After the COVID-19 pandemic subsided, we quickly returned to normal life. Deserted streets, dismay in the healthcare system, and a paralyzed economy – we all hope this won't happen again. Successive anti-crisis shields were introduced to help entrepreneurs. One form of aid was the possibility of obtaining a subsidy, which could be partially or fully written off. Entrepreneurs who took advantage of this support may now be surprised when the tax authorities demand a tax refund on the written off subsidy.
The Supreme Administrative Court ruled on this in its judgment of February 16, 2024, file reference II FSK 1358/23. The case concerned a company that generated revenues of less than €2 million and simultaneously received a write-off of a subsidy from the anti-crisis shield. The sum of reported revenues and the written-off subsidy exceeded €2 million. The company submitted a request to the National Tax Information Service (KIS) to determine whether it would be entitled to apply the 9% corporate income tax rate if, excluding the written-off subsidy, its revenues did not exceed €2 million net.
In a tax ruling, the Director of the National Tax Information Service (KRS) ruled that since the €2 million limit entitling to a lower tax rate is based on revenue, not sales revenue (as is the case with obtaining small taxpayer status), the amount of the forgiven subsidy also counts towards the threshold. Therefore, the company should apply a 19% tax rate.
In considering the company's appeal against the interpretation, the Provincial Administrative Court in Rzeszów presented a different position. It cited the purpose of granting the support, which was to ensure financial liquidity, compensate for damage caused by the pandemic, and protect jobs. Therefore, a rational legislator, when creating the program, did not assume that receiving support would worsen the situation of the entity benefiting from it. The Provincial Administrative Court also recalled that the regulation of the Minister of Finance, Funds and Regional Policy of July 16, 2021, discontinued the collection of income tax on income (revenue) generated from the cancellation of subsidies financed by the State Development Fund. Therefore, the purpose of granting the support was not to ensure increased tax revenues.
However, the Supreme Administrative Court, which considered the cassation appeal, disagreed with this position. It found that the case should be governed solely by the linguistic interpretation, which clearly confirms that the forgiven subsidy constitutes taxable income. If it were otherwise, the legislator would have explicitly included this in the statute. It also emphasized that state aid relies on the tax neutrality of the granting of the subsidy and its forgiveness. It cannot be inferred from the granting of other tax preferences, including a reduced CIT rate, if the legislator's intention in this regard has not been properly expressed in a normative manner. This judgment is final.
Unfortunately, the Supreme Administrative Court quickly forgot the realities of the pandemic and failed to consider that the purpose of providing support was to relieve businesses, not increase their taxes. Like many regulations from that period, including those concerning the anti-crisis shields, the legislature wrote it in a hurry and failed to explicitly state that the forgiven subsidy did not constitute taxable income. Its willingness to help cannot be denied, but unfortunately, it seems to have forgotten what is paved with good intentions…
This article is for informational purposes only and does not constitute legal advice.
Legal status as of June 10, 2024
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