Taxpayers will deduct ‘employee costs’ under the sales boost tax relief

From 2022, CIT (and PIT) taxpayers can benefit from the sales boost tax relief, which entitles to deduct expenses incurred on specific activities aimed at increasing sales of self-made products.

It is possible to deduct 200% of the costs – but not more than PLN 1 million in a single tax year – as long as the taxpayer generates income. Deductible expenses include, among others, costs of participation in trade fairs, costs of promotional and informational activities, costs of preparing documentation enabling the sale.

The expenses that give raise to concerns – in our opinion completely unfounded – are the so-called ‘employee costs’.

Surprisingly, this category appears letters of practice and selected judgments of regional administrative courts, while no provision of Polish tax law defines such concept.

Non-obvious conclusions are drawn from an obvious legal text

Eligible costs may include the costs of attending trade fairs, such as the purchase of air tickets for employees, meals and accommodation. On this basis, the conclusion is drawn that there is a (sort of) category of ‘employee costs’ – consisting only of the above- mentioned costs.

Such a view was taken, for example, by the Court in Białystok in the judgment of 24 January 2024, ref. I SA/Bk 465/23. In the court’s opinion, the only “employee costs” that may qualify under the relief are those listed under costs of participation in fairs. In support of such a finding, the court found the word ‘employee’ among the listed expenses. It is therefore wrond to extend the relief to any other employee-related expenses.

A similar view can be found in the Ministry of Finance’s draft guidelines on the expansion relief dated 25 September 2023. However, the justification given there cannot be considered convincing.

The deduction is allowed in respect of ‘costs’. There is no mention of ‘employee costs’. Thus, the above interpretation would require explicit exclusion of the costs of salaries, allowances, per diems, etc. paid to employees, from eligible costs of promotion and marketing. However, this is not the case and only restriction concerns the costs of the employees participation in trade fairs. Therefore, all costs of promotion and information, drafting of the tender or certification documentation, the adapting the packaging are eligible. This also applies to the salaries of the employees involved in the above-mentioned processes and other… ‘employee costs’ 😉

The voice of reason from Poznań

The situation was correctly assessed by the court in Poznań in the judgment of 31 July 2024, ref. I SA/Po 207/24.  It was confirmed that costs of promotion, information and documentation activities, may include the remuneration of employees.

The court stated that, with regard to the costs of participation in fairs, the law expressly limits the scope of eligible ‘employee costs’ to the costs of air tickets, accommodation and meals, but does not exclude the “employee costs” in other promotional and information activities: one cannot agree with the authority’s exclusion of the salaries of the company’s website creators and other promotional and marketing employees from the eligible costs. All the activities for which the company’s employees are paid, should be assessed in terms of whether they are promotional and informational concerning the products manufactured by the taxpayer.

And this is the only criterion.

Conclusion

The expansion allowance makes it possible to deduct from the CIT base, among other things, expenses incurred in promoting the company’s own products. For some companies, these are daily operating expenses. This means that the deduction should be almost automatic, provided that all other conditions of the allowance are met. At MDDP, we can help you prepare for and claim this and other tax relief.