Sound business case will defend non-obvious tax costs
The possibility of classifying expenses as tax deductible costs is very often the subject of dispute with the tax authorities. Especially those costs that are somehow non-obvious, non-standard or incurred in unusual situations are on the target. However, as the conclusions of the analysis of the case law show, adequate justification, focused especially on business issues, makes it possible to defend the inclusion of such expenses in tax costs.
As Marcin Bodziony of Thedy & Partners points out, an example of this is the situation of a taxpayer to whom a counterparty communicated that it had fallen into financial difficulties and would not be able to pay the salaries of its employees who take part in the provision of services to it. The taxpayer recognised that this situation could quickly lead to redundancies, resulting in the departure of those who had hitherto been generating his income. He therefore decided to settle the salaries from his own resources.
The taxpayer sought confirmation in an individual interpretation that he could recognise such an expense as a deductible cost. However, he did not find it, because the Director of the National Fiscal Information considered this cost as inexpedient, pointing to the fact that the persons whose salaries were paid by the applicant were employees of another entity and it was this entity that should pay them and then recognise them as costs.
In his application to the court, the taxpayer provided a broad economic justification for the advisability of incurring the expense. In particular, he drew attention to the revenue he was generating through the contractor’s services for which the said employees were responsible. He outlined his further business plans, which were centred around maintaining the ‘revenue generated by the hands of the above-mentioned employees’ in a different business model. He also stressed the issue of corporate social responsibility and the rightness of paying wages for work done. He also presented the consequences of not paying salaries in terms of redundancies, loss of a source of revenue and the high cost of rebuilding the business unit operated by the above employees.
And it was with this expedient business case that the court hearing the appeal agreed with the taxpayer. Significantly, it emphasised that, in principle, the position of the tax authority would be correct, but that, in the particular circumstances presented by the taxpayer and with their specificity, the inclusion of the aforementioned expenses as tax costs was justified.
– The above shows how important for the final tax qualification of various economic events is their planning taking into account the perspective of a potential dispute with the tax authority and the accuracy and selection of arguments presented in this dispute, concludes Marcin Bodziony.
Judgment of the WSA in Poznań of 13 April 2023, case ref. no. I SA/Po 46/23