates for fixed assets. For example in the advance tax ruling of 23/08/2018 (file no. 0111-KDIB1-1.4010.251.2018.1.BK), the head of the National Tax Information Service held that it was allowable to use depreciation rates reduced to 0.1%. In the advance tax ruling of 6/03/2017 (2461-IBPB-1-3.4510.83.2017.1.KB), the tax authority consented to reducing depreciation rates to any level of the taxpayer’s choice, including 0%.

General Anti-Abuse Rule

Klauzula obejścia prawa podatkowegoThus, it would seem that this topic should not raise any doubts among taxpayers. Unfortunately, however, Article 119a of the Polish Tax Act may cast doubt as to the possibility of applying modified depreciation rates. According to this provision, a(n) action/transaction shall not result in a tax advantage if it was carried out in an artificial way (tax avoidance) primarily or secondarily in order to achieve a tax advantage which is contrary under certain circumstances to the subject matter and purpose of tax law or any of its provisions. In such a case, tax consequences of an action or a transaction are determined based on circumstances that could arise if the action or transaction were carried out in a legally acceptable way.

An opinion on this matter was even issued by the head of the National Tax Administration (NTA) on 19/02/2019 (file no. 167198/K). The tax authority held that in the light of the CIT Act the modification of depreciation rates was allowable and the reduced rate and the selection of fixed assets subject to the reduced rate were entirely down to the taxpayer.

In the opinion of the head of the NTA, the application of reduced depreciation rates in order to generate a higher tax-deductible cost at a later time (even at the time of selling the selected fixed assets) is not contrary to the law as such because it is impossible to deny the taxpayer the right to include in the tax deductible costs the expense incurred and duly documented by him in relation to the purchase of a fixed asset.

In the presented case, the modification of depreciation rates decreases the value of depreciation charges made in the period of using the public aid, while the value of depreciation charges made after the taxpayer uses the public aid limit granted to him will increase. Applying reduced depreciation rates in the period of using the public aid by the taxpayer (i.e. until the end of 2026) will lead to a situation where almost all expenses for the purchase of certain (selected) fixed assets will be treated as tax-deductible costs but only after 2026. Thus, as the tax authority noticed, the fact that the taxpayer will recognise the expense associated with depreciation charges as tax-deductible costs only after the deadline for using the public aid has passed or after the taxpayer actually has used the entire limit of the granted public aid (depending on which occurs earlier) will bring the taxpayer specific advantages, such as:

  • an increase in tax-exempt income in the period of using the public aid;
  • a more effective use of the public aid limit granted to the company (i.e. use of a higher amount of such aid than it would follow from the public aid budget projection);
  • a decrease in taxable income after exhausting the limit of the public aid.

The head of the NTA emphasised, however, that it would be possible to have recourse to the double taxation clause only if the taxpayer obtained the tax advantage in a manner contrary to the subject matter and the purpose of tax law. The head of the NTA also pointed out that the possibility of modifying the rates of depreciation was also indicated by the legislator itself which stated in the explanatory memorandum to the Bill Amending the CIT Act dated 27 July 2002 that taxpayers would be able to use maximally reduced depreciation rates in the period of incurring tax losses and to return to rates, i.e. higher tax-deductible costs, in the period of generating income, thus influencing the amount of the tax loss and the taxable income accordingly. This procedure will not increase the value of possible depreciation charges, but will spread them over time according to the justified needs of the taxpayer.

The presented position is a common-sense approach to the treatment of the business activity conducted by enterprises operating in SEZs, but it is also a fair response of the tax office to the difficulties in using the taxpayers’ corporate income tax exemption (especially in the context of an unfavourable line of rulings regarding the possibility of setting off losses from business activities conducted in SEZs against income generated from these business activities in later years).

If you are interested in this topic, please contact our consultants, who will be happy to meet you in our offices in Gdansk, Gliwice, Krakow, Poznan, Warsaw or Wroclaw.

Michał Gosek,

Agnieszka Szczotkowska

24.04.2019