Expert's advice

point of view of taxation. Such interpretation was issued by the Director of the Fiscal Chamber in Warsaw in an individual interpretation dated 02.09.2009, reference number: IPPB5/423-311/09-2/MB.

A company (requesting party) has renovated its own fixed assets at the cost of 466 000 PLN. According to the estimates of technicians such renovation will have to be performed again within a few years. From the accounting point of view the company spread the costs of the renovation within the period of 5 years, but for the purposes of the income tax it included it in the deductible expenses once without settlement over time. According to the company such decision conforms with article 15 paragraph 4d of the Act on the Company Income Tax about including indirect costs to deductible expenses on the date when they are incurred.

Fiscal authority decided that such reasoning was incorrect. It agreed with the taxpayer that the cost of the renovation would be deduced at the moment when it was incurred, however an important issue was the moment when the cost was incurred. According to article 15 paragraph 4e of the Act on the Company Income Tax, except for paragraph 4a and 4f-4h, it is assumed that the day of incurring a deductible expense is the day when the expense enters accounting books on the basis of the received invoice (bill) or the day when the cost enters accounting books on the basis of a different document in the case when there is no invoice (bill), except for the situation when it relates to reserves which are treated as costs or accrued expenditures. Fiscal authority decided that expenditure may be treated as a deductible expense from the taxation point of view at the moment when it is included in the books according to the regulations specified in the Taxation Act. However, this may not be any inclusion of the expenditure in the books, but "entering it as expenditure”, according to accountancy rules. According to these rules, the costs incurred in the present period which are so large would significantly deform the results from the period and their relation to future income is obvious, therefore the expense should be activated and systematically deduced over time or in compliance with the amount of payments.

Consequently, in this case, the taxpayer who spread renovation expenditures over the period of 5 year in the balance, should also treat them as deductible expenditures in the same periods from the taxation point of view, therefore should settle them over time.

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