Contact
Anna Główka

Rechtsanwältin (Polen)
Phone: +48 22 244 00 51
E-Mail

The recognition of expenses incurred to increase the share capital in a limited liability company or a joint-stock company is a moot issue for tax authorities and administrative courts. Whereas initially there prevailed a restrictive approach according to which all such expenses were questioned as tax costs, recently there has been a tendency to divide these expenses into those without which the increase of the share capital would not be possible (not recognised as tax costs) and those which are indirect tax deductible costs (provided that the statutory provisions are kept).

Restrictive approach: none of the expenses incurred to increase the share capital can be recognised as tax costs

In their former rulings tax authorities often represented a standpoint according to which, on principle, no expenses incurred to increase the share capital might be recognised as tax costs. That is because such expenses are connected with non-taxable revenues. Pursuant to Article 12(4)(4)  CIT Act, revenues received to establish or increase the share capital are not classified as revenues. Consequently, because the revenues received to increase the share capital are not revenues for tax purposes, the costs of earning those revenues cannot be recognised as tax deductible under Article 15(1) CIT Act. Otherwise the taxpayer would benefit twice, as these revenues would not increase the taxable base while the related expenses would be recognised as tax deductible costs (so stated e.g. the Head of the Tax Chamber in Poznan in the advance rulings of 18 August 2010, no. ILPB3/423-639/10-2/KS and of 1 February 2011, no. ILPB3/423-873/10-2/GC; the Head of the Tax Chamber in Katowice in the advance ruling of 6 December 2010, IBPBI/2/423-1161/10/MS). This standpoint was also represented in the administrative case law (e.g. the SAC's ruling of 10 February 2010, II FSK 1450/08; the SAC's ruling of 4 March 2010, II FSK 1752/08).

Case law favourable for the taxpayer: only expenses without which the share capital increase would not be possible are non-tax-deductible

The moderation of this approach became possible after a seven-judge panel of the SAC issued a resolution on 24 January 2011, II FSK 1752/08. The court argued that only expenses connected with the issuing of new shares without which the increase of the share capital would not be possible are non-tax-deductible. These expenses are e.g.:

  • notarial fees; 
  • court charges; 
  • civil law transaction tax;
  • in the case of a share capital increase by way of issuing of shares which are the object of a public offering and are covered by a prospectus – additionally the related stock exchange fees, the costs of printing the stock documents, the costs of drawing up, printing and distributing the prospectus or its abbreviated version, as well as the costs of offering the securities. 

Other expenses incurred in connection with the share capital increase which are the general operating costs of an incorporated company and which have been spent to preserve and secure the source of revenues, i.e. expenses for the purchase of services connected with the issuing of shares, may be recognised – pursuant to Article 15(1) of the Corporate Income Tax Act – as tax deductible costs. They are typicalindirect costs, which are connected with the business activity the effects of which are taxable. These costs are costs connected with e.g.:

The above mentioned ruling of the SAC was not the first of its kind and there had been judgements before which presented a similar approach (e.g. judgement of the PAC in Poznan of 23 February 2010, SA/Po 1124/09), but it was this ruling which set a line of judgements which is favourable for taxpayers. A similar standpoint was expressed e.g. by the PAC in Poznan in its judgement of 13 June 2012, III SA/Wa 2205/11, as well as the SAC, e.g. in its judgement of 7 May 2013, II FSK 2306/11 and in the judgement of 10 January 2014, II FSK 210/12.  

Thanks to the appeals lodged by taxpayers with administrative courts and rulings issued in their favour in accordance with the above mentioned SAC's ruling, the tax authorities – even if they still often present the restrictive approach – change the issued advance tax rulings (e.g. advance tax ruling of the Head of the Tax Chamber in Warsaw of 10 April 2014, IPPB3/423-982/10-8/14/S/AG; advance tax ruling of the Head of the Tax Chamber in Bydgoszcz of 3 December 2013 ITPB3/423-601a/10/13-S/PST). In this way the taxpayers are able to prove in disputes with the tax authorities that expenses other than those without which the share capital increase would not be possible and which have been incurred in connection with such increase, can be recognised as tax costs as they are indirectly connected with the company's taxable revenue. These expenses may be recognised as tax deductible costs at the moment of their entering in the company's book of account (Article 15(4)(d) in conj. with 15(4)(e) CIT Act). 

In proceedings before tax authorities and administrative courts procedural issues, the knowledge of previous judgements and experience are of great importance. It should therefore be remembered that a lot depends on the choice of a person who will competently represent our interests 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.