Tax planning

The R&D relief (ulga badawczo-rozwojowa, often called ulga B+R) allows costs related to research and development activity to be deducted from the tax base a second time. In practice this means that R&D expenses can be deducted twice: once as tax-deductible costs and once again under the R&D relief.

Any company carrying out R&D activity can use the relief, regardless of its size or legal form. In the IT sector, qualifying costs often include developers’ salaries, materials, expert reports, opinions and advisory services, as well as the cost of using specialist equipment.

To use the relief, the R&D work and the related costs must be properly documented.

IP Box is a Polish tax preference that allows income from qualifying intellectual property (IP) rights to be taxed at 5% instead of the standard CIT (corporate income tax) or PIT (personal income tax) rate. In the IT sector it most often applies to income from copyright in software.

To use IP Box, several conditions must be met: (1) holding a qualifying intellectual property right, (2) carrying out R&D activity related to creating, developing or improving that right, (3) correctly separating the income from the qualifying IP, (4) keeping appropriate accounting records.

For technology companies IP Box can be particularly beneficial, especially combined with the R&D relief, as it can significantly lower the effective tax rate.

IT companies operating internationally have a number of legal tax planning methods available. They include, among others: (1) structuring the business appropriately using double taxation treaties, (2) managing intellectual property rights and the location of R&D activity properly, (3) optimising financial flows within the group while respecting transfer pricing rules, (4) using tax preferences available in different jurisdictions while avoiding practices regarded as aggressive tax planning, (5) tax planning that reflects how digital services are taxed in different countries.

It is essential that all measures comply with the law and take account of changing international rules, such as BEPS (Base Erosion and Profit Shifting) and EU directives.

To protect yourself against the risk of the implemented solutions being challenged, it is worth: (1) obtaining an individual tax ruling (interpretacja indywidualna), which gives legal protection, (2) for more complex structures, considering a protective opinion (opinia zabezpieczająca), (3) keeping detailed documentation showing the business purpose of the solutions, (4) systematically monitoring changes in legislation and case law, (5) regularly reviewing and updating the solutions, (6) working with experienced tax advisers who specialise in the IT sector.

It is essential that tax planning has a genuine business rationale and is not aimed solely at tax benefits, as this can be challenged under the general anti-avoidance rule.

For the R&D relief you need: (1) records of the R&D projects carried out, (2) documentation describing the nature of the work and its innovativeness, (3) records of qualifying costs, (4) documents confirming that these costs were incurred.

For IP Box you need: (1) accounting records that allow the income from qualifying IP to be separated, (2) documentation linking the R&D work to the resulting IP, (3) for software, documentation confirming the copyright, (4) records showing that the so-called nexus ratio is met, which sets out the relationship between qualifying costs and the total cost of creating the IP.

In both cases it is also advisable to prepare documentation explaining the nature of the work, its innovativeness and its connection with the business activity.

The time needed depends on how complex the solution is and on the specifics of your company. Simpler solutions, such as applying the R&D relief to existing projects, take less time than more complex structures, especially international ones. We agree the schedule for your case during the consultation.

The results usually become visible in the following tax year, although some solutions (for example changes to current tax advances) may bring benefits sooner. Keep in mind that the tax authority may take up to about three months to issue an individual tax ruling, and it is worth obtaining one before the actual implementation to reduce risk.

Tax planning is a long-term investment: the full benefits often become visible only after a full tax year.