Today we present you two very important rulings of the Supreme Administrative Court from the past week.
Retrospective reduction of depreciation rates
The taxpayer (company) had a number of fixed assets. Due to the incurred tax losses, the company considered the possibility of lowering the depreciation rates also for the previous years, taking into account the limitation period for tax liabilities.
The company asked the Director of NFI whether it could “retroactively” lower the rates of tax depreciation during the fiscal year – for periods, which are not expired?
According to the taxpayer, Art. 16i sec. 5 of the CIT Act allows such operation.
The authority did not agree with this position, arguing that the reduction can only be made “on an ongoing basis”.
The District Administrative Court in Warsaw revoked the interpretation. The DAC indicated that the wording of the provision indicates that taxpayers may reduce the applied rates starting from the month (settlements for that month) – understood as the point in time – at which fixed assets were entered into their records or from the first month of any of the following tax years . However, this is not the same as the issue of a “technical” decision to change the rates, nor does it introduce the principle that the effects of such an operation may only be future.
This decision was upheld by the Supreme Administrative Court.
The Supreme Administrative Court agreed with the views of the District Administrative Court as regards the linguistic interpretation of the provision. The court of second instance also emphasized that the purpose of introducing this provision (which resulted from the justification of the amending act) was to introduce flexibility, thanks to which taxpayers can better relate these values to the company’s operations.
The Supreme Administrative Court emphasized that such a position was reflected in the (not yet numerous) judgments. Therefore, we can expect the formation of a certain line of jurisprudence.
Judgment of the Supreme Administrative Court of February 3, 2022, file ref. II FSK 1413/19
Statute of limitations – no income in PIT
The taxpayer did not conduct business activity. The taxpayer had a debt to the investment fund. However, due to the statute of limitations, the courts dismissed his claim. The fund issued PIT-8C to the taxpayer due to the limitation of this claim.
The taxpayer asked the Director of NFI whether it was correct if there was no permanent gain on the side of the applicant (no income subject to PIT)?
According to the taxpayer, the limitation of liabilities is not the same as their redemption – the expired claim does not expire, and only cannot be compulsorily enforced. Thus, there was no permanent asset gain and no income taxable with PIT.
The director of NFI found that when there is an inability to enforce an obligation despite the fact that it has not actually been performed, the debtor obtains a certain financial benefit, manifested in the fact that he does not have to realistically perform the obligation. The financial effects of the limitation period are therefore the same as in the case of its redemption, therefore there is a real gain in property that should be subject to PIT.
The District Administrative Court in Kraków dismissed the taxpayer’s complaint.
The District Administrative Court emphasized that as a result of the statute of limitations, the taxpayer obtained a non-returnable material benefit, which results in the emergence of income from gratuitous benefits in the light of Art. 11 sec. 1 of the PIT Act. The court of first instance also referred to similar judgments of other District Administrative Courts.
The Supreme Administrative Court rejected the judgment and the appealed interpretation.
The Supreme Administrative Court emphasized that, from the civil law point of view, the statute of limitations means, in practice, the lack of legal protection of the claim for the creditor (the possibility of raising the statute of limitations). However, this does not mean that the debtor has no obligation to perform the performance. The obligation remains valid. This is a significant difference between civil law and tax obligations – and the civil law context should be taken into account here.
Further, since the liability does not expire, there is no real and definitive financial benefit here, and this is an essential feature of PIT income. Since the debtor has no gain, it is even less of a permanent and definitive nature.
The Supreme Administrative Court referred to its earlier judgment (of 27 May 2021, file reference number II FSK 3519/18), stressing at the same time that the opposing judgments of the District Administrative Court are annulled by the Supreme Administrative Court.
Judgment of the Supreme Administrative Court of February 2, 2022, file ref. II FSK 1256/19