A new approach of the tax authorities to debt financing costs in RES – how can you benefit?

The renewable energy sector is growing rapidly, yet investors often face unfavourable tax regulations and a strict approach of the tax authorities.One of the major challenges has been the limited possibility of including debt financing expenses (e.g. loan interest) as tax deductible costs.

However, a breakthrough is now taking place. The tax authorities have changed their approach, which may translate into tangible savings and the opportunity to recover previously disallowed costs for companies. What exactly has changed, and how can it be used to your advantage? We explain below.

Limitations on deducting debt financing costs for tax purposes

According to Article 15c of the Corporate Income Tax (CIT) Act, taxpayers are required to exclude a portion of their debt financing costs from tax deductible costs if they exceed certain thresholds:

• PLN 3 million or
• 30% of tax EBITDA.

In the renewable energy sector, where projects are most often implemented based on external financing, these limitations result in significant tax burdens and negatively affect project profitability.

Since the introduction of these provisions, the tax authorities have consistently applied them to renewable energy investments, despite arguments that such projects should be treated as long-term public infrastructure projects and therefore be fully excluded from these rules.

A breakthrough in the approach of the tax authorities

A major shift has now occurred. The Director of the National Revenue Information (DKIS) has acknowledged that, under certain conditions, renewable energy investments—such as solar and wind farms—may be excluded from the debt financing cost limits. This is due to the fact that such investments are long-term public infrastructure projects that meet the exclusion criteria.

Tax benefits for renewable energy investors

This change opens up a range of opportunities for taxpayers, including:

1. Recovery of previously disallowed tax costs
   Investors can verify the portion of costs that were previously disallowed due to the limitation and may be able to correct their CIT returns to recover overpaid tax amounts.
2. Greater safety in future settlements
   To ensure tax safety going forward, we recommend applying for an individual tax ruling. This provides protection against future disputes with the tax authorities.
3. Significant tax savings
   For many investors, the shift in interpretation could translate into substantial amounts of savings, that were previously reduced by limitations on including debt financing costs from tax deductible costs.

How can we help?

To take advantage of these new tax opportunities, we recommend consulting with our experts, who can assess your situation and support you throughout the tax process. We offer comprehensive assistance in the following areas:

• Tax analysis – We can verify if your project can qualify for the exclusion of the application of the debt financing costs limitation.
• Individual tax rulings – We prepare and submit applications to secure your tax position.
• Tax settlement corrections – We assist with correcting tax returns and recovering overpaid taxes.

If you would like to benefit from the new tax settlement possibilities, please feel free to reach out.