On 1 February 2016, the seven-judge panel of the Supreme Administrative Court adopted a resolution (II FPS 5/15) in which they held that incentives and bonuses paid to employees from net profit (income after tax) might be recognised as tax-deductible costs in the month of payment. Thus, the SAC confirmed the stance taken by another seven-judge bench of that court in a resolution of 22 June 2015 (II FPS 3/15). 

In the June resolution the SAC held that incentives and bonuses paid to employees of a corporate taxpayer from income after tax might be treated as tax-deductible costs of that taxpayer. The court stated that those kinds of payment were a sort of reward for a job well done evident in the profit achieved. They were motivational and encouraged efforts to work out profits in subsequent years. At the same time, no provision of the Corporate Income Tax Act made the tax deductibility of costs dependent on the source of financial means that were expended. Therefore, there were no grounds to deny the company the right to treat the costs as tax-deductible. 

It seemed that the above-mentioned resolution would end the inconsistent interpretations and open up safe ways of rewarding employees. This, as it turned out, was not the case. By its decision of 13 October 2015 (II FSK 3069/13) the SAC adjourned the hearing in the case of a cassation appeal against the judgement of the Provincial Administrative Court in Gliwice of 15 May 2013 (I SA/Gl 33/13) and submitted the matter for re-consideration by another seven-judge panel of the SAC. The court was in doubt about the interpretation expressed in the resolution of 22 June 2015, especially as regards the association between the cost and revenue and the moment of the cost deduction. The court pointed out that the revenue, and consequently the income, followed from the costs incurred earlier, including the costs of labour hired by the company. On the other hand, bonuses and incentives were a part of income distribution after tax. They could be paid only after the end of a tax year. Therefore, considering the time when the income was earned and the time when the bonuses and incentives were paid out, it had to be concluded that the bonuses and incentives could not serve as a means to earn revenue or maintain or secure a source of revenue in a tax year. Consequently, there was still less reason to assume that bonuses and incentives paid from a profit worked out in one tax year could be associated with revenues of a subsequent year.

Incentives and bonuses paid to the employees from the net profit may be regarded as tax-deductible

In its resolution of 1 February 2016 (II FPS 5/15) the SAC rejected those arguments and stated that incentives and bonuses paid to employees from net profit (income after tax) might be recognised as tax-deductible costs of the employer and, furthermore, were deductible in the month of payment. 

The statement of reasons to the resolution has not been published yet. Nevertheless, the second taxpayer-friendly resolution of the SAC indicates that the case law in this matter gets firmer and creates a real chance of success in a dispute with the tax authorities.

We would be glad to provide you with more information if you are interested in this issue. Tax advisors in the Rödl & Partner offices in Gdansk, Gliwice, Krakow, Poznan, Warsaw and Wroclaw, are at your disposal offering comprehensive tax advice in Poland.

30.03.2016 r.