New limitations in applying the 50% rate of tax deductible costs

2017-11-15

As of 1 January 2018 the legislator intends to introduce changes for the taxpayers applying increased tax deductible costs on account of performing creative work. These changes will have significant impact on many taxpayers, as the legislator intends to introduce certain provisions to the act that limit the group of entities entitled to apply increased tax deductible costs (hereinafter: TDC). On 10 November 2017 the Senate of the Republic of Poland adopted the act introducing the aforesaid changes. Currently, the act waits to be signed by the President of the Republic of Poland. Below we present the changes that will be introduced by the aforementioned resolution in the scope of applying the provisions related to increased TDC.

Most importantly, the catalogue of jobs, which will authorise the taxpayers to use the 50% rate of TDC, will be changed. The scope of the revenue catalogue, which is to come into force as of 1 January 2018, is as follows:

  • Creative work in the field of architecture, interior architecture, landscape architecture, city planning, belles-lettres, visual arts, music, photography, audio-visual works, computer programs, choreography, artistic violin-making, folklore arts and journalism;
  • Revenues from research and development work as well as scientific and didactic work;
  • Revenues from artistic work in the field of acting and stage performance, theatre and performance directing, dancing and circus arts, conducting, vocal arts, instrumental arts, costume design and scenography.
  • In the field of audio-visual production of directors, screenwriters, photography and sound directors, editors and stuntmen,
  • Revenues from publicity work.

Moreover, according to the new regulations, the annual limits related to the use of the 50% rate of TDC will be increased by 100%, i.e. to the amount of 85,528 PLN (currently: 42,764 PLN). Any type of creative work, which is not included in the catalogue, will not offer the possibility of recognising 50% of TDC from revenues obtained from the transfer of copyrights.

A change in the approach of tax authorities to the existing regulations

Apart from the planned change of regulations, the tax authorities have recently changed their approach to the application of the 50% rate of TDC by taxpayers. Below we present the most recent individual interpretations issued by the Head of the National Tax Chamber:

  • Factual and unquestionable determination of the amount of an author fee due to employees

The National Tax Chamber published several interpretations, which mention the questionable issue of using TDC in relation to an author fee constituting a part of remuneration obtained under an employment contract, irrespective of the actual fulfilment of the requirements of Art. 22 section 9 item 3 of the Personal Income Tax Act. An employer, acting as a payer, should, in a factual and unquestionable manner, determine the amount of an author fee due to employees in a particular month for the transfer of proprietary copyrights. Basing the calculation on the previously determined standard percentage rate only is not efficient enough.

Interpretation: DKIS 0111-KDIB2-3.4011.25.2017.1.HK of 08 June 2017

  • Distinguishing the amount of time devoted to creative work in an employment contract is not sufficient

The above interpretation was issued as to the estimated division of an employee's work time devoted to performing creative work and other employee obligations. The interpretation indicates that distinguishing the amount of time devoted to creative work in an employment contract is not sufficient, as the result of creative work is uncertain, while its performance does not guarantee the creation of a work of art.

Interpretation: DKIS 0114-KDIP3-3.4011.241.2017.1.L of 24 July 2017

  • Lack of possibility to distinguish an author fee on the basis of the percentage of work time indicated in an employment contract

The Head of the National Tax Chamber indicated in the above interpretation that distinguishing an author fee on the basis of the percentage of work time indicated in an employment contract is not possible. It must be unambiguously calculated on each and every occasion.

Interpretation: DKIS 0112-KDIL3-1-4011.134.2017.1.AN of 25 July 2017

  • Keeping work time records of particular employees by companies determines the time devoted to creative work but not the amount of an author fee

In the above interpretation the Head of the National Tax Chamber expressed a different opinion in terms of applying the criteria that must be met in order to apply increased TDC. The Head of the National Tax Chamber has stated in the interpretation that work time records of particular employees kept by companies determine the time devoted to creative work but not the amount of an author fee for the transfer of copyrights that must be connected with acquiring such copyrights.

Interpretation: DKIS 0111-KDIB2-3.4011.123.2017.1.KK of 24 October 2017

The current and long-standing line of interpretation by tax authorities allows for the safe use of the preferences, however, at present, in the case of many entities, such a change may have negative connotations.

We would like to further point out that due to the change in the tax authorities' approach to the currently applicable regulations, the taxpayers applying increased TDC, who have not applied for individual tax interpretation before, are exposed to questioning the validity of applying these regulations during an inspection carried out by tax authorities. On the other hand, the taxpayers, who had the interpretations issued on the basis of the currently applicable regulations, should verify their contents, taking into account the upcoming changes, and check the possibility of applying the regulations on increased TDC in 2018.

New limitations in applying the 50% rate of tax deductible costs

Your contacts

m.peczak Maciej Pęczak Junior Tax Specialist Tel.: +48 (71) 36 99 541
MG 8221 Izabela Grabelus Tax Specialist, Tax Advisor Tel.: +48(71)36 99 566Information