Can advisory services be a cost if they are used to attract an investor?
Entrepreneurs, wanting to develop, raise capital. In most cases, this is done by taking loans or bank loans and finding an investor or investors. The tax cost to be borne by the entrepreneur will be the result of raising capital. Can advisory services be a cost when they are used to attract an investor? We will discuss in the article below!
Pursuant to Art. 15 sec. 1 of the Act of February 15, 1992 on corporate income tax - hereinafter: the CIT Act - tax deductible costs are costs incurred in order to generate revenues from the source of revenues or to maintain or secure the source of revenues, except for the costs listed in art. 16 sec. 1.
The above definition is general. Thus, each expense incurred by a taxpayer should be subject to individual assessment in order to qualify it in law.
The only exception is when the act clearly indicates its belonging to the category of tax deductible costs or excludes the possibility of including it in this type of costs.
In other cases, however, it is necessary to examine the existence of a relationship between the cost incurred and the generation of income or securing the source of income. At the same time, the cost of obtaining revenues will be both expenses, the incurring of which directly translates into obtaining specific revenues (direct costs) and those that cannot be assigned to specific revenues in this way, but are rationally justified as leading to their achievement (indirect costs). ).
Indirect costs are therefore expenses for the functioning of the enterprise related to the overall activity. They are not in a tangible connection with the specific benefits of the taxpayer, as it is not possible to determine in what period and in what amount the related income was generated.
The taxpayer hired three people in his accounting office. After a month of work, he decided to send new employees to a specialist course on e-commerce accounting. The taxpayer does not currently provide services to online sales companies, but wants to attract such customers. Is sending employees to the course a tax-deductible cost?
Yes, in this case, sending employees to the course is a tax-deductible cost. We are dealing here with an indirect cost. In the future, the above-mentioned expenses may contribute to the generation of revenues.
To sum up, the recognition of an expenditure incurred by a taxpayer as a tax deductible cost must meet the following conditions:
it was incurred by the taxpayer, i.e. in the end it must be covered from the taxpayer's property resources (they are not tax deductible expenses, expenses incurred for the taxpayer's activities by persons other than the taxpayer);
it is final (actual), i.e. the value of the expenditure incurred has not been returned to the taxpayer in any way;
is related to the business activity conducted by the taxpayer;
it was incurred in order to obtain, maintain or secure the source of income or may have an impact on the amount of generated income;
has been properly documented,
may not be included in the group of expenses which, pursuant to Art. 16 sec. 1 of the CIT Act are not considered to be tax deductible costs.
Can advisory services be a cost if they concern investors buying company shares?
In economic practice, taxpayers attract investors by issuing new shares. It is very effective and enables entrepreneurs to quickly raise capital and develop.
The taxpayer decided to issue new shares on the New Connect stock exchange. The company wants to allocate the funds obtained from investors to the development of a new sales platform. For this purpose, the taxpayer decided to use the services of a professional company looking for investors for new shares. He is to pay the consulting company for success, i.e. in the case of attracting investors. The company attracted investors and received remuneration. Are the costs associated with obtaining investors for shares a tax deductible cost?
When answering the question, one should pay attention to the provision of Art. 12 sec. 4 of the CIT Act. The article referred to above contains, however, a closed catalog of property benefits that are not recognized as tax revenues.
Among them, the revenues received for the creation or increase of the share capital, share fund, founding fund, statutory fund in a state bank or the insurer's organizational fund are included. Thus, the legislator clearly indicated that the property values contributed to cover the share capital of a capital company do not constitute its tax income. They are of a separate nature due to the purpose they serve, ensuring that the resources necessary for its operation are collected.
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The example shows that the taxpayer incurred costs related to the issue of shares, i.e. carrying out one of the methods of increasing the share capital. The purpose of the share issue was to collect funds necessary for the development of the company. According to the taxpayer, the implementation of the above objective will improve the taxpayer's financial results, and the new platform will contribute to increasing sales.
Although the costs incurred in the future may affect the increase in revenues, we cannot classify them as tax deductible costs.
In this case, there is an increase in the share capital, i.e. the costs associated with it cannot be considered a tax cost on the basis of the above regulations.
Can advisory services be a cost if they relate to investors but there is no capital increase?
Currently, finding an investor is not always associated with an increase in capital. In many cases, the investor buys back existing shares from shareholders.
The company runs an internet portal. It associates construction service providers with service users. The company receives remuneration for providing access to the platform. The shareholders decided to find an investor who would be an investment fund. Thanks to the investor, the company wants to have access to capital.In order to find an investor, the existing shareholders will sell him the majority of shares in the company. In order to find an investor, the company concluded an agreement with an advisor to find him. The advisor will receive a remuneration if they attract an investor. Are future expenses related to acquiring an investor tax deductible costs?
The presented description shows that the company wants to find an investor. Shareholders want to sell some of their shares in it, she has entered into an agreement with an external advisor to support activities in this area. Considering the above, it should be stated that with regard to the expenses for the purchase of advisory services described above, it will not be connected with an increase of the company's share capital.
Taking into account the above, the acquisition of the above-mentioned consultancy services by a company in order to find an investor should be considered as tax deductible costs. A new investor may lead to the development of the company in the future. Thus, the expenditure is indirectly related to future revenues.
To sum up, taxpayers purchasing services related to acquiring an investor must check whether they can count them as tax deductible costs. In many cases, such services may not constitute a tax deductible cost.
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