A dinner with a contractor or a gift for influencers is not hidden profit
Expenditure on the participation of shareholders or family members entitled to represent the company in meetings with contractors, e.g. at dinners, is not a hidden profit that should be subject to flat-rate CIT. The situation is similar when giving the company's goods for promotional purposes to bloggers or people active on Tik toku.
The Director of the National Fiscal Information in an interpretation of 4 October 2022 addressed the interesting issue of the activity of the entrepreneur, its shareholders, including family in terms of determining when there is a hidden profit and the need to tax it.
Several issues were raised in the facts presented by the taxpayer. One concerned cases of attendance at meetings with shareholders’ contractors and persons close to the shareholders (parents). The need to hold such meetings, e.g. in the form of dinners, was included in the employment contracts signed with these persons and the fact that they had been entrusted with the duties of representing the company. The second issue concerned the situation where the entrepreneur, due to the nature of his business, gives out his own products as test materials to bloggers, tiktokers and opinion leaders in order to obtain positive feedback in social media magazines and other mass media. Giving away products is also practised by the entrepreneur, for example at trade fairs. Doubts have arisen as to whether both situations give rise to hidden profits that should be taxed.
– The director of the KIS confirmed the taxpayer’s opinion that there is no hidden profit here. In the case of meetings with contractors, they are not related to the right to share in the profit, but result from the content of the concluded employment contracts. On the other hand, in the case of the provision of goods to infuencers, the KIS Director also agreed with the taxpayer’s thesis that these are expenses incurred in connection with the conducted business activity, for the purpose of incurring them is to obtain revenue. At the same time, these are not benefits made in connection with the right to share in profit, other than distributed profit, the beneficiary of which, directly or indirectly, is a shareholder, shareholder or partner or an entity related directly or indirectly to the taxpayer or to that shareholder, shareholder or partner. Furthermore, the expense is not listed in the catalogue containing exclusions from tax costs. Therefore, such expenditure is also not a taxable hidden gain, explains Łukasz Kupryjańczyk, tax adviser, partner at Thedy & Partners.
At the same time, he reminds that the definition of hidden profits is contained in Article 28m(3) of the CIT Act, according to which hidden profits are understood as pecuniary, non-pecuniary, chargeable, gratuitous or partly chargeable benefits made in connection with the right to share in profit, other than distributed profit, the beneficiary of which, directly or indirectly, is a shareholder or an entity related directly or indirectly to the taxpayer or to that shareholder.
Individual interpretation of 4 October 2022, No. 0111-KDIB1-2.4010.189.2022.2.AK