Can the tax on civil law transactions (TCLT, sometimes also functioning as stamp duty) be a tax-deductible cost? When formulating the answer to such a question, as is very often the case in taxation, the answer is – it depends.
According to Article 15 sec. 1 of the Polish CIT Act, tax-deductible costs are costs incurred by taxpayers to earn income or to preserve or secure a source of income, with the exception of costs listed as non-deductible.
Thus, the key to considerations regarding the possibility of including an expense as a tax-deductible cost is its relation to revenue and the fact that it is not listed in the catalog of expenses that cannot be recognized as a tax-deductible cost.
Reading the aforementioned regulations straightforwardly, it should be pointed out that, as a general rule, TCLT as an unlisted expense in the catalog of items excluded from tax-deductible costs can be recognized as a tax-deductible cost when it is related to the business activity conducted, i.e. to the income generated.
TCLT on the acquisition of real estate
One of the primary examples of situations where the TCLT paid can be a tax-deductible cost is when a contract is entered into for the purchase of some asset, such as real estate for commercial purposes.
Then, since the purchase is related to business activity, and it is inextricably linked to the need to pay TCLT in order to be able to realize it – the incurred expense may be a tax-deductible cost.
This is confirmed, for example, by the individual interpretation of the Director of the National Tax Information dated 16th February 2023 (file reference number 0111-KDIB1-3.4010.896.2022.1.AN), where, in the background, the applicant specified that he purchased land for investment purposes and classified it as a commercial good. In view of this state of affairs, the question was raised as to whether the TCLT on the acquisition of real estate for the purpose of purchasing and maintaining real estate should, in light of the Polish CIT Act, be a tax-deductible cost directly related to income from the sale of real estate intended for development.
The authority agreed with the applicant’s position and pointed out that the TCLT costs associated with the purchase of real estate should be a tax-deductible cost for the applicant directly related to income from the sale of plots of land intended for the development of the project. At the same time, the authority clarified that in this case the TCLT cost was closely related to the investment process, i.e. the purchase of land. Therefore, Article 15 sec. 4b of the Polish CIT Act will apply to the aforementioned expense, and therefore, the TCLT expense should be deducted in the tax year in which the corresponding income from the sale of the goods was achieved, i.e. in the case of the Company, the income from the sale of the land.
Thus, when acquiring an item for commercial purposes, the TCLT paid could be a direct tax-deductible cost.
TCLT on the acquisition of a fixed asset
The situation is different when taxpayers acquire fixed assets and intangible assets when the TCLT paid increases their initial value, i.e. when they are planned to be used for a longer period of time.
The increase in their initial value by TCLT results from Article 16g sec. 3 of the Polish CIT Act where it is indicated that “The purchase price is considered to be the amount due to the seller, increased by the costs related to the purchase accrued up to the date of transfer of the fixed asset or intangible asset for use.“
In such a situation, i.e. when the TCLT paid is included in the initial value of the fixed asset, it will be recognized as a tax-deductible cost indirectly.
Naturally, there will be no possibility of crediting it once, in a direct manner, but it will go to costs through depreciation write-offs.
TCLT on share capital increase
The situation is different when increasing the share capital of a capital company. Of key importance in this case is Article 12 sec. 4 point 4 of the Polish CIT Act, which indicates that taxable income does not include income received for the establishment or increase of share capital, share fund or founding fund, or statutory fund in a state bank, or organizational fund of an insurer.
Let us recall that according to Article 15 sec. 1 of the Polish CIT Act, tax-deductible costs are costs incurred by taxpayers to earn income or to preserve or secure a source of income, with the exception of costs listed as non-deductible.
Analyzing the interrelation of the above regulations, it should be concluded that if the value of the contribution, made to cover the share capital, is not included in taxable income, this means that the expenses associated with this activity, will not be able to be directly associated with the income achieved in connection with this activity or securing its source.
Thus, this value will not be able to be included in tax costs. This is primarily due to the fact that these expenses will be incurred without a cause and effect relationship with income.
This position is well established in the jurisprudence of administrative courts.
It was presented starting with the resolution of 7 judges of the Supreme Administrative Court of 24th January 2011 (file reference number II FPS 6/10), where it was indicated that: “expenses related to the issuance of new shares, without which it is not possible for a joint-stock company to increase its share capital, are not tax deductible pursuant to the rules expressed in the wording of Article 12 sec. 4 point 4 and Article 7 sec. 1 and 2 of the Corporate Income Tax Act of 15th February 1992 (Journal of Laws of 2000, No. 54, item 654, as amended) in conjunction with Article 15 sec. 1 of that Act.“
This position has been reiterated in numerous other judgments of administrative courts, for example, in the judgment of the Supreme Administrative Court of 3rd September 2015 (file reference number II FSK 1581/13), where it was explicitly stated that: “the tax on civil law transactions paid by a limited liability company on account of the contribution of surcharges by the partners does not constitute a tax deductible cost of this company’s income within the meaning of Article 15 sec. 1 of the Corporate Income Tax Act of 15th February 1992.”
According to the administrative courts are the tax authorities, as evidenced by the individual interpretation of the Director of the National Tax Information dated 12th October 2022 (file reference number. 0111-KDIB2-1.4010.550.2022.2.BJ).