Holiday and sick pay in eligible costs

In the context of qualified costs in the R&D relief, there has been a discussion between tax authorities and administrative courts for years, which refers in particular to the proper interpretation of the concept of general working time referred to in Article 26e(2)(1) of the PIT Act and Article 18d(2)(1) of the CIT Act, respectively.

The hitherto prevailing position of the tax office

According to the position taken so far by the Ministry of Finance and the Director of the National Fiscal Information, this notion should be understood exclusively as the time actually worked. In the light of the above, in the opinion of the tax authorities, costs related to an employee’s excused absence should not be included in the eligible costs of the R&D relief.

On the other hand, the administrative courts, on the basis of the rulings issued, indicated a different approach, according to which the time of an employee’s excused absence should not be excluded from the eligible costs of the R&D relief, as this time is immanently connected with the employment relationship.

Minister changes approach

On 13 February 2024, a general interpretation was issued under No. DD8.8203.1.2021, in which the Minister of Finance confirmed the position presented by the administrative courts and confirmed that the eligible costs of the R&D relief also include dues for excused absence of an employee, which the employer is obliged to incur under separate regulations, including those relating to holidays and illness.

– The Minister of Finance indicated that the results of the system and functional interpretation of Article 26e(2)(1) of the PIT Act and Article 18d(2)(1) of the CIT Act lead to the conclusion that the catalogue of income defined in Article 12(1) of the PIT Act also includes the employee’s income related to excused absence, i.e. remuneration for holidays and sickness. In the light of the above, sickness and holiday pay should constitute components of the remuneration cost qualifying for the R&D relief, in the part in which the employer is obliged to incur them on the basis of separate regulations and in compliance with other requirements – explains Klaudia Klisiak of Thedy & Partners.

Subsequently, the Minister of Finance referred to the regulations arising from the Labour Code and the jurisprudence of the Supreme Court, indicating that working time does not only constitute the effective (actual) performance of work specified in the contract, but also periods of non-performance of work in which the employee is ‘at the disposal’ of the employer.

The Minister of Finance also emphasised that the right to leave constitutes an entitlement to periodic exemption from the obligation to provide work with pay. Thus, it was confirmed that the concept of general working time refers to, inter alia:

• annual leave,
• special leave,
• the period of time off to which an employee raising a child is entitled (within the meaning of Article 188 of the Labour Code),
• the period of downtime not caused by the employee (pursuant to Article 81 of the Labour Code),
• the period during which the employee remains on sick leave (pursuant to Article 92 of the Labour Code).

– In our opinion, the indicated general interpretation may be important for taxpayers who are considering implementing the R&D relief within their business activity, as well as for entrepreneurs who are already using it. The presented position may contribute to the reduction of interpretational doubts arising from the provisions concerning the R&D relief, as well as set a new direction in the practice of tax authorities in the context of the catalogue of receivables included in qualified costs, summarises Klaudia Klisiak.

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