The research and development tax relief is one of the tax preferences most often claimed by IT companies. Although it has been functioning in Poland for many years, it still generates many questions from taxpayers who want to take advantage of this preference.
In a tax ruling issued in October 2024, the Director of the National Tax Information Service clarified for a company performing R&D activities its doubts regarding the correct order of accounting for historically generated qualified costs under the R&D tax relief.
Here, it needs to be remembered that in accordance with Article 18d(8) of the CIT Law, the deduction of qualified costs under the utilization of the R&D tax relief is made in the return for the tax year in which the qualified costs were incurred. However, if the amount of deduction available to the taxpayer exceeds the taxpayer’s income, the deduction is made in tax returns for six consecutive tax years immediately following the year in which the taxpayer used or was entitled to use the deduction.
The company asked the Director of National Tax Information whether, when making the deduction of qualifying costs in a given year, it can first deduct the qualifying costs specified in Article 18d(8) of the CIT Act second sentence, i.e., costs generated chronologically earliest (qualifying costs not deducted in previous years under Article 18d(1) of the CIT Act).
The tax authority, in its ruling dated October 29, 2024, No. 0111-KDIB1-3.4010.549.2024.1.DW, confirmed the company’s position, indicating that the CIT Act provisions do not regulate the order of making deductions of qualifying costs that were not deducted in the year they were incurred due to a loss or the taxpayer not achieving sufficient income. The Director of National Tax Information admitted that the legislator left the taxpayer discretion in this matter, maintaining the condition that the deduction – either in full amount or remaining part – is made in tax returns for six consecutive tax years immediately following the year in which the taxpayer used or was entitled to use the deduction. Therefore, if in a given tax year, the taxpayer is entitled under Article 18d(8) of the CIT Act to deduct R&D activity costs incurred both in the given year and previous years, the taxpayer can decide on the order of making these deductions, while meeting the requirements referred to in this provision, in particular the 6-year time limit.
Thus, if in a given tax year, the taxpayer is entitled under Article 18d(8) of the CIT Act to deduct R&D activity costs incurred in different tax years under the R&D relief, it can decide in what order – in relation to costs from which year – to make the deductions. The method proposed by the Company to settle historical qualifying costs using the FIFO method first was therefore accepted by the Director of National Tax Information.
