Tax Authorities Change Their Approach to Earn-Outs – Favourable CIT Treatment
Polish tax authorities have changed their position on how earn-out payments should be treated for corporate income tax (CIT) purposes. Instead of "freezing" the expense until the shares are sold, taxpayers may now recognise it much earlier.
The position of the Polish tax authorities on the corporate income tax (CIT) treatment of earn-out costs has recently changed.
An earn-out mechanism provides for additional consideration for the seller of shares, the payment or amount of which depends on the future financial performance of the company. In the past, such an expense was treated as part of the cost of acquiring the shares and could only be recognised for tax purposes at the moment the shares were disposed of.
Recently, however, the authorities’ position has shifted significantly. Two key rulings issued by the Head of the National Revenue Administration (Szef KAS) played a central role in this change:
- 15 May 2026 (DOP12.8221.21.2025),
- 2 January 2026 (DOP12.8221.30.2025).
In both rulings, it was held that earn-out expenses may constitute indirect costs, i.e. costs deductible at the moment they are incurred. Moreover, in the specific factual circumstances examined, such expenses could be allocated to operating income.
“This is a very significant, taxpayer-friendly shift in approach. It allows substantial transaction-related expenses to be recognised earlier, without having to ‘freeze’ them until the shares are disposed of – which can have a real impact on the tax liquidity of companies involved in M&A transactions,” comments Łukasz Kupryjańczyk, tax advisor, partner at Thedy & Partners.
Key takeaway
If your company has paid or is planning to pay an earn-out, get in touch with us – we will assess your situation and gladly support you in achieving an optimal tax treatment of these expenses.