Advertising during the game without preference
Profits from advertising do not constitute income from qualified IP affecting income subject to taxation at the preferential 5% rate, according to a ruling by the WSA in Gliwice, which was cited in its pages by Rzeczpospolita.
Adam Rzepa, a consultant from Thedy & Partners comments on the ruling in Rzeczpospolita. He emphasised that the verdict of the WSA in Gliwice is in line with the negative trend of rulings on the application of the IP Box relief in free-to-play games.
The Court’s analysis of the provision indicates that Article 24d(7) of the CIT Act contains a closed catalogue of income from qualified IP. Thus, based on a literal interpretation, it can be concluded that the sale of an advertising service is a subsequent and separate activity from the activity of selling or providing access to a computer game, and thus does not constitute income from qualified IP.
The question, however, is whether the result of a literal interpretation is in line with the purpose of the regulation in this particular case. In essence, there is a different treatment of income from micropayments and advertising. According to the positions of the courts and tax authorities, the first group of transactions can benefit from the IP Box, while the second group cannot. The differentiation of the tax position depending on the model of commercialisation of the game seems to contradict the purpose of the IP Box relief – the Explanatory Notes themselves indicate that the purpose of the relief is to stimulate innovation processes and, therefore, “to favour the creation and commercialisation of innovative solutions resulting from research and development works”.
It would appear, therefore, that the legislator, when creating tax regulations, does not necessarily fully understand how the gaming industry works. As a rule, access to a free-to-play game requires the user to accept the terms and conditions and a licence agreement, which includes information on advertising and virtual bonuses. From a functional point of view, this means that advertising revenue is linked to the use of intellectual property rights and would not be possible without a game licence.
It therefore promises to be interesting to see how such cases are decided by the Supreme Administrative Court.
The entire article can be read in Rzeczpospolita of 25 October 2023, page H7