Status of the dispute – where did the problem come from?
Companies using the lump sum tax on corporate income (so-called Estonian CIT) face one of the more thorny practical issues: what to do with profits earned before entering this regime? Does granting a loan to a related entity from funds accumulated in a "previous life"—that is, during the period of general taxation—automatically trigger the obligation to pay the lump sum as income from hidden profits?
The tax authorities' response was consistent and unfavorable to taxpayers: yes, a loan constitutes hidden profit, regardless of its financing source. This is precisely the position taken by the Director of the National Tax Information Service in an individual tax ruling dated December 15, 2025, file reference 0111-KDIB2-1.4010.475.2025.2.AS.
The judgment of the Regional Administrative Court in Lublin of 8 April 2026 reverses this direction – at least in relation to loans financed from historical profits.
Facts of the case
The applicant was a limited liability company subject to Estonian corporate income tax (CIT) from 2023. Before applying the flat-rate tax regime, the company generated a profit of over PLN 4.1 million, transferred to reserve capital and not distributed among the partners. While applying the flat-rate tax, the company intended to grant a loan to a personally related entity – another limited liability company in which the same partners held shares – with an express stipulation in the agreement that the financing would come exclusively from profits generated before the Estonian corporate income tax.
The loan was to be granted on market terms (in accordance with Article 11g of the CIT Act, with the possibility of applying the safe harbor mechanism), and was to be used for investments of the related company – not for consumption purposes.
The company asked KIS two questions:
- Does granting a loan from pre-Estonian CIT funds constitute income from hidden profits?
- Will the repayment of the loan amount plus interest constitute a hidden profit?
KIS position
In an interpretation dated December 15, 2025, the Director of the National Tax Inspectorate (KIS) deemed the company's position incorrect regarding the first question. The authority stated that the lump-sum tax liability should be linked to the moment of payment, not the moment of granting the loan. Since the payment occurs during the period of lump-sum taxation, this event constitutes hidden profit – regardless of the funds used to finance the loan.
According to the National Tax Information System, the source of financing (profits before or after the election of Estonian CIT) is irrelevant for the classification of the benefit as hidden profit; it is only relevant for determining the income from the net profit.
The second question (concerning the repayment of the loan and interest) was assessed by KIS as correct - the repayment of the loan capital does not constitute a hidden profit, and the interest received by the lending company (and not by an associated entity) is also not subject to lump sum taxation.
Judgment of the Provincial Administrative Court in Lublin
The Regional Administrative Court in Lublin, in its judgment of 8 April 2026 (ref. I SA/Lu 56/26), repealed the KIS interpretation in the contested part and ruled in favor of the company. The court stated that:
First, only net profits earned during the period of the Estonian corporate income tax regime are subject to lump sum taxation. Profits from previous years that have already been taxed under the general rules cannot be subject to taxation again – this would violate the prohibition of double taxation.
Secondly, income from hidden profits within the meaning of Article 28m, Section 1, Item 2 of the CIT Act is an alternative to taxation of distributed profits (Article 28m, Section 1, Item 1 of the CIT Act). Taxation of hidden profits is supplementary – its purpose is to prevent tax avoidance through the distribution of profits in a form other than dividends. However, "hidden distribution" of profits not generated under the lump-sum tax regime is not possible.
Thirdly, the court applied a fortiori (a majore ad minus): since a company is allowed to pay out a dividend tax-free from funds earned before the Estonian CIT, it should be able to grant a loan from these funds to a related entity.
The Regional Administrative Court in Lublin directly shared the thesis formulated by the Supreme Administrative Court in its judgment of 25 February 2026 (ref. II FSK 733/23).
The judicial context – chaos that is slowly coming into order
The issue of taxation of loans granted by Estonian companies has already generated extensive and inconsistent case law. For clarity, it's worth recalling the main points:
- Every loan is subject to taxation (NSA in judgment II FSK 797/24 of 9/10/2024)
- a loan from profits from before the lump sum is not subject to taxation (NSA in judgment II FSK 733/23 of 25/02/2026)
The discrepancy between the two judgments of the Supreme Administrative Court is a key issue that requires a final resolution – preferably by a resolution of a seven-judge panel or the full bench of the Financial Chamber.
The practical significance of the judgment
The judgment of the Regional Administrative Court in Lublin is of significant importance for companies that:
- have unconsumed profits from the period before joining the Estonian CIT;
- they have identified these assets and are able to demonstrate their "historical" origin;
- plan to or have already granted loans to related entities from the funds described above.
For these entities, the February ruling of the Supreme Administrative Court and the commented ruling of the Regional Administrative Court in Lublin constitute valuable procedural arguments. If the tax authority has challenged a loan granted or is planning to do so, it is worth invoking this line of case law both during the interpretation proceedings and in any potential appeal to the administrative court.
At the same time, caution should be exercised – the discrepancy in the Supreme Administrative Court’s rulings means that tax risk in this area has not been eliminated.
The judgment of the Regional Administrative Court in Lublin of April 8, 2026 (I SA/Lu 56/26) is another voice in a dispute that has divided the tax authorities and administrative courts for years. The court overturned KIS interpretation no. 0111-KDIB2-1.4010.475.2025.2.AS and confirmed that a loan granted from funds earned before the lump-sum tax on corporate income does not constitute income from hidden profits. Only the distribution of profits earned under the Estonian regime itself can be subject to taxation.
Hope for the stabilization of the jurisprudence grows with the February judgment of the Supreme Administrative Court – however, the question remains whether the Supreme Administrative Court will uphold this line and finally close one of the most controversial chapters of the Polish Estonian CIT.
This article is for informational purposes only and does not constitute legal advice.
The law is current as of April 27, 2026.
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