The IP Box relief allows for the settlement of PIT/CIT income tax at a reduced 5% rate. Given that such an option is permitted in the annual tax return, wouldn’t it make more sense to allow taxpayers to make advance payments at the 5% PIT/CIT rate?
Of course, it would be more reasonable and advantageous for taxpayers who “freeze” their funds. However, fiscal revenues during the year would be somewhat reduced, and the possibilities for subsequent audit of taxpayers would also be somewhat limited. Is such a possibility feasible?
IP Box relief – KIS’s interesting approach to the possibility of 5% advance payments
Initially, a glimmer of hope appeared in the form of a favourable tax ruling (dated 09.01.2020, ref. 0115-KDIT3.4011.445.2019.2.AD), which would allow taxpayers applying the IP Box relief to make advance payments during the tax year at the 5% income tax rate. However, this interpretation proved to be flawed, as the Director of KIS only deemed the taxpayer’s position correct without substantively addressing the issue of making advance payments.
Subsequent interpretations did not follow this lead, and such a possibility is nowhere to be found.
What does the tax authority say?
According to the current lineof the tax authority, the IP Box relief is treated as an additional tax preference and, like the R&D relief, should be declared in the annual return. Therefore, entrepreneurs using the so-called IP Box should make advance payments under the existing rules, and the relief should be settled only in the annual return (when submitting the appropriate declaration after the end of the tax year). The overpaid tax in the form of advance payments should then be refunded to the entrepreneur using the IP Box relief or offset against future tax liabilities.
This approach has been confirmed in individual interpretations by the Director of KIS dated 24.12.2019, ref. 0113-KDIPT2-1.4011.552.2019.1.RK, and 30.12.2019, ref. 0115-KDWT.4011.2.2019.1.DP.
Ministry of Finance’s clarifications
This stance has also been outlined in the explanations published by the Ministry of Finance on 15.07.2019 concerning the so-called IP Box relief, where it was stated, among other things:
Ministry of Finance, Explanations dated 15.07.2019
„(…) Taxpayers are therefore not allowed to take advantage of this preference during the tax year by reducing their advance income tax payments. A taxpayer earning income from qualified IP during the tax year (e.g., 2019) is required to pay advance income tax on such income according to general rules (…). In the following tax year (…) when filing a tax return for the previous year, the taxpayer indicates the 5% tax rate on income from qualified IP, and the overpaid tax is automatically credited towards tax arrears and current tax liabilities. For a taxpayer without such burdens, the overpayment is refunded unless the taxpayer submits a request to allocate all or part of the amount owed to future tax liabilities. A similar situation applies to the R&D relief.”.
We remind you that complying with binding tax explanations issued by the Ministry of Finance provides taxpayer protection as stipulated in the Tax Ordinance.
Exception to the general rule
Exceptions to this rule were introduced by the so-called anti-crisis shields. The possibility of making advance payments during the tax year at the 5% rate was granted to taxpayers (using the IP Box relief) who earned qualified income from qualified intellectual property rights used to combat COVID-19.
Journal of Laws 2021, item 1128, consolidated text
Art. 52u.
1. Taxpayers referred to in Article 30ca, earning qualified income from qualified intellectual property rights used to counteract COVID-19, as referred to in Article 2(2) of the COVID-19 Act, may apply the tax rate specified in this provision during the tax year when calculating advance income tax payments.
This is, of course, an exception to the rule, which only a few taxpayers could safely apply during the state of emergency caused by COVID-19. The criteria for applying this provision are, however, so unclear that we always recommended our clients carefully consider implementing this solution.
IP Box relief – our position
Considering the above, the single interpretation mentioned above regarding the possibility of making advance payments during the tax year at the 5% rate should be considered an oversight by KIS officials, which will likely be rectified in the near future.
Despite a few exceptional situations, it should be recognized that at this moment, taxpayers using the IP Box relief do not have the possibility of making advance payments at the 5% rate towards PIT/CIT during the tax year.
If you have questions about applying the IP Box relief, visit us at www.outsourced.pl .
