Depreciation rates may be decreased ex post for years that are not covered by statute of limitations

In accordance with the judgment of the Supreme Administrative Court of 3 February 2022 in case II FSK 1413/19 it is admissible to adjust tax depreciation rates for years that are not yet covered by statute of limitations.

The judgment is ground-braking especially for taxpayers that:

• incurred losses and have difficulties in settling them,
• were unable to settle older losses over periods that are not statute-barred yet due to lack of sufficient income,

and at the same time used write-downs following the linear fixed-asset depreciation method.

Based on the reported oral reasoning, the taxpayer may under article 16i section 5 of the CIT Act decide to decrease depreciation rates for the given year also ex post. The change must take effect beginning with the first month of each tax year. The taxpayer can implement this change at any time when depreciation write-downs are made and the change will also cause retroactive consequences.

Following the SAC’s stance, the principle that decreased rates apply from the month following the month during which fixed assets are added to the register or beginning with the first month of the year following the current year does not imply that the taxpayer cannot adjust settlements for a past period in order to accordingly decrease the said rates.

The SAC upheld previous judgment III SA/Wa 566/18 of the Voivodship Administrative Court in Warsaw of 11 December 2018 according to which:

• “In the Court’s opinion, the change in question can be applied both “on current basis” by adjusting the rates applicable to future periods and “retroactively” – for previous periods, taking account the limitation periods. It is worth noticing that unclear legal regulations should not give rise to adverse consequences for the parties, such as the imposition of an obligation or the restriction of rights.”
• “In the Court’s view, article 16i section 5 of the CIT Act does not introduce in any way a direct prohibition to change depreciation rates for previous years.”

Currently, settlements not being statute-barred and thus being potentially subject to adjustment are in principle those for the years beginning with 2016 (for taxpayers whose tax year overlaps the calendar year).

If you are interested in discussing what this precedential judgment may in practice mean for your business, please do not hesitate to contact us: