As of the beginning of 2022, the controversial Article 15e of the CIT Act, which mandated the exclusion of a broad catalogue of expenses for intangible services from deductible costs if these costs exceeded the limit set in the provision, ceased to apply.

One way to ensure that these expenses were fully deductible was to enter into an advance pricing agreement (APA) and many taxpayers have done so accordingly. However, not all have decided to go into this costly and time-consuming procedure. This does not mean, that they have no possibility to deduct such expenses.

Are the costs which were not deducted in 2018-2021 already 'lost'?

On the basis of Article 15e, a limit was introduced on the amount of intangible service expenses that could be deducted in a given year. If the costs of intangible services covered by the provision in a given year exceeded this limit, the excess could be deducted in the following five years up to the limit applicable for those years.

In practice, for many entities, the deductibility of costs in the following 5 years was of little relevance, as they incurred costs in excess of the limit every year and therefore had no 'stock' to deduct costs from previous years.

However, it appears that the removal of Article 15e from the CIT Act may allow at least some of the costs that were capped in 2018-2021 to be deducted.

Under what rules may limited costs from 2018-2021 be deducted in 2022 and subsequent year?

According to the transitional provision of the law that revoked Article 15e, taxpayers who have gained the right to deduct costs retain this right to the extent and in accordance with the rules set out in the relevant provision. Thus, despite the repeal of the article, the possibility of deducting previously non-deducted costs for the next 5 years was preserved on the basis of the transitional provision.

This raises a fundamental question - does the taxpayer have to include costs incurred on an ongoing basis, in the year in which the deduction is made, in calculating the limit for the year?

In practice, it comes down to the question of whether, for example, in 2022, we treat expenses covered by Article 15e (over and above the limits applicable in those years) incurred in previous years as deductible:

• PLN 3 million + 5 percent of 2022 EBITDA, less the expenses which have been incurred in 2022 and which would hypothetically be covered by Article 15e if it was still in force, or
• PLN 3 million + 5 percent of 2022 EBITDA (which is the more favourable solution).

Favourable approach by tax authorities

We observe that a favourable position of the tax authorities (KIS) has recently emerged in this respect. According to this position in 2022 the costs of services covered by Article 15e in previous years can be deducted within the limit of PLN 3 million + 5 percent of EBITDA, regardless of the expenses incurred for such services in 2022.

With this interpretation of the provisions, it is possible to deduct the expenses which have not been deducted in the years 2018-2021 in the amount of at least PLN 3 million per year. Therefore, even entities incurring significant costs for intangible services every year may be able to benefit from a deduction that would not be possible if Article 15e was still in force.

This solution may also be considered by those who have decided to apply for an APA and have been waiting for a decision for a long time - as it will allow them to pay less tax already for 2022.

If you are interested in the possibility of deducting in 2022 and subsequent years costs previously limited on the basis of Article 15e, please contact us. We will advise you on how to do this in a safe way, minimising the risks in this respect.