Tax Consultant at RSM Poland
At the beginning of 2016, the so-called "research and development relief" (hereinafter: R&D relief) was introduced to the Personal Income Tax Act and the Corporate Income Tax Act (more information about the relief can be found at: LINK). The mechanism of the relief lies in the possibility to deduct from taxable income expense specified in the Act (so-called "eligible costs") incurred by the taxpayer for research and development, despite the fact that the expense has already been recognized as tax deductible.
It seems that the interest in the R&D relief exceeded the legislator's expectations, at least if we measure it by the number of applications for individual interpretations on this issue. Also the number of inquiries we are receiving from our customers reflecting upon the implementation of the R&D relief shows that it is currently an area of particular interest for entrepreneurs. It is not surprising, given the real savings that can be achieved in this respect – who would not be interested in the return of, for example, 9.5% of the expenditure on the salaries of employees hired in order to carry out research and development activities?
In such a case, should the tax authorities be glad, as the result of the use of the relief is a direct reduction of budget revenues? It seems that they should, since, according to the justification of the regulations introducing the R&D relief, it was to be an impulse for R&D expenditure to reach the level of 1.7% of GDP in Poland. The objective set by the legislator is ambitious, given that in 2013 such expense amounted to only 0.87% of GDP (and in this number less than half the expenses were expenditures of the corporate sector). For comparison, the average expenditure on R&D for EU countries is close to 2% of GDP. Our observations so far confirm that the R&D relief may become a mechanism that will help the legislator to achieve the desired goal.
A chance to make the relief an element supporting innovation should be sought, among others, in the wide definition of what "research and development activity" is. The statutory definition indicates that research and development activity means: creative activity including research or development undertaken on a regular basis in order to increase expertise and the use of expertise to create new applications.
It arises from such a definition that the group of persons that may benefit from the R&D relief is very large. In particular, the relief has not been limited only to entities operating in certain industries, nor it is associated with the Polish Classification of Goods and Services of the taxpayer's business. An overview of the individual interpretations issued so far indicates that, e.g. a pharmaceutical industry entity, an IT services provider, as well as a food product manufacturer or a household appliances producer all can benefit from the R&D relief. It should be also noted that the fact of conducting research and development activity does not need to be further confirmed by an external entity, e.g. by an opinion of a scientific body.
The above shows that at the moment the authorities see the R&D relief as a common innovation support mechanism, and not just a relief dedicated to a narrow group of taxpayers. It should be remembered, however, that the R&D relief cannot be used by entities operating in special economic zones on the basis of an authorization.
In conclusion, we strongly encourage you to take an interest in the R&D relief and make it a mechanism supporting the innovation of your company. Currently, tax bodies present a liberal approach to the identification of entities entitled to benefit from the relief, and the reduction of budget revenues associated with the universal character of the relief – at least in intention – should not arouse opposition of tax authorities. Those two factors result in the fact that it is excellent time, among others, to request an interpretation in which you could secure your tax settlements related to the R&D relief (since in such situations usually the devil is in the details and nature of a given company's activity).
Given that the R&D relief is a new solution for which there is no established tax authorities practice, tax payers who decide to file such a request will quickly notice that the number of questions they want to ask the tax office is quite substantial... In our blog, we will be trying to outline those complicated issues for you.