The question of how tax accounts for calculating total income (or loss) and the income on activities carried out in a special economic zone on the basis of two or more permits should be maintained had not been a controversial one until recently. In 2015, however, tax authorities adopted first decisions which put in doubt the correctness of maintaining a single set of tax accounts by a taxpayer operating within the territory of special economic zone with multiple permits. Analysis of the positions tax authorities and administrative courts have been taking on the issue since then indicates that they have not been able to work out a uniform position, even though, to date, the Supreme Administrative Court had ruled on the matter twice.
Some administrative courts for some time now have firmly held the position that every business permit is issued for the pursuit of a strictly-defined activity within the territory of specific special economic zone (‘SEZ’). According to this position, each permit (for specific business activity conducted within the territory of SEZ) carries with it a specific limit of admissible aid (or maximum aid intensity) and hence when disclosing their income subject to exemption on account of it being generated within the territory of SEZ, a taxpayer holding several permits must calculate separately the revenue and expenses of the activities they conduct based on each specific permit. Recently, the Provincial Administrative Court in Poznań, among others, adopted this line of interpretation for the relevant regulations when it pointed out in the oral rationale of its judgment of 26 July 2017 (case no. I SA/Po 1355/16) that the taxpayer is required to maintain accounting records that meet the requirements of Art. 9(1) of the Corporate Income Tax Act (the “CIT Act”), that is to say, in a manner that allows for the separate determination of the income earned or the loss incurred for each of the permits held. Likewise, the same court stated in its judgment dated 2 February 2017 (file no. SA/Po 850/16) that the taxpayer was obliged to maintain accounting records in a manner that would enable the income to be determined separately for each of the economic activities carried out in the SEZ on the basis of a separate permit. The Provincial Administrative Court in Poznań pointed out that this was necessary in order to ensure the proper application of Art. 17(1) point 34 of the CIT Act.
It is interesting to note that the same court, even partially in the same composition, issued another judgment, dated 5 April 2017 (case no. I SA/Po 1303/16), in which it fully shared the position of a taxpayer appealing an interpretation of unfavourable tax regulations issued by tax authorities, in which judgement it pointed out that for the purpose of calculating the income (loss) subject to corporate tax and the income (loss) on the economic activity carried out within the territory of SEZ on the basis of relevant permits, the taxpayer will be permitted to maintain a joint single set of accounts for their exempted activity conducted on the basis of all their permits and a separate set of accounts for their activities subject to corporate tax. What is more, in the same judgement, the Provincial Administrative Court in Poznań cited the fact that these views were “repeatedly expressed in the current and uniform jurisprudence of the administrative courts,” and enumerated, among others, the judgment of the Provincial Administrative Court in Wrocław of 16 June 2016 (case no. I SA/Wr 447/16); the judgmentof the Provincial Administrative Court in Łódź of 26 October 2016 (case no. I SA/Łd 646/16); the judgment of the Provincial Administrative Court in Gliwice of 7 March 2017 (case no. I SA/Gl 1194/16); and the judgment of the Supreme Administrative Court of 19 July 2016 (case no. II FSK 1849/14).
Tax authorities likewise lack a well-founded view on the correct way of maintaining accounting records for income tax purposes by taxpayers using more than one SEZ permit. Until 2015, the position was uniform and confirmed the view adopted by taxpayers: that a company pursuing economic activity within the territory of SEZ based on two or more permits does not fall under the obligation of maintaining separate accounting records for each of those permits (see, for instance, the individual interpretation of the Tax Chamber in Bydgoszcz Director dated 21 August 2014, case no. ITPB3/423-228a/14/PST). Subsequent to that, the tax authorities’ position on the issue reversed itself. For example, the Director of the Tax Chamber in Katowice, in the individual interpretation issued on 15 June 2016, file no. IBPB-1-3/4510-436/16/JKT, specified that an entrepreneur undertaking operations within the territory of SEZ will be obliged to maintain accounting records in a way that allows for the determination of the income earned or the loss incurred separately for each of the licenses held. The Minister of Development and Finance adopted a similar stance on the issue as he ex officio changed the previously-issued individual interpretations (see the individual interpretations of the Minister of Finance dated 7 December 2015, DD10.8221.142.2015.MZB and of 8 December 2015, DD10.8221.199.2015.MZB). However, recently, the position applied consistently since 2015 by the tax authorities issuing individual tax law interpretations had ceased to be homogeneous: we observe a resurgence of interpretations favourable to taxpayers, which negate the need for maintaining separate accounting records in respect of all individual SEZ permits (see the interpretations issued by the Director of the National Tax Information dated 11 May 2017, case no. 0111-KDIB1-3.4010.53.2017.1.JKT and 3 July 2017, case no. 0111-KDIB1-3.4010.150.2017.1.JKT).
The uncertainties arising from the incompatible interpretations of the tax legislation that regulates the question of the accounting records to be maintained by taxpayers conducting activities within the territory of SEZ on the basis of two or more permits are to be dispelled by two recent rulings on the issue by the Supreme Administrative Court: the aforementioned judgment of 19 July 2016 (case no. II FSK 1849/14) and the subsequent judgement of 8 November 2016 (case no. II FSK 2230/14), which both point to the fact that there are no provisions which would impose on the taxpayer the obligation of segregating and assigning income at the level of each SEZ permit held.
In view of these numerous interpretative discrepancies, it is clear that the provisions governing the obligations of taxpayers operating in SEZs should be the subject of careful consideration. Bearing in mind the above, it should be pointed out that, in both their literal and teleological interpretation, the provisions of the Art. 9(1) CIT Act and the Art. 5(5) of the Regulation of the Council of Ministers of 10 December 2008 on public aid granted to economic entities operating pursuant to a permit for carrying out business activity within special economic zones require in the case of operation both within the territory of SEZ and outside the SEZ only that separate accounts be maintained for the exempt and the non-exempt activity. There is clearly no legal basis for the segregation of income earned under the respective SEZ permits as that income benefits from the tax exemption in its entirety. It is worth emphasising that tax regulations should be interpreted according to their strict sense, in keeping with the principle of in dubio pro tributario (meaning ‘in case of any doubts, rule in favour of a taxpayer’). When interpreting the tax regulations in its context, it should be pointed out that neither the provisions of the CIT Act nor those relating to the SEZs include any regulations that would impose on a taxpayer the obligation of maintaining separate accounts for the respective types of economic activity for which separate SEZ permits were issued.
Moreover, as the Art. 7(1), Art. 7(2), and the Art. 7(3) points 1 and 3 of the CIT Act state that for the purpose of determining their tax base (taxable income), a taxpayer is only required to correctly deduct the revenue and expenses of their SEZ-conducted activity, then the accounts the taxpayer maintains need only be sufficient to allow the determination of these values. Therefore, this being an appeal from the contrary, no need to determine these values for each permit respectively exists and the opposite claim constitutes an error in interpretation.
In light of the above, the opposite position taken by some tax authorities and administrative courts is not justified. Bearing in mind the fact that the jurisprudence of the Supreme Administrative Court has been relatively favourable to taxpayers' interests, it is to be hoped that the taxpayers will eventually receive an definite answer whether, when they develop their business and operate on the basis of more than one permit, they should maintain a single set of accounts or separate sets of accounts for the individual permits they hold.
Krzysztof Szwaja, Senior Manager of the Tax Advisory Department, Katowice office