The concept of “intangible services” does not have a legally defined definition. In practice, these services are understood as services that are not material in nature. Thus, one can attribute to intangible services, among others, consulting, accounting, market research, advertising and legal services, employee recruitment and many more. Entrepreneurs purchasing such services face certain problems regarding tax settlements. Namely, there is a difficulty in duly documenting a given intangible service and in demonstrating that the service was actually performed by the entity that received payment for it.
In practice, tax authorities demand from taxpayers evidence that confirms the performance of intangible services, especially broadly understood advisory services, which has already become the rule. According to the opinion of the Tax Chamber in Cracow: “The inclusion of certain expenses incurred on intangible services into tax deductible costs shall be based on specific events. The basic criterion for determining that the service has been performed is the performance of activities provided as part of a given type of service. The invoice itself, e.g. in the case of expenditure on marketing services, is not sufficient proof of the actual incurrence of this type of expenditure. In order to be able to state that a given expense was incurred in order to obtain income, the effect (result) of concluded contracts shall be visible (letter of 24th June 2004, No. PD1/005/2-215/04/WK).
A prerequisite for tax settlement of a given expense is its documentation. However, Income Tax Acts do not specify how to document expenses, but only require taxpayers to keep accounting accounts in accordance with separate regulations in a way that allows calculation of tax due.
Documentation regarding intangible services shall confirm the fact that such service was actually provided. The invoice itself and the proof of payment are not sufficient evidence. Entrepreneurs shall collect all documentation confirming the performance of the service, ensuring that the documents contain the date of its signature and the signatures of the persons preparing it.
Documentation of intangible services should include:
- contracts with non-material service providers – defining the scope of services and the settlement system (e.g. flat price, hourly rates, budgeted price),
- protocols of completion and acceptance of the service rendered, signed by the parties,
- description on the invoices what kind of services the invoice concerns (the descriptions commonly used, like “Advisory services for the period …” are not sufficient for this type of services),
- other documentation confirming the services rendered – for example, written reports, business correspondence (e-mail prints), service orders documentation,
- copies of documents confirming that the seller of the service was entitled to sell it – e.g. copies of registration documents of trademarks, company logos,
- documents confirming that the seller was entitled to transfer rights (e.g. copyrights),
- in the case of transactions between related entities, the documentation required by the provisions of income tax laws
Changes as from 2018
As from 2018, a new article has been in force in the Act on Corporate Income Tax (hereinafter: the CIT Act): art. 15 e according to which CIT taxpayers may expect the introduction of restrictions on the possibility of recognizing certain categories of expenses as tax costs. The main limitation is the introduction of limit of expenditures on purchase of intangible services from related parties that may be recognized as deductible cost. Such changes are aimed at limiting tax avoidance practices.
The introduced restrictions apply only to services purchased from related entities and companies from the so-called tax countries.
Under the new regulations, the taxpayers are obliged to exclude the following expenses from tax deductible costs:
- advisory services, market research, advertising services, management and control, data processing, insurance, guarantees and sureties, and similar services,
- all kinds of fees and charges for the use or right to use copyrights or related property rights, licenses, industrial property rights,
- transferring the debtor’s insolvency risk due to loans other than those granted by banks and cooperative savings and credit unions, including as part of liabilities resulting from derivative financial instruments and similar instruments (e.g. risk remaining after non-recourse factoring).
It should be emphasized that only expenses not exceeding PLN 3 million in a tax year will not be excluded from the possibility of treating them as tax deductible expenses. With regard to the amounts exceeding the above value, the legislator introduced a detailed method of calculating the limit. Thus, if expenses over PLN 3 million in a given tax year exceed 5% of the taxpayer’s EBITDA, then in this part cannot be considered as tax costs.
In a situation where the limit is exceeded in a given year, the amount of such non-deducted costs is subject to deduction in the next 5 tax years, taking into account the above rules regarding limits.
In transactions with foreign entities, there is also the question of withholding tax. According to art. 21 par. 1 of the Corporate Income Tax Act, the revenues obtained on the territory of Poland by taxpayers referred to in art. 3 par. 2 of Corporate Income Tax Act due to defined benefits (so-called intangible benefits) are subject to 20% withholding tax. In the case of legal persons earning income on the territory of Poland, the rate of withholding tax is specified in art. 21 and art. 22 of the CIT Act. To avoid paying a higher tax, you must have a contractor’s tax residence certificate that confirms that the entity is a tax resident of a particular country. The income of an entity holding such certificate – from the total of its revenues – is subject to income tax in the country issuing the certificate of residence. If the foreign contractor fails to provide the original tax residence certificate, the invoice amount is reduced by up to 20% (standard rate of Polish tax at source from certain sources of income). Having a tax residence certificate allows you to reduce the withholding tax up to the amount resulting from the international agreement, i.e. up to 5%. A residency certificate may also cause that revenues will be completely exempt from taxation in Poland.