This is to alert you to the first decision of the Supreme Administrative Court (SAC), case no. II FSK 1750/19, relating to the law governing the limitation of deductible expenses incurred on professional (“intangible”) services (Article 15e(11) CIT Act).
In what was a dispute between a taxpayer (“Company”) and the tax authorities (Director of National Revenue Information, or “Authority”) about the latter’s tax ruling, SAC took the side of the Company and dismissed the Authority’s appeal against the earlier decision of a lower court (case no. I SA/Wr 1246/18) that was favourable for the Company.
The case is about interpretation of Article 15e(11) of the CIT Act. This law relaxes restrictions on the deductibility of expenses incurred to purchase intangible services, provided that the purchased services are directly related to the manufacture, purchase or supply of goods or services by the taxpayer.
The Company is engaged in such activities as accounting & bookkeeping activities, activities auxiliary to financial services, and IT technology activities.
For the purposes of its business, the Company uses associated enterprises to purchase various services, such as posting of workers, technical support, IT support, accounting, data processing. The Company stated that these services are inextricably related to the services it itself provides.
Given those facts, the Authority held that the Company is not entitled to waive the deduction limit on intangible services because it is not possible to attribute the purchase cost of an individual purchased service to an individual service provided by the Company, i.e. IT support.
But SAC disagreed. According to the court, the requirement for the waiver of the limitation is that the expense incurred to purchase intangible services must be strictly related to the manufacture or provision of a service. In other words, the waiver is not conditional on whether or not it is possible to expressly incorporate the purchase cost in the price of the given product or service, or on whether or not there is any strict relationship between the expense on the one hand and the service outcome, as opposed to the service process, on the other.
Thus, if the Company expressly offered a reasoned argument that its services cannot be provided without it previously purchasing relevant intangible services, the Authority was not empowered to question the limitation waiver applied by the Company to its intangible service expenses.
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