For years there has been a split between administrative courts and tax authorities about the deductibility timing for what are called indirect tax costs for the purposes of corporate income tax:
- According to courts, indirect costs should be deducted for tax purposes when incurred, which properly means on the posting date, i.e. the date when the underlying invoice or other accounting document is booked (meaning this is a one-off deduction unless the costs span more than one tax year).
- According to tax authorities, indirect costs should be deducted for tax purposes when incurred, which properly means on the date(s) on which the taxpayer recognised these costs as expenses for accounting purposes (meaning recognition on an accruals basis in accordance with PL GAAP).
Even as late as 2018 the National Revenue Information (KIS) consistently held that the timing of tax recognition of indirect costs should be driven by the Accounting Act and its rules. In this approach, if accounting regulations required a cost item to be recognised over a period of time, it should also be so recognised for CIT purposes.
Upon analysis, recent private tax rulings show a dramatic change of approach among the tax authorities.
Judging by its private tax rulings, KIS now accepts the administrative courts’ view and confirms that indirect costs should be deducted on a one-off basis for tax purposes even if they are recognised over time under accounting regulations. The only exception are indirect costs spanning more than one tax year. See, for example, KIS ruling of 18 May 2021, ref. 0111-KDIB1-2.4010.123.2021.1.SK, and KIS ruling of 5 February 2021, ref. 0114-KDIP2-2.4010.342.2020.1.KL.
This change may be fundamentally important for all those taxpayers who rely on the previous line of authority to apply the accounting treatment to their indirect tax costs. They may wish to verify their approach to the deductibility of indirect tax costs for CIT purposes and check if the way they have treated them so far continues to be applicable.
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