The company leased equipment (locomotives) on the basis of leasing contracts, which for tax purposes were operating leasing (balance sheet financial leasing).
The company asked whether the locomotive lease payments constitute debt financing costs within the meaning of the thin capitalization provisions (Article 15c of the Polish CIT Act)?
In the opinion of the Company, the answer to this question should be negative.
The authority did not agree with the position of the Company. The authority indicated that these restrictions apply to the interest part of the leasing installment, both in the case of operational leasing and financial leasing, because by formulating the above-mentioned the provisions, the legislator did not indicate one type of leasing to which the above provision could apply.
The applicant appealed against the interpretation to the Gdańsk District Administrative Court.
The District Administrative Court upheld the complaint and overturned the interpretation.
The DAC pointed out that in the case of (tax) operating lease, the concept of the “interest portion” does not function, and its separation would be an artificial operation. The court also emphasized that it is the provisions of the tax law, and not the accounting regulations, that determine the scope of the tax obligation. It also referred to the so-called pro-community interpretation of law (the so-called ATAD directive).
The authority brought a cassation appeal to the Supreme Administrative Court. The SAC dismissed the appeal.
The SAC emphasized that the “linguistic” interpretation is of key importance here. The costs of debt financing are understood only as costs related to obtaining and using funds, and the Company used the goods. The fact that the analyzed provision mentions the “leasing installment” as such is of secondary importance here. The NSA also agreed with the District Administrative Court on the relation of the balance sheet law to the tax law and the issue of pro-Community interpretation.
Judgment of the Supreme Administrative Court of April 26th, 2022, file ref. no. II FSK 2197/19.