As of January 1, 2018, the CIT Law introduced a division into two sources of revenues: from capital gains and from other sources (from operating activities). Correct assignment of revenues generated by a CIT taxpayer in the course of his business to the appropriate source of revenue is crucial i.a. for the correct calculation of CIT (we would like to remind that the deadline for settling CIT and filing the CIT-8 return is approaching on Monday, March 31). When determining the income tax base, CIT taxpayers are required to determine separately the income earned from capital gains and income from other sources, which entails both the assignment of revenues to the correct source and the appropriate allocation of deductible tax costs.
To which source of revenue should revenue from the sale of software services together with the transfer of copyrights be classified?
The answer to this question was recently sought by a company from the IT industry, whose business consists primarily of providing IT services to clients. The company’s full-time employees, who perform programming and graphic design work, have clauses in their employment contracts referring to chargeable transfer to the company the copyrights to works created by the employee.
The company, while selling its services to end customers, settles with clients based on the hours worked by its employees. The essence of services being sold by the company to its end customers is software created by the team of employees – programmers. The company provides its clients with the results of the programmer team’s work in the form of a final digital product implemented on the client’s server, along with access to the project’s documentation and source files. IT companies often conclude contracts with their clients, in which they include a clause according to which, with the transfer of the created software, the copyright associated with it is transferred to the service recipient. Such a clause was also included in the contracts concluded by this company. At the same time, neither in the contracts nor on the sales invoice does the company specify what part of the remuneration relates to the sale of the software and what part relates to the transfer of the copyright.
The doubts of the company, which requested individual tax ruling to be issued by the Polish tax authority, were related to the wording of the provision of Article 7b(1)(6) of the CIT Law, according to which revenue from capital gains is considered to be revenue: from the property rights referred to in Article 16b(1)(4-7), excluding revenues from licenses directly related to the generation of revenues not included in capital gains, and rights created by the taxpayer. Thus, the provision of Article 7b(1)(6) of the CIT Law, which aroused the company’s doubts, directly refers to Article 16b, i.e. to the category of rights that constitute “intangible assets” for the taxpayer, which were created by the taxpayer exclusively through the acquisition of a given right from another entity and are subject to tax depreciation (i.a. copyrights or related property rights, licenses, inventions, utility models, industrial designs, trademarks, geographical indications and topographies of integrated circuits, know-how).
The company wondered whether the income generated in its case from the sale of software services together with the transfer of copyrights constitutes revenue from capital gains or from other sources. It’s worth remembering that revenue is subject to qualification as revenue from capital gains only if it falls within the catalog indicated in the provisions of Article 7b of the CIT Act (if not – it constitutes revenue from other sources).
In an individual tax ruling dated October 18, 2024, ref. 0111-KDIB2-1.4010.477.2024.1.ED issued at the company’s request, the tax authority stated that capital gains do not include property rights created by the taxpayer, i.e. newly created by the taxpayer and thus not subject to depreciation. Additionally, while interpreting the entire provision of Article 7b(1)(6) of the CIT Law, the tax authority stated that its wording in the final part indicates that revenue from author’s or related property rights (even if acquired by the taxpayer and subject to tax depreciation) will not be included in capital gains, when such revenue is directly related to the generation of revenue not included in capital gains.
The tax authority confirmed that, in the case of this IT company, the revenues it generates from the sale of software services together with the transfer of copyrighted property rights to the developed software to the final customer should be considered operating revenues. They are not subject to qualification as a source of revenues from capital gains, since the property rights transferred by the company to the final contractor are directly related to the sale of software that the company itself produces. Thus, the authority confirmed that the sale of self-generated author’s economic rights should be qualified as revenues from a source other than capital gains.
