The annual tax return for 2023 is nearing completion. Therefore, this is the last good moment to settle less popular but important tax relief the so-called Notional Interest Deduction.
Pursuant to Article 15cb sec. 1 of the Polish CIT Act: “In a company, a tax-deductible cost is also the amount corresponding to the product of the reference rate of the National Bank of Poland in force on the last business day of the year preceding the tax year increased by 1 percentage point and the amount of:
1) a surcharge paid to the company in accordance with the procedure and rules set out in separate regulations, or
2) profit transferred to the company’s reserve or supplementary capital.“
For example, for 2022, the value of the reference rate of the National Bank of Poland is determined for the last year preceding the tax year. As of the last day of 2021, it was 1.75% – so the interest rate for NID purposes would be 2.75%. On the other hand, for 2023, the value of the reference rate of the National Bank of Poland is determined for the last year preceding the tax year. As of the last day of 2022, it was 6.75% – so the interest rate for NID purposes would be 7.75%.
At the same time, according to Article 15cb sec. 2 of the Polish CIT Act: “The cost (…) is due in the year in which the surcharge or increase in the reserve or supplementary capital is paid and in the next two immediately following tax years.“
Importantly, pursuant to Article 15cb sec. 3 of the Polish CIT Act: “The total amount of tax-deductible costs deducted in a tax year for the reasons listed in paragraph 1 may not exceed PLN 250,000.“
Therefore, it would be necessary to calculate the amount of hypothetical interest for each year – bearing in mind the three-year settlement and the limit of PLN 250,000 of cost per year.
In practice, this means that one action (e.g. a one-time transfer of a certain amount to supplementary capital) may result in a total of up to PLN 750,000 in “additional” tax costs.
With regard to other issues, if the owner decides within the next 3 years, counting from the end of the tax year in which the surcharge was paid to the company or a resolution was adopted to retain profit in the company, to pay out the profits in question, which were allocated to supplementary capital, it will be necessary to increase the tax base.
Although the Polish CIT Act does not explicitly regulate the issue of distributions from capital, the tax authorities consider that an analogous mechanism should be in place – i.e. that there is no need to adjust tax-deductible costs, but that the revenue should be recognized “on an ongoing basis” (e.g. individual interpretation of the Director of the National Tax Information of 5 February 2021 file reference number 0111-KDIB2-1.4010.330.2020.1.AR).
At the same time, there is no obstacle for the company to pay dividends from profit that has not been transferred to supplementary capital, e.g. one that was generated in a different period.
This is confirmed, for example, by the individua interpretation of the Director of the National Tax Information of 25 February 2022 (file reference number 0111-KDIB2-1.4010.554.2021.1.MK) and the individual interpretation of the Director of the National Tax Information of 17 March 2023 (file reference number 0111-KDIB2-1.4010.98.2023.1.DD).
However, it is advisable for the resolution on payment to precisely specify the year from which the paid profit comes.
But what if there is no such record?
We have already commented on such a situation for you – we invite you to read our comment: https://www.ulve.pl/en/notional-interest-deduction-also-with-the-payment-of-profit-from-previous-years/.
