Compensation for energy-intensive sectors – first Supreme Administrative Court ruling for CIT taxpayers

After a series of favorable rulings for CIT taxpayers by provincial administrative courts in cases concerning CIT exemptions for compensation granted to energy-intensive sectors, the Supreme Administrative Court [NSA] has issued a ruling with reference II FSK 397/24, which broke the previous line of jurisprudence.

Previous case law

In the judgments issued so far, provincial administrative courts have held that compensation to energy-intensive sectors is exempt from CIT as a subsidy from the state budget, in accordance with Article 17(1)(47) of the Corporate Income Tax Act.

This was the ruling of, among others, the administrative court in Kielce, which, in a December 21, 2023 ruling (ref. I SA/Ke 488/23), indicated that reference to definitions from other branches of law is permissible if the provisions of the tax law explicitly refer to these definitions (external systemic interpretation). In the absence of such a reference in the tax law, the court used a linguistic understanding of the concept of “subsidy,” which led to the conclusion that the subsidy granted falls within the scope of this provision and may use exemption.

Supreme Administrative Court’s different approach

The Supreme Administrative Court presented a different approach and overturned the judgment of the provincial court, holding that the corporate income tax exemption for subsidies should be read considering the definition of “grant” constructed for the purposes of the Public Finance Law.

This, in practice, means that it is impossible to exempt compensation from corporate income tax, since the definition in the Public Finance Law is narrower than the linguistic understanding of the phrase. The case was remanded to the NSA for reconsideration.

Thus, NSA agreed with the Director of National Tax Information, who also upholds the interpretation of the regulations unfavorable to corporate income taxpayers in individual interpretations issued recently, including those dated June 28, 2024 (ref. 0111-KDIB1-2.4010.241.2024.1.AW) and May 27, 2024 (ref. 0111-KDIB2-1.4010.149.2024.1.MM).

Different in PIT

The exemption of compensation received by personal income taxpayers has already been challenged by the courts of first instance.

This is due to the different wording of the subsidy exemption provision in the two tax laws. The definition in the PIT Law, exempting from tax subsidies received from the state budget or local government units, explicitly refers to the definition of “subsidy” within the meaning of public finance regulations. However, no such reference is made in the CIT Law.

In a non-final judgment dated March 27, 2024, ref. I Sa/Kr 158/24, the administrative court in Krakow pointed out precisely this difference and ruled that an individual who receives (including through a tax transparent company) compensation for energy-intensive sectors will not benefit from the exemption.

Consequences of the Supreme Admistrative Court ruling

The NSA’s ruling does not send a good signal to entrepreneurs receiving compensation, to their customers, but also to the authorities granting subsidies. Taxation of compensation, significantly reduces their effectiveness, and perhaps to achieve the same effect of real support compensation will have to be increased.

Authors: Paweł Wyciślik and Natalia Kudlik.