WNIP in tax costs as a tax optimization tool

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At the outset, it should be remembered that the subject of most activities related to the so-called aggressive tax optimization are transactions related to intangible and legal assets (hereinafter referred to as WNIP). Using WNIP is often unrelated to the real activity of the enterprise. WNIP have an individual character, which makes them an ideal tool for creating the so-called "Tax shield", that is, an artificial, economically unjustified, recognition of WNIP in tax costs.

What do we include as intangible assets (WNIP)?

Intangible assets are subject to depreciation, subject to Art. 16 c, acquired suitable for economic use on the date of acceptance for use:

  1. cooperative ownership right to a flat,
  2. a cooperative right to a business premises,
  3. right to a single-family house in a housing cooperative,
  4. copyright or related property rights,
  5. licenses,
  6. the rights specified in the Act of June 30, 2000 - Industrial Property Law,
  7. value equal to the obtained information related to industrial, commercial, scientific or organizational knowledge (know-how)

- with an expected period of use longer than one year, used by the taxpayer for the purposes related to his business activity or given by him for use on the basis of a license agreement (sub-license), rental agreement, lease or agreement specified in art. 17A, paragraph 1, referred to as intangible assets.

In addition, we consider as WNIP:

  1. goodwill, if this value arose as a result of the acquisition of the enterprise or its organized part by:
    a) purchase,
    b) acceptance for use against payment, and the depreciation, in accordance with the provisions of Chapter 4a, shall be made by the user,
    c) contributing to the company under the provisions on commercialization and privatization;
  2. costs of development works completed with a positive result, which may be used for the purposes of the taxpayer's business, if:
    a) the product or manufacturing technology is strictly established, and the development costs related to them are reliably determined and
    b) the technical suitability of the product or technology has been properly documented by the taxpayer and on this basis the taxpayer has made a decision to manufacture these products or use the technology, and
    c) the documentation relating to development works shows that the costs of development works will be covered with the expected revenues from the sale of these products or the application of technology;
  3. assets listed in paragraph 1, not constituting the ownership or co-ownership of the taxpayer, used by him for the purposes related to the activities under the contract referred to in article 1. 17A, paragraph 1, concluded with the owner or co-owners or entitled to use these values ​​- if, in accordance with the provisions of chapter 4a, depreciation shall be made by the user.

WNIP in tax costs

Tax optimization related to intangible assets consists in transferring such rights to related entities, and then using these rights on the basis of a license or re-acquiring them at a new (increased) tax value. It is generally recognized that the sole or main purpose of this type of operation was to obtain a tax benefit in the form of generating tax deductible costs which would not have occurred in the absence of such action.

The changes introduced to the CIT Act relate to the regulation limiting the amount of NIP in tax costs - up to the amount of revenues from the sale of the rights and intangible assets previously reported by the taxpayer. In addition, in connection with the jurisprudence of administrative courts regarding unregistered trademarks, it has been clarified that the concept of acquisition referred to in Art. 16b paragraph. 1 of the CIT Act, only a secondary acquisition (from another entity), and not a primary acquisition. Acceptance by the jurisprudence of extending the application of this regulation to the original acquisition has led to a situation where taxpayers classify as intangible assets and depreciate from their initial value equal to the market value trademarks "created" as a result of a decision to cover such a trademark with a protection right.

Example 1

The company has a trademark it has produced. In the light of Art. 16b paragraph. 1 of the CIT Act