CIT series: the costs of intangible services and debt financing costs

March 21, 2023

As part of the annual CIT settlement for 2022 in Poland, you will face various challenges. Two important regulations regarding tax deductible costs should be noted: costs of intangible services and debt financing costs. If you want to learn more about the correct CIT settlement, at the end of this article you will find links to helpful content.

The costs of intangible services

Among the changes that the provisions of the Polish Governance introduced to tax regulations, there was, among others, removal of art. 15e, concerning limiting the so-called costs of intangible services incurred for related parties. As a reminder: pursuant to art. 15e of UoCIT, taxpayers were obliged to exclude from tax deductible costs expenses, e.g. for the purchase of:

• consulting services,
• market research,
• advertising services,
• management and control,
• data processing,
• insurance,
• guarantees, sureties, and benefits of a similar nature

incurred for related parties above the statutory limit.

The limit should be calculated as PLN 3,000,000, increased by 5% of the so-called tax EBITDA, i.e. surplus of revenues from all sources less interest over tax deductible costs less depreciation for a given tax year.

In the CIT settlement for 2022 Polish taxpayers no longer have to apply Art. 15e UoCIT. However, those entities that in previous tax years were forced to make exclusions from tax deductible costs of expenses related to the so-called intangible services, because they did not fit within the statutory limit, have the right to include these costs in the next 5 tax years within the limit applicable in a given year (on the basis of acquired rights). So they must de facto remember all the time about the provision that is no longer in force.

Debt financing costs

Another problematic issue in the annual CIT calculation is undoubtedly the regulation on the cost of debt financing. Debt financing costs are all kinds of costs related to obtaining funds from other entities (including unrelated entities), in particular interest (including capitalized or included in the initial value of a fixed asset or intangible asset), fees, commissions, bonuses, the interest part of the leasing installment, penalties and fees for delay in payment of liabilities and the costs of securing liabilities, including the costs of derivative financial instruments, regardless of who they were incurred for.

According to Art. 15c UoCIT, taxpayers are required to exclude from tax deductible costs the excess of debt financing costs over interest income, in the part in which the excess exceeds the higher of the following limits: PLN 3,000,000 or 30% of EBITDA. Important! It is not possible to combine these two limits, which was still practiced in tax settlements until the end of 2021.

Debt financing costs excluded from tax costs in a given year (due to exceeding one of the limits) may be included in tax deductible costs in the next 5 subsequent tax years, within the limits calculated for a given year. To settle these costs, the FIFO method should be used – i.e. the “oldest” costs should be deducted first.

More posts from the “CIT series” that will help you prepare for the corporate income tax settlement:

• CIT series: how to get ready for CIT settlement?
• CIT series: direct and indirect tax costs
• CIT series: donations

Tags CIT settlement, cit-series, costs of intangible services, debt financing costs