On January 1, 2018, a separate source of revenues was introduced into the Corporate Income Tax Act (hereinafter: "CIT Act") in the form of capital gains (Article 7b of the CIT Act). Revenues obtained from this source were separated from other sources of revenues (the so-called operational sources). This solution is intended to be a response to the taxpayers' actions resulting in lowering the tax base, inter alia by compensating revenues from the operating activities for artificially created losses on financial operations.
So far, separate sources of revenues have been distinguished exclusively on the basis of personal income tax (PIT). In turn, within the CIT Act, the legislator decided to distinguish only two sources, i.e. the revenue from capital gains and other sources of revenues.
Despite an attempt to introduce a simple catalogue of revenues deemed as capital gains, the new solution may cause a number of difficulties to the taxpayers in classifying certain revenues to a given source. For example, it should be indicated that under the amended provisions of the CIT Act, the revenues from financial activities, such as interest received on loans, credits or guarantees, constitute the operating profits, and not the capital gains. In addition, for the financial services companies, such as banks or credit unions, the capital gains – with the exception of dividends and the equivalent of a profit allocated to increase the share capital of such a legal entity – are deemed as the operating profits.
Also, within particular categories of revenues considered as the revenues from the capital gains, there are interpretative doubts regarding classification of individual economic events to the appropriate source. For example, difficulties may arise by the classification of the following revenues to their capital or operational sources:
In the view of the above, it should be emphasized that incorrect classification of the revenues to a given source may entail significant negative consequences for the taxpayer.
Regarding classification of tax deductible costs to a given source, costs directly related to a given source should be allocated first (e.g. expenses for the acquisition of shares in the event of their sale, which will constitute revenue from the source – capital gains). As for the costs that cannot be directly attributed to a given source (such as e.g. overheads), it is necessary to allocate them appropriately. Therefore, if a taxpayer earns revenues from the capital gains and revenues from other sources, costs other than those directly related to these revenues are determined in the ratio in which the revenues from these sources are achieved in the total amount of revenues in a given tax year (the so-called revenue allocation key). This means that the higher the capital revenues are generated by a taxpayer, the greater part of indirect costs will be allocated to the revenues from the source – capital gains.
In general, tax losses incurred within one source cannot be offset against the income from another source. However, such a loss, according to the general rules, may be deducted from the income achieved from a given source in the following five consecutive tax years.
Losses for the tax years preceding the tax year commenced after December 31, 2017 (i.e. before introduction of Article 7b to the CIT Act) are deductible from the total income from both sources according to the general rules. Thus, the taxpayers may settle the loss for the tax years preceding the tax years started after December 31, 2017, from the sum of all income, regardless of their source. However, the order and selection of the proportion of deduction of these losses are solely the responsibility of the taxpayer.
Below we present an exemplary tax settlement:
|Source of revenues||2017||2018||2019|
In the fiscal year 2017, when no separate source of revenues – capital gains – existed, the taxpayer reported the tax loss. In the following year, he will be able to settle the maximum of 50% of this loss (i.e. 20 units). In the final calculation of a taxable income in 2018, the taxpayer will not be entitled to take into account the loss on the capital gains incurred in 2018 (so the income in 2018 will amount to 80 units). The loss on the capital gains will be settled only in 2019 with the result from the source – capital gains (also the maximum of 50% of the loss incurred in 2018). Similarly, the operating loss in 2019 may not be settled together with the revenue from the source – capital gains disclosed in this period (the taxpayer’s income in 2019 will amount to 35 units – taking into account the loss carried forward from 2017 and the maximum loss to be settled for 2018).
Taking the above into account, as of January 1, 2018, there was a significant change in the method of calculating CIT. These changes will force the taxpayers to carefully plan future transactions, with particular regard to the results they generate within a given source of revenue.
Wojciech Kotłowski, Senior Manager in the Tax Advisory Department, the office in Gdansk
Radosław Kowaleczko, Senior Consultant in the Tax Advisory Department, the office in Gdansk
Tomasz Adam, Consultant in the Tax Advisory Department, the office in Gdansk