Are There Differences Between How Tax Regulations in Poland and IAS Treat Intangible Assets?

R&D in Poland
Fact box

Global Innovation Index 2015
Poland ranked 46th among 141 countries, but only 93th when the efficiency ratio, which shows benefits resulting from investment in innovation is taken into account.

Innovation Union Scoreboard 2015
Poland ranked 24th among 28 EU members and is a moderate innovator, below the EU average.

R&D expenses account for less than 1% of Poland’s GDP, compared to the EU average of 1.91%, or the OECD average of 2.36% in 2013.

Why Polish companies innovate?

• higher chances of receiving non-refundable grants: 28.4%

• R&D-related tax reliefs: 21.2%

• bigger flexibility of R&D centres: 16.9%

• better access to managers of R&D projects: 13.6%

• Cheaper and easier acquisition of industrial property rights: 11.4%

• legal changes in the country’s regulations: 5.6%

Source: PWC

Krzysztof Wiśniewski

About Krzysztof Wiśniewski

Krzysztof Wiśniewski is a tax advisor and a lawyer. He headed a tax and accounting team in one of the largest financial companies in Poland, participated in projects related to the optimisation of settlements within capital, tax structuring, planning as well as optimisation benefits in the area of VAT and transfer pricing. He is the author of “Deductions and VAT Refunds” and articles about financial instruments, transfer pricing and eligibility of expenditure for the settlement of investment in SEZs etc. He has worked as a tax manager at BSS SA since 2011.

These days, there isn’t a company that would not acquire intangible assets. Tax regulations in Poland, just as in other European countries, define intangible and legal assets in a different way to accounting regulations. In addition to this, balance sheet amortisation can also be done in a different manner: independent of tax depreciation. So, in these cases, companies use depreciation rates as they are stipulated in tax regulations if this is possible, and legal. However, they do need to calculate a deferred tax, using the temporary differences between the accounting and tax depreciation and intangible assets value. 

The IAS 38 (International Accounting Standard Intangible Assets) outlines an intangible asset as an identifiable non-monetary asset, without physical substance that is controlled by an entity and from which future economic benefits are expected to flow to the entity. This is possible if the entity is able to lend for a fee, sell or exchange future economic benefits flowing from that intangible asset, without divesting itself of other future economic benefits derived from other assets used in the same economic activity.

Any expenses that the entity carries out for its own purposes and that are related to research and development (R&D), made before production launch or with the use of new technologies, can be particularly important in this case. They can be treated as intangible or legal assets in the following circumstances: if the product or technology has been clearly defined and the R&D expenses have been credibly evaluated; if the technical usability of the product or technology has been determined and well documented and, based on that, the entity decides to manufacture the product or use the technology; or if the R&D expenses will be covered — as expected — by the product sales revenues or sale of the technology.

If an intangible or legal asset is not listed in Article 16b of the Polish Corporate Income Tax Act, it cannot undergo amortisation, for example, perpetual usufruct rights to land, as it is treated as land. Intangible rights can be referred to as intangible and legal assets as long as they are used for longer than a year. These are acquired rights that can be exercised, as soon as they have been acquired, for example: the cooperative ownership right to a dwelling; the co-operative right to commercial premises; the right to a single-family dwelling, in a co-operative; intellectual property rights, including licenses and industrial property rights, where the value is equivalent to the acquired information that is related to industrial, trade, scientific and organisational knowledge (know-how). The entity’s value and R&D expenses cannot be treated as intangible or legal assets.

We must draw special attention to co-operative ownership rights, as refurbishment expenses are quite common and both tax offices and administration courts require that these expenses are treated as leasehold improvements, where only the depreciation of the value of the investment made can be treated as a tax deductible expense.

Red Ring Binder with Inscription Intangible Assets on Background of Working Table with Office Supplies, Laptop, Reports. Toned Illustration. Business Concept on Blurred Background. 3D Render.

The subject of intellectual property rights denotes each result of creative activity, having individual traits and captured in any medium, regardless of its value, application and means of expression (work), as specified in the Law of Copyright and Related Rights. The use of such works is defined in copyright transfer agreements or license agreements. The licensee has the right to sublicense, which increases the economic significance of license agreements and extends the spectrum of potential users of intangible assets.

Industrial property rights are also defined in the Law of Copyright and Related Rights and cover: patents, additional rights protecting inventions, rights protecting utility models and brands, rights to register industrial designs and geographic labelling, etc.

The entity’s value may be a result of its sale or of its sales or a portion of that. It is calculated as the difference between the net price of the entity’s assets and their fair value. In this case, the entity’s added value can be treated as its intangible and legal value. According to the Polish Accounting Standards (PAS), the entity’s negative value is regarded as deferred income settlements.

IAS 38 does not take into account the amortisation of the entity’s value, as such, but only allows optional test checking potential loss of the value (impairment) of that part of the assets.

From the tax perspective, the entity’s added value can be amortised only if it is a result of an acquisition, a financial leasing or a contributions of assets, inside a commercialisation or privatisation process.

Intangible and legal assets, such as those listed above, are subject to tax depreciation, only if they have been acquired by the taxpayer and can be used on the day of acquisition; if the expected period of their use is longer than 12 months (except for the entity’s value and R&D); if they are used by the taxpayer to achieve profits, in agreement with the entity’s economic goals or are given for use by third parties (license and sublicense agreements, rentals, leasing, etc., as stipulated in Article 17a of the Polish Corporate Income Tax Act.

