Rafał Kosiń, Marta Krykwińska
Article 15c of the CIT Act restricts the deductibility of borrowing costs to the extent these costs (or rather exceeding borrowing costs, i.e. borrowing costs in excess of interest income) are above PLN 3 million or 30% of tax EBITDA. The law also says that borrowing costs are all expenses incurred in connection with the raising or use of finance, including the interest element of lease payments. Ever since these regulations were introduced in 2018, taxpayers have been in dispute with tax authorities over whether this restriction applies only to finance leases or also to operating leases.
This dispute has been resolved by the Supreme Administrative Court (SAC) in its judgment of 26 April 2022 in case no. II FSK 2197/19. SAC took the side of taxpayers, holding that the interest element of an operating lease payment is not a borrowing cost. The court made a point of noting that it would be an artificial attempt to try and distinguish any “interest element of a lease payment” made under operating lease arrangements, and such attempts are not authorised by law. According to tax regulations, an operating lease involves only payments for use of tangible property without defining any elements used in their calculation. Such payments, therefore, cannot be considered in part to be borrowing costs because they are not associated with receipt of any finance from the lessor. Thus, borrowing costs are applicable only to finance leases.