IP BOX relief. However, the director of the KIS will answer questions on research and development activities

It is crucial for the authority to determine whether the taxpayer’s activities constitute research and development

This is important because including this circumstance in the facts or future events of an application for an interpretation deprives the applicant of protection in this regard. That is to say, the authority may, at any time during an audit, question whether the taxpayer is carrying out research and development activities, and thus their right to apply the IP BOX relief.

It is therefore crucial that the Authority, in the individual interpretation issued, assesses and answers the applicant’s question as to whether the activities they carry out meet the definition of research and development activities. For it is only such an interpretation that has practical protective value for a taxpayer wishing to benefit from the IP BOX relief.

A series of questions and, ultimately, a refusal by the Authority to issue an interpretation

A taxpayer who submits an application for an interpretation containing such a question receives, in response, a request from the Authority containing a series of questions, including a direct request to indicate whether the taxpayer’s business constitutes research and development activity within the meaning of the PIT Act or the CIT Act. By asking such a question, the Authority essentially seeks to obtain from the taxpayer an answer to the question the taxpayer included in the application for an interpretation.

The absence of a clear answer to such questions and the taxpayer’s failure to present their position on the matter results in a refusal to issue an interpretation.

The authority explains that, since the definition of research and development activities contained in the PIT and CIT Acts refers to ‘non-tax’ provisions, i.e. the Act of 20 July 2018 on Higher Education, the authority is not empowered to provide an answer in this regard.

Favourable case law of the administrative courts

To the benefit of applicants, the administrative courts have challenged the aforementioned practice of the Director of the National Tax Information Service.

It follows from this case law that, since the legislator uses the term ‘research and development activity’ in the provisions of the PIT or CIT Acts governing the IP BOX relief, it is crucial for the Authority to determine that the activity carried out by the taxpayer meets the criteria for research and development activity (since the applicant is explicitly asking for this). However, the reference in the definition of this activity to a non-tax law (the Higher Education Act) means that the provisions of that non-tax law defining research and development activities become part of the tax law system. The authority is therefore not entitled to require the taxpayer to establish this fact and to refuse to issue an individual interpretation.

This position was set out, inter alia, in the judgment of the Provincial Administrative Court in Szczecin of 18 November 2021, ref. no. I SA/Sz 825/21 “Whether, in the specific circumstances of the case, the activities undertaken fall within the concept of research and development or not is a matter for the authority which will apply (interpret) this provision, and not for the applicant, who merely sets out their own tax-legal assessment and expresses doubts regarding their own assessment. The authority cannot shift the burden of correctly interpreting this term onto the applicant.”

Other provincial administrative courts have already ruled in the same way: in Gliwice in a judgment of 5 March 2021 (case no. I SA/Gl 24/21) and in Kraków in a judgment of 18 March 2021 (case no. I SA/Kr 178/21), as well as the Supreme Administrative Court in a ruling of 20 October 2021 (case no. II FSK 771/21).

This line of case law should certainly be viewed favourably. Unfortunately, however, a negative consequence of the practice adopted by the Director of the National Tax Information Service is a significant prolongation of the process by which taxpayers obtain an interpretation confirming their right to apply the IP BOX relief, in particular, this practice may discourage some taxpayers from submitting such applications at all or from appealing against unfavourable decisions of the Authority to provincial administrative courts, inter alia due to the additional costs associated with drafting the complaint and legal representation at this stage.

Author

Mateusz Kowalski

Radca prawny, Senior Associate

I specialize in Polish tax law, particularly income taxes, as well as international tax law. My experience includes, among others. providing ongoing tax advisory services, preparing legal and tax opinions, drafting requests for individual interpretations, conducting tax reviews. I gained professional experience in Warsaw law firms.

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