Accounting for debt financing will be clarified

The provisions on accounting for debt financing in costs focus on limits to the inclusion of certain expenses in costs in order to limit excessive financing of the taxpayer’s activity with debt, which results in an understatement of income reported in the place (country) where the taxpayer’s business activity is conducted. Therefore, the CIT Act includes a limit on such debt financing that can be included by the taxpayer in its costs. This limit was referred to the excess of the costs of debt financing over the revenues obtained from analogous titles and determined by the EBITDA obtained for the same period. The legislator specified in 2017 that the so-called safe harbour would be an amount of excess debt financing costs not exceeding PLN 3,000,000.
And this is where the stairs appeared, as taxpayers interpreted these limits differently. Some taxpayers began to treat this regulation as giving the taxpayer the right to increase the limit of the excess of costs of debt financing resulting from the achieved EBITDA by PLN 3,000,000. According to these taxpayers, the limit of the excess of the costs of debt financing, which in a tax year may be included by a taxpayer in its costs in income tax, should be calculated as 30% of the EBITDA obtained in the tax year + PLN 3,000,000. However, this was not the interpretation the MF wanted.
Therefore, the regulations were amended again, indicating that the amount of excess debt financing costs exceeding:
1) the amount of PLN 3,000,000 or
2) an amount corresponding to 30% of the taxpayer’s EBITDA.
This time, too, there has been criticism of the new regulations. The new wording of the regulations, although it excluded the previously indicated doubts, was met with reservations that if the current wording of these regulations is interpreted unfavourably for taxpayers, the tax authorities could expect the taxpayer to exclude the smaller of the indicated values from tax deductible costs. Again, as the MF emphasises, this was not the purpose of the amendment to the regulations. Therefore, in the latest draft of the amendment to the CIT Act, these doubts will be removed. Thus, a new wording of Article 15 c of the CIT Act has been proposed, from which it is to follow that taxpayers will be obliged to exclude from tax deductible costs the costs of debt financing in the part in which the excess of the costs of debt financing exceeds the higher of the indicated amounts.