Tax depreciation can also be applied in the case of completed R&D activities. This refers to research, or a diverse way of acquiring knowledge and its results need to be used in manufacturing new and innovative products or technologies. If R&D expenses cannot and/or will not be used in this manner, they are not treated as intangible and legal assets but as tax deductible expenses only. Practice shows that the costs of R&D activities can be added to tax deductible expenses only when their result is known (in this case, negative).

The Katowice Tax Chamber confirms that: “R&D expenses such as the development of new technologies, not used in manufacturing, can be added as tax deductible expenses in the financial year, in which they were completed and their result was known.”

Similarly to the PAS, it is not possible to create intangible and legal assets in tax regulations, as it is in the case of fixed assets. In this situation, such costs are treated as tax deductible expenses. Likewise, any improvements to intangible and legal assets do not increase their initial value. They become tax expenditures, except for improvements to cooperative rights and/or acquisitions of software updates, which have a higher intangible and legal value.

RELATED ARTICLES

Falling into Old Ways in 2017? Ukraine’s Struggle for Functioning Economic Institutions

A Bosnian Referendum Shows Russia’s Influence in the Balkans—As Well As Its Limits

January Kicks Off an Exciting Year for Emerging Europe

The Capital Markets Union: a New Beginning in the European Financial Sector?

Let’s Stop Wasting Time Redefining our Place in Europe

Breaking With Imitations of the Past

Fiscal Policy Predictability in CEE — It’s Time for Change

The Global Outsourcing Industry — the Rise of the Phoenix

Where’s My Cheese? – The GREAT British Food Tour 2014

Cheese Shop

History as Destiny? Institutional Erosion in Ukraine and Poland

Are Labour Shortages Driving Economic Growth?

CEE — Do We Need a Launch Pad For Our On-Site Tech Intelligence in the Silicon Valley

United or Divided? Europe in the Face of the Challenges of Tomorrow

Could the West At Least Help Ukraine To Insure FDI Against Political Risks?

A New Division Between Eastern And Western Europe?

Poland: Is it Ready, and is it Time to Adopt the Euro?

Prepare for a New Europe

Global Expansion in the Digital Age

Will a Two-speed European Union Side-line the Visegrad Four?

The EU’s Benign Neglect Of Eastern Europe

Poland’s Unicorn, Slovakia’s Flying Car and the Future of Europe

Central and Eastern European Consumers Are Joining the Global Trends for Change

A Positive and Modern View of Entrepreneurship

The Voice of European Business Must Be Heard Loud and Clear by Brexit Negotiators

Big Fish, Small Fish, Where to Fish? On the Eve of the Fourth Industrial Revolution

Europe Needs To Be More Proactive In Embracing Armenia

People Power Reminds the Government of the Rule of Law

Encouraging All Polish Cities and Towns to Take Advantage of the Technological New Age

Ukraine’s Reputation for Cheap Labour May Not Ring True in the Long-term

Will the New Five-day Visa-free Regime Encourage More Visitors to Belarus?

Romania Surviving the Waves of Recent Political Tsunamis in Europe

Not All Quiet on the Eastern Front

Finalising the DCFTA is Expected to Bring Multiple Benefits to Ukraine

The Sharing Economy Could Bring New Business Models to CEE

The CEE Region Is Making Advances in Prioritising Waste-to-Energy Projects

International Women’s Day — Let’s Take Action And Then Celebrate

Polish Tax Laws — Fighting a Winning Battle Against Tax Evaders

Europe at Odds over OPAL and Nord Stream 2

China: A Giant That Is Hard to Crack

Belarus 2020: Turning the Vicious Circle Into an Upward Spiral

Old Fashioned Skulduggery Overshadows the Elections in Moldova

After 25 Years of Restructuring, the Romanian Power Sector Is at a Crossroad

Poland’s Confusing GDP Growth

European Volatility Makes Economic Development Slower for Ukraine

Examining How a Strong Swiss Franc Could Single-Handedly Topple Poland’s Economy

Business Moving Forward with Cautious Optimism — Can Investors Win the Confidence Game?

SSC/BPO — Sourcing Talent On Poland

The Netherlands’ Objection to the Ukraine-EU Association Agreement could be Costly to Europe

How Will Poland Approach the Brexit Negotiations?

The Right to Water: Who Can Change Today’s Situation?

Resignation in Ukraine: War, Revolution, Crisis — Some Things Never Change

Measuring Growth of Societies with GDP Alone Shows an Incomplete Picture

Changing Perspectives and Showing That True Romania is a Vibrant Innovative Country

Poland — Overcoming Old Ways to Become a Modern Business Location

Brexit: Let’s Learn the Lesson and Hope a Better Europe Will Arise

Czech Republic Renaming Has Real Economic Costs

The Competitive Edge in Central and Eastern Europe

SOFIA BULGARIA - MAY 5: View of the Ivan Vazov National Theatre in Sofia on May 5 2016. Sofia is the largest city and capital of Bulgaria.

Do Your Homework First and Starting Business in Poland is Easier

The GREAT London Food Scene

Bakery in London

LGBT in CEE — A New Acceptance Is Being Born From Migration

We, the Post-Communist Generation, Have the Skills to Rid of the Past And Create Our Own Future

The EU’s Choice: Fundamental Reform Or Disintegration

The Morawiecki Plan Promises a Brighter Future for Poland

Outsourcing in Germany: Stop Talking at and Start Talking to

The Long Tail of Global Expansion

Leave a Reply

Your email address will not be published. Required fields are marked *