The IP Box tax relief is very popular. It is also attracting the interest of tax authorities, which seem to be changing their approach to its application. Legislative changes to the relief are being proposed and the authorities are also taking intensive steps to verify the correct accounting of the relief.
What is an IP Box?
As a reminder – the IP Box enables the use of a reduced rate of corporate income tax (CIT) and personal income tax (PIT) of up to 5% by entities gaining income from the commercialisation of intellectual property rights created or developed by non-qualified persons through research and development activities. It can be applied after the end of the tax year when calculating the annual tax liability and filing the annual tax return.
The IP Box, and thus the 5% income tax rate, is applicable provided that the following conditions are jointly met:
- the taxpayer derives revenue from the commercialisation of certain statutorily qualified intellectual property rights, e.g. copyright in a computer program (the generation of revenue also from other titles does not exclude the right to apply the IP Box),
- the subject matter of the IP Box-qualified rights (e.g. a computer programme) must have been created, developed or improved by the taxpayer as part of its research and development activities,
- the taxpayer keeps the statutorily required records in a manner that ensures the determination of revenue, deductible costs and income (loss) – i.e. in practice allowing the amount of tax income (tax loss) to be determined.
Planned legislative changes
The Council of Ministers’ legislative work list (draft No. UD 116) indicates plans to amend the IP Box relief provisions. The changes would consist of:
- introducing a requirement to employ at least three people in order to benefit from the IP Box relief, and
- broadening the basis for calculating the solidarity levy to include income taxed using the IP Box relief.
At the same time, this change has little chance of coming into force in 2025. – it is difficult to expect that it will be possible to publish amending legislation in the Journal of Laws while the legislative process in Parliament has not been undertaken. However, it cannot be ruled out that it will be introduced from 2026.
Practice of the tax authorities
Notwithstanding the above-mentioned announcements of changes to the legislation, the intensified activity of the tax authorities in the IP Box area is noticeable. Indeed, they are undertaking a number of verification activities. The intensity of these activities on the part of the tax authorities can be expected to be at least maintained.
First and foremost, the authorities initiate checks with regard to entities applying the relief in question, in particular sole proprietors, all the more so if they are just starting their business activity, commence cooperation on the basis of a civil law agreement with an existing employer or do not employ people. In addition, cross-checks take place with the counterparty or counterparties of the taxpayer applying the IP Box relief.
The subject of investigation is, in particular, the conclusion of contracts and the issuing of invoices, as well as the actual performance of services and the way in which the activity is documented in connection with the IP Box. The aim of the actions taken by the auditors is to verify all the conditions for the application of the IP Box relief, in particular whether the intellectual property rights (qualified for the purposes of the relief, i.e. in the case of programmers – rights to a computer programme) have actually been created and transferred, and whether the statutorily required documentation is in place.
Individual interpretations and their protective power
A number of taxpayers have applied for and received individual interpretations of tax law provisions concerning their application of the IP Box relief.
In this area, the interpretation authority has repeatedly submitted a number of detailed questions to the applicant, particularly with regard to the condition of conducting research and development activity, to finally issue such an interpretation if the applicant itself admitted that it conducts such activity, or to refuse to issue it if the applicant did not make such confirmation. This practice has changed and the interpretation authority already issues individual interpretations in which it independently analyses the taxpayer’s activity as research and development activity.
At the same time, the obtained individual interpretation does not always protect taxpayers applying the IP Box relief. A positive interpretation of tax law provisions primarily performs a protective function for the taxpayer (on the principles resulting from the Tax Ordinance), but only if the description of the actual state of affairs or future event contained in the application for such an interpretation fully corresponds to reality (factual and legal). Hence, the verification activities undertaken by tax authorities. Unfortunately, they often lead to a questioning of the protective power of the individual interpretation, which is often a consequence of the process of applying for it (e.g. taxpayers often almost copy applications of other entities without checking the correctness of the data contained therein in relation to the individual situation).
Consequences of possible irregularities
The effect of questioning the correctness of the application of the R&D relief would be the establishment of tax arrears (for the entire non-barred period of the incorrectly applied R&D relief), which are subject to payment with default interest. In some cases, there may also be a challenge to the correctness of the source of income under which the income (revenue) is accounted for, resulting not only in the exclusion of the application of the IP Box relief, but also, for example, the flat rate of personal income tax. Criminal and fiscal liability cannot be ruled out.
Summary
With the above in mind, taxpayers applying the IP Box relief should undoubtedly be prepared for a possible audit of their tax settlements. At the same time, they should monitor legislative changes in order to be able to make an appropriate change in the method of taxation or the activity (e.g. by employing the required number of persons), should these changes come into force.
