1. ECOVIS Legal Poland at the 3rd Economic Patriotism Congress
On November 9 this year in Warsaw, the 3rd Economic Patriotism Congress took place, during which one of our partners, Nikodem Multan, gave a lecture on the legal and tax benefits of running an innovative business.
During his talk, Multan focused primarily on the very favourable tax breaks, such as R&D and IP Box relief, which, despite their many advantages, are not widely used by entrepreneurs. One of the most common reasons for this is that many people do not know about them. For this reason, Multan in his talk emphasised the need to promote these solutions among entrepreneurs in order to stimulate innovation in Poland.
According to Multan, the situation in Poland in this field is not favourable, with only 534 patent applications being filed in 2018, while in Germany almost 50 times more applications were filed in the same year. Without rapid changes in this area, Poland will not be competitive in innovative technologies.
If you are interested in learning more about these tax breaks, we encourage you to read Newsletter 8 from earlier this year, which describes IP Box relief in more detail, or contact our office.
2. New procedure in business cases already in force
The extensive amendment to the Code of Civil Procedure that we mentioned Newsletter 8 earlier this year entered into force on November 7. One of the changes is the restoration of a separate procedure for business cases.
The new regulations apply to a range of matters considered to be business issues, but they do not include the division of joint property of partners of a civil law partnership or debt purchased from a person not operating a business.
In addition, it is now mandatory to reference all statements and evidence in a lawsuit and in a response to a lawsuit. This means that documents intended as evidence in a case must be meticulously prepared before submitting the first procedural documents, because the court will not recognise them at later stages. This is particularly important because the latest regulations introduced the primacy of non-personal evidence, such as documents, over personal evidence, such as witness statements.
On the other hand, parties in a business case are able to enter into an evidence contract that excludes specific evidence from a specific legal relationship arising under the contract. If such a contract is entered into, the court will reject the evidence that the parties have agreed that they do not want to be included in the case.
3. Supreme Court judgment: contractual penalties cannot be applied to cash benefits
The Supreme Court, composed of seven judges, recently settled an interesting case regarding the application of contractual penalties.
The facts in the case were that two parties entered into a contract for the performance of construction work. The contract included a payment date, as well as contractual penalties in the event of the contractor’s withdrawal from the contract for reasons attributable to the contractor. Due to the fact that the customer did not pay the amount due for the contractor’s work, the contractor withdrew from the contract and sought payment of a contractual penalty. Therefore, the only reason for which the contractor withdrew from the contract was the delay in payment, and thus in the fulfilment of the cash benefit.
So far, case law has offered two views on this type of situation. In the first of them, a contractual penalty applies regardless of the original legal nature of the obligation, the non-performance or improper performance of which led the other party to withdraw from the contract. However, according to the second view, expressed by the Supreme Court judges in the judgment, a contractual penalty can only be claimed if the original legal nature of the non-performance or improper performance of an obligation is not pecuniary. This difference results from art. 483 of the Civil Code, which treats as a contractual penalty only compensation for damage resulting from non-performance or performance of a non-pecuniary obligation by payment of a specific sum, and not benefits of a monetary nature.
Therefore, in the event of a delay in paying for work done, the contractor is entitled to interest, and if he decides to withdraw from the contract for this reason, he is not entitled to a contractual penalty.
4. R&D relief covers expenditure on capital plans
In the latest tax interpretation, the Director of the National Tax Information confirmed that payments made by an employer to employee capital plans are eligible costs that can be deducted under R&D relief.
An employee’s payment to employee capital plans is tax deductible because, due to being part of an employee’s income, it also constitutes the employer’s cost of obtaining revenue, and is a payment for work performed by an employee.
In practice, this means that at the time of submitting tax returns for 2019, taxpayers who employ over 250 employees have the option of deducting an additional 1.5 percent from the salaries of employees and contractors carrying out research and development.
This rule applies to payments intended both for employees employed under an employment contract and those who who work under mandate or specific work contracts. As for the part of the contribution to employee capital plans financed by the employee, the National Tax Information director admitted that this is not an eligible cost.
5. Sale of shares can lead to the lose the CIT relief
The tax authorities have tightened their position on the calculation of sales revenue limits, which determines whether a company can pay lower corporate income tax. Until now, both dividends and amounts from the sale of shares were not considered as sales revenues referred to in the definition of a small taxpayer, but as separately recognised capital gains.
In the latest interpretation, the changed its position on this subject, recognising that the revenue limit does not include dividends whose passive nature definitely prevents them from being covered by the term ‘sale’. As for the sale of shares, the National Treasury Administration stated that the concept of “capital gains” does not mean that such sales are sales revenue if they contain the characteristics of a sales contract. In line with this, the concept of “sales revenue” also includes capital gains that arise from the sale of a consideration for remuneration.
Therefore, this means that when calculating the limit of sales revenues a company must also take into account the revenues from the sale of shares. It should be remembered that the right to benefit from a lower tax rate can be lost during the year, which will result in the obligation to pay a CIT advance of 19% for the month in which the said limit exceeds EUR 1.2 million.
6. If regulations do not require the split payment mechanism, then it is not necessary to apply it
The split payment mechanism, which we discussed in more detail in the 7th edition of this newsletter, came into force at the beginning of November this year, and two weeks later the Director of the National Tax Information issued an interesting tax interpretation on it.
The interpretation deals with the situation when a seller adds to its VAT invoice the clause “split payment mechanism”, despite the fact that the purchased goods or service are not included in the comprehensive list of goods for which split payment is mandatory. In this situation, the buyer has the option of making payments in the traditional way, without fear of negative consequences.
Not complying with the obligation to apply the split payment mechanism in situations required by law exposes the taxpayer to severe penalties in the form of not being able to classify this expenditure as a tax deductible cost.
7. A subsidiary does not determine the permanent place of business
In a case before the EU Court of Justice, the Advocate General of the court commented on the issue of a company’s permanent establishment. In his opinion, he stated that having a subsidiary in a Member State does not mean that the parent company is permanently established there.
According to this opinion, a separate subsidiary cannot, in principle, be regarded as a fixed establishment of the parent company. The permanent place of business determines which country has the right to charge VAT on transactions.
An exception to this rule would be a risk for the State Treasury. If tax abuse was taking place in the form of a foreign company using a Polish subcontractor as if was the same company, then the tax authority could take appropriate action to recover VAT receivables.
This issue has been in the Court’s case-law for many years, and the opinion issued by the Advocate General is the culmination of the evolution of the position of the CJEU, which over ten years ago recognised a subsidiary as a permanent place of business for the parent company.