An increasingly more stringent approach of tax authorities to the issue of employing the 8.5% flat rate for IT services can be observed based on the latest interpretations by the Head of the National Tax Information Service (KIS).
Issue background
The flat rate act provides for a 12% tax rate (with certain inclusions) for, currently disputed, services related to software or software consultancy. In terms of the remaining scope (with minor exceptions), the services provided by IT specialists can be subjected to a preferential 8.5% flat rate, such as other services not elsewhere indicated. Therefore, this is how numerous tax payers classified the services they provide, which remained undisputed by tax authorities more or less until the end of 2022.
Change of approach
However, the beginning of the past year came with a significant change in the tax office’s approach, despite the lack of legislative amendments. We have since been observing an increasing number of issued tax interpretations wherein the tax authorities refuse the right to apply the preferential tax rate, leaning towards and even broader interpretation of the “relation to software” concept. There are frequent cases where applicants emphasise that their services are not related to software, and despite this fact, the tax authorities find such connections, suggesting the need to enforce a higher, 12% flat tax rate.
The previous belief was that the relation to software had to be very close, and this was linked, e.g., directly with the software development stage per se (e.g., coding), and not the preparatory work.
For example, the KIS Head stated that a 12% flat rate shall apply to:
- services including, among others, analysis preparation and report development, analysing, visualising and transforming data related to IT systems, system supervision and integration, developing technical documentations, creating a process roadmap for IT projects, etc. – as “undoubtedly related to software” – interpretation dated 19 April 2023 (ref. No. 0113-KDIPT2-1.4011.27.2023.4.RK)
- services associated with designing and deploying IT systems in a cloud infrastructure including the analysis of client’s current computer systems, configuring tools to monitor given IT system and automation of IT system deployment processes – as related to software – interpretation dated 16 May 2023 (ref. No. 0112-KDSL1-1.4011.124.2023.2.JB)
Similarly, the interpretation dated 11 May 2023 (ref. No. 0112-KDIL2-2.4011.251.2023.2.MW), or the interpretation dated 19 April 2023 (ref. No. 0113-KDIPT2-1.4011.149.2023.2.AP)
A similar approach can be observed from administrative courts. For example, the WSA (Provincial Administrative Court) in Gdańsk, in its ruling dated 23 August 2023 (ref. No. I SA/Gd 278/23) decided that an activity involving the design of user interfaces for websites and mobile device apps also indicates connection with software.
Summary
A change in the approach of tax authorities may entail severe consequences for IT professional who have so far benefited from the lower flat rate. Therefore, in the light of the new interpretations and appearing WSA rulings, we strongly recommend tax payers who settle their accounts based on the 8.5% flat rate to re-verify the scope of the services they provide, from the perspective of a potential connection to software, in particular.
