An administrative court in Rzeszów issued a taxpayer-friendly judgment (WSA, judgment of 14 December 2021, case no. I SA/Rz 811/21) which relates to taxpayers doing business in special economic zones (SEZ). The court held that, under Article 17(1)(34) of the CIT Act, income from tax-exempt business includes also monies they received from the Guaranteed Employee Benefits Fund as assistance pursuant to Article 15g of the Anti-COVID Act to support wages paid to their employees whose responsibilities are related to SEZ business (“Assistance”).
This is not the first such taxpayer-friendly court decision recently. An administrative court in Szczecin held along similar lines on 29 April 2021 (case no. I SA/Sz 125/21).
The tax authorities had a contrary approach, claiming that Assistance received by taxpayers enjoying a SEZ-related exemption for corporation tax (CIT) purposes should be recognised as their taxable income in full. Indeed, they argued that Assistance may not be considered income from tax-exempt business in accordance with Article 17(1)(34) of the CIT Act. For examples of this treatment, see private tax rulings by Director of National Revenue Information dated 9 September 2020, ref. 0111-KDIB1-3.4010.400.2020.1.MBD, and 18 August 2021, ref. 0111-KDIB1-3.4010.256.2021.1.JKT.
But the Rzeszów court held that while Assistance admittedly is not income that would be directly derived from operating activities permitted under the SEZ franchise, it should nevertheless be considered part of SEZ business income. In the opinion of the court, being in the nature of wage support, Assistance can be demonstrated to be strictly, functionally and inextricably linked to SEZ business so that the related income can properly be included in the calculation of exempt income pursuant to Article 17(1)(34) of the CIT Act.
As both judgments are still open to challenge before the Supreme Administrative Court, we should expect the matter to go up for appeal. We will let you know of the higher court’s decision as it appears.
If this issue pertains to your business and you are interested in our assistance, please contact us.
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