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Settlement of the R&D relief in case of holiday and sick pay of employees

Minister of Finance, General Interpretation No. DD8.8203.1.2021

Conclusions: Qualified costs for the R&D relief under Article 26e(2)(1) of the PIT Act and Article 18d(2)(1) of the CIT Act include payments made in a given month in accordance with Article 12(1) of the PIT Act and contributions financed by the remitter in respect of such payments as defined in the Social Insurance System Act. It is important that the time spent on research and development activities remains within the employee’s overall working time for the month, including periods such as holiday or sick leave.

Explanation: The research and development tax relief allows taxpayers to deduct certain R&D expenses from their tax base, in accordance with the provisions of the PIT Act and the CIT Act. The key condition for taking advantage of the relief is to meet the requirements set out in these provisions.

The relief has been in place in Polish tax law since January 1st 2016. However, the provisions concerning the relief have been amended since their introduction.

In the first years of the relief, there were doubts regarding the cost of employees’ salaries for the time spent on research and development activities only in part. However, the current regulations state that an employee’s involvement in R&D activities is determined on a monthly basis, taking into account the subject matter of their tasks, not their efficiency.

The interpretation puts an end to the previous position taken by the tax authorities that holiday and sickness periods should not be taken into account for the purposes of calculating the relief. This was strongly criticised in the past by administrative courts, which supported numerous actions filed by taxpayers against the approach of the tax administration. Taking into account the case law, the Minister of Finance decided to approve the position favourable to taxpayers.

The costs of employing an employee may be included in the eligible costs of the R&D relief only in proportion to the time spent on research and development activities in a given month.

Taxpayers benefiting from the relief are required to separate the costs related to research and development activities in their accounting records or ledgers. It is also important that the taxpayer has documentation confirming the involvement of employees in research and development activities, particularly on a month-by-month basis.

Significance: The general interpretation should put a definitive end to disputes between tax authorities and companies carrying out R&D activities. At the same time, it will no longer be necessary to apply for an individual interpretation in this respect; instead, taxpayers will be able to apply the content of the general interpretation to their business.