Monika Spotowska

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

In its ruling dated 22 May 2015 (file no. II FSK 1140/13), the Supreme Administrative Court ("SAC") dismissed the cassation appeal lodged by the tax authorities and thus upheld the validity of the claim that costs generated by a company's management board and employees assisting that management board outside a Special Economic Zone in Poland ("SEZ") could be classified as tax-deductible costs generated in the SEZ (i.e. as expenses that reduce business income generated in the SEZ). The SAC also upheld the validity of the claim that companies qualify for the income tax exemption for doing business in special economic zones, also when they generate income from contracts signed in an office located outside the SEZ. 

The case considered by the SAC related to a limited liability company ("Company") that conducted production, trade and service activities in a SEZ. The Company conducted the said activities only in the SEZ and did not conduct any side activities outside the SEZ. Because of the fact, however, that most central administration offices and the majority of offices of the Company's contractors are based in Warsaw, the Company decided to open an office in Warsaw that also served as the management board's headquarters. In its Warsaw office, the Company employed a small number of employees who handled back office for the management board and, to some extent, provided administrative support for the factory based in the SEZ. In the context of the costs, such as office space rental, office supplies and employee wages, the Company asked the Minister of Finance for an advance tax ruling on whether the said costs could be classified as costs reducing the tax-exempt income from the business activities conducted in the SEZ. In addition, the Company wanted to confirm that in order to enjoy the tax exemption for doing business in the SEZ it had to organisationally separate the management board, its office and employees based outside the SEZ from the activities in the SEZ.

The Company was of the opinion that the activity of the management board's office and the tasks performed by the employees hired in that office were not a business activity, so there was no need to separate that activity from the operations in the SEZ, while at the same time the costs of the management board's functioning and the employee wages were costs relating to the Company's business activity conducted in the SEZ.  

In his advance tax ruling dated 17 January 2012, file no. IPPB3/423-927/11-2/MS, the Director of the Tax Chamber in Warsaw rejected the Company's arguments. 

The case was referred to the Provincial Administrative Court in Warsaw (file no. III SA/Wa 1641/12) and then to the Supreme Administrative Court. Both courts agreed with the Company. The courts unanimously held that, from the point of view of the objectives of the SEZ, it was irrelevant where a contract that generated income from business activities conducted in the SEZ was signed. As for the office and staff expenses, the Provincial Administrative Court and later the Supreme Administrative Court held that those expenses were incurred to conduct business activities in the SEZ and were thus SEZ-related tax-deductible costs.

The above-mentioned rulings confirm that there is no need to organisationally separate the management board, its office and employees based outside a SEZ from the activities in the SEZ as long as the costs incurred to maintain the office and employees hired there are solely related to a company's business activity in the SEZ. Nevertheless, issues relating to classifying certain costs incurred outside a SEZ as costs incurred in the SEZ should be approached very conservatively; the facts of the case should be carefully analysed at all times, taking into account often unfavourable rulings of tax authorities in this respect and considering the changing administrative case law.

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 be happy to review your documentation related to your activities 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 support in conducting business within a SEZ and in any other aspects of your operations.