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Expenses incurred for the purchase or production of tangible assets cannot be directly recognised as tax-deductible costs. They be recognised as such exclusively in the form of depreciation charges. An exception to this rule is provided for in Article 16(1)(48) of the CIT Act. It says that non-tax-deductible are depreciation charges for the use of tangible assets, made for the part of their value corresponding with the expenses which were incurred for the acquisition or production of those assets and which were deducted from the taxable base or refunded to the taxpayer in any form. This means that the taxpayers who have received grants for tangible assets cannot recognise the refunded expenses as tax-deductible costs. 

Receiving a grant after the depreciation starts

The problem appears when you receive the grant after you start depreciating a tangible asset already brought into use. The CIT Act is short of clear regulations on the depreciation charges made before you receive a grant. The tax authorities and the administrative courts have ruled many times on when taxpayers should adjust the tax-deductible costs if they get a refund of the expenses on the acquisition (production) of tangible assets. 

Retrospective adjustment of costs

The taxman has insisted on claiming that following the refund of the expenses you should adjust the depreciation charges in the months in which you overstated them. So said e.g. the Director of Tax Chamber in Łódź in his advance tax ruling of 6 March 2014, IPTPB1/415-734/13-5/AP. The authority claimed that the taxpayer was wrong in making the adjustments on a current basis, that is, in the month when he received the grant. The taxman claimed that the enterprise overstated the expenses and, therefore, it was obliged to adjust them for those periods in which they had been originally disclosed (interpretations in the same tune were expressed by e.g. the Director of Tax Chamber in Poznan in his advance tax ruling of 11 May 2013, file no. ILPB1/415-969/13-2/AMN, or the Director of Tax Chamber in Warsaw in his advance tax ruling of 6 March 2013, IPPB5/423-1253/12-4/RS).

Court judgements good for taxpayers

The recent case law developed by the administrative courts is taxpayer-friendly. For instance, the Provincial Administrative Court (PAC) in Gliwice in its judgement of 13 November 2013, file no. I SA/Gl 322/13, confirmed that a taxpayer who received a grant for a tangible asset after starting its depreciation did not have to adjust his accounts retroactively. The depreciation charges are tax-deductible costs until you receive the aid and only after the grant is actually received you have to disqualify depreciation charges in the part which corresponds to the value of the grant you have received.

Any different interpretation of Article 16(1)(48) CIT Act would unlawfully bring about adverse tax consequences on you (tax arrears and default interest on the arrears). Your conduct as a taxpayer within the applicable tax law would be punished even though your declarations of the taxable base and due tax were in no way wrong. In addition, you may always lose your entitlement to the whole or a part of the grant in the period between the signing of the grant agreement and the actual payment of the grant to your account. Therefore, you cannot calculate the share of the grant amount in the total costs of tangible assets.

Other courts issued similar rulings, e.g. the PAC in Gdansk on 26 March 2014, file no. I SA/Gd 41/14; the PAC in Wroclaw on 13 April 2012, file no. I SA/Wr 166/12 and the PAC in Kielce on 18 July 2013, file no. I SA/Ke 385/13. 

This taxpayer-friendly approach of the administrative courts contrasts with the approach of the tax authorities and gives more chance of winning a dispute with the taxman. Therefore, we encourage you to review your way of accounting for tax-deductible costs of tangible assets you have acquired or produced with the aid of a grant. Rödl & Partner would be glad to assist you in this process and provide you with tax advice in Poland on CIT, PIT and VAT issues. Our tax advisers working in Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw will also answer other tax-related questions that you may have.