Interpretation by the Head of National Fiscal Information.

On 27 November this year. The Director of the National Fiscal Information issued an individual interpretation, file no. 0111-KDIB1-3.4010.434.2019.1.MO, the subject matter of which was to determine whether the branches of the limited partnership can benefit from the exemption from taxation granted to the Company if the internal settlements between the branches will be conducted in accordance with the transfer pricing rules.

In the presented factual state of affairs, the limited partnership conducts production activity in the Special Economic Zone and beyond. The activity is conducted  in plants being branches of the Company. The Company’s operations are conducted on the basis of several permits.

In connection with the above, an issue arousing doubts among the Company has arisen: Will the income earned by the Company on account of rendering services on the basis of the permit for the remaining plants be covered by the exemption under Article 17, section 1, item 34?

The Head of the National Treasury Information stated that in the case in question, the application of the provisions of Chapter 1a of Section 2 of the CIT Act will refer only to the possibility for the taxpayer to apply – when determining the amount of exemption from corporate income tax – the principle of market price regulated in this provision in order to allocate revenues and costs, in appropriate amounts, to the exempted activity and taxed.

With regard to the storage of goods in the special economic zone in a warehouse for the benefit of undertakings, it should be noted that in such a situation there is no provision of services, since the essence of the service is the provision of it to another entityand not within a single taxpayer such as the Company. Therefore, as a result of services provided between the above mentioned companies, neither revenue nor tax deductible costs may arise. Therefore, settlements between separated entities of one entity (taxpayer) are tax-neutral.

To sum up, the provisions concerning tax exemptions on the basis of permits granted in the Special Economic Zone should be interpreted strictly; the application of transfer pricing provisions, i.e. determining on market principles the internal settlements of income obtained from services rendered on the basis of a permit for other plants will not be covered by the exemption from corporate income tax pursuant to Article 17 section 1 item 34 of the CIT Act.

Author: Izabela Lipka – tax assistant