The CIT Act in Article 15e para. 11 lists a number of exceptions to the restrictions provided for in Article 15e para. 1. One of them concerns the costs of services referred to in Article 8 para. 2a of the VAT Act, i.e. services re-invoiced by a taxpayer (purchased on its own behalf, but on the account of another related entity).
The above exception raises many doubts among the taxpayers, which have recently been the subject of numerous tax rulings. The Director of the National Fiscal Information (NFI) was the first to address the issue of re-invoices in the individual ruling of April 16, 2018 (ref. no. 0114-KDIP2-3.4010.45.2018.2.PS). The Director of NFI agreed with the applicant's opinion that the "costs of intangible services purchased from unrelated third parties and then re-invoiced to a related entity, are also for the latter entity the services referred to in Article 15e para. 11 point 2 of the CIT Act". The above ruling seemed to give the green light to all the re-invoiced services, regardless of whether the entity bought the service from an independent entity and re-invoices it further to a related entity, or it is the recipient who ultimately uses the re-invoiced service.
Despite the positive position presented in the individual ruling issued in April 2018, the Director of NFI changed his standpoint two months later and on June 21, 2018 issued an individual ruling (ref. no. 0111-KDIB1-1.4010.94.2018.3.MG). The Director of NFI disagreed with the position of the taxpayer who claimed that the costs incurred to pay remuneration for the provision of promotion services and sales support by a third party, and then re-invoiced to the taxpayer by a related entity, remain outside the scope of the restriction resulting from Article 15e of the CIT Act
In the description of background, the applicant indicated that due to the intensive development of its operations and the endeavours to increase its revenues, it plans to carry out intensive activities aimed at promoting its solutions and supporting their sales. Due to business requirements, the applicant and its shareholder agreed that the shareholder will conclude contracts directly with the suppliers of promotion and sales support services on its own behalf, but in fact it will purchase these services in favour of the applicant who will be the sole beneficiary of the services. In view the above, all the costs related to promotion and sales support services will be invoiced by the suppliers of these services directly to the shareholder, who will then re-invoice all costs of these services to the applicant.
In the applicant's opinion, the costs incurred for promotion and sales support services provided by unrelated entities but only re-invoiced to the applicant by a related entity will be recognized as the costs of services referred to in Article 8 para. 2a of the VAT Act, within the meaning of Article 15e para. 11 point 2 of the CIT Act and therefore, the restriction resulting from Article 15e para. 1. shall not be applied.
The Director of NFI, referring to Article 28 of Council Directive 2006/112/EC of November 28, 2006 on the common system of value added tax and Article 8 para. 2a of the VAT Act, stated that: "in case the taxpayer, acting on his own behalf, but for the benefit of a third party, participates in the provision of services, it is assumed that the taxpayer has received and provided these services itself. As a consequence of the above, these concerns the costs of the services re-invoiced by the taxpayer to other entities. It should be noted that in the analysed case the "last entity" (the Applicant) is not a taxpayer who re-invoices the service costs, but is the entity to which the costs are re-invoiced. Hence the provision of Article 15 para. 11 point 2 of the CIT Act will not apply in this case." In addition, the Director of NFI referred to the explanations to Article 15e of the CIT Act published on the website of the Ministry of Finance, where it was pointed out, inter alia, that "the costs (...) of the services re-invoiced by the taxpayer are not subject to limitation; it concerns the services acquired on its own behalf, but for the account of another related entity".
Unfortunately, following the ruling of June 21, 2018, in the subsequent rulings, a uniform position has been adopted, according to which the exception provided for in Article 15e para. 11 point 2 does not include re-invoices received from related entities. The above statement has been presented in the individual ruling of the Director of NFI:
It is worth noting that in the abovementioned rulings, tax authorities have provided same arguments indicating that according to Article 28 of the VAT directive, as well as to Article 8 para. 2a of the VAT Act, the exception from the application of the cost limit does not apply to the costs of re-invoices received by the final recipient, but only to services which are re-invoiced to other entities. As a result, the final recipient of the re-invoice is not entitled to apply the exception described in Article 15e para. 11 point 2 of the CIT Act.
Unfortunately, the arguments of the taxpayers that in the case of re-invoicing the costs of services by a related entity, there is no risk that the transaction price does not reflect the actual cost of services and that it was not determined at the market level (as it was actually established between unrelated entities) are not accepted by tax authorities. Omitting this argument contradicts justification to the act introducing Article 15e of the CIT Act, which aimed to limit the tools for creating the so-called "tax shield" in the form of an artificial, economically unjustified, generation of tax deductible costs.
Importantly, the above tax authorities' approach causes that it is difficult to imagine a factual background in which the exception could apply – it would require re-invoicing the service within the related entities several times, which could be treated as contrary to the purpose of introducing Article 15e.
At this point it is impossible to determine which standpoint will be adopted by the administrative courts. It could be stated that the negative ruling standpoint will undoubtedly prevail in the practice of tax authorities. It is confirmed by the position presented in individual rulings as well as the statements of the Ministry of Finance, including the one issued on July 13, 2018, being the reply to the parliamentary question no. 23553, according to which the final recipient of the re-invoiced service, which purchased it for own needs, does not benefit from the exemption based on Article 15e para. 11 point 2 of the CIT Act and is covered by the limit under Article 15e para. 1 of the CIT Act.
Renata Kupczyńska, Assistant Manager in the Tax Advisory Department, the office in Gdansk
Katarzyna Pawłowska, Consultant in the Tax Advisory Department, the office in Gdansk