New regulation to limit tax-deductibility of expenses on intangible services | SSW Tax Alert

As stipulated in the law passed on 27 October 2017, amending the laws on income tax payable by legal entities (CIT) and income tax payable by natural persons (PIT), tax deductibility of expenses on broadly considered intangible services from the taxable income is to be restricted as of 1 January 2018.

The new regulation applies to services purchased from affiliated entities and legal entities registered in tax havens. The limitation will apply to the following:

  • consulting services, market research, advertising, management and control, data processing, insurance, guarantees and warranties, and other similar services and benefits;
  • expenses covering the costs of using or the costs of a right to use material protected by copyright and related proprietary rights, licenses, industrial property rights and know-how;
  • the costs incurred by transferring liabilities of an insolvent debtor resulting from loans other than loans granted by the co-operative savings and credit union system.

The upper limit of fully deductible costs has been set at PLN 3 million. For any expenses in excess of this amount, the deduction from taxable income in a fiscal year will be capped at the level of 5 per cent of a specifically defined EBITDA indicator. This limiting regulation will not apply to certain cases, for instance to a situation where a taxpayer has executed an advance pricing agreement (APA) with a tax authority on an appropriate pricing methodology.

The new regulation will result in limiting the deductibility of expenses on so-called intangible services from taxable income. Under the current regulations there are no restrictions on the amount of such expenses a taxpayer may deduct, the only condition being that the generally applicable criteria for tax-deductible costs must be met.

Should you be interested in a more detailed presentation of these changes and their impact on your business activity, do not hesitate to contact us.

Patrycja Goździowska – Partner, Tax Advisor

Tomasz Wickel – Partner, Attorney at Law

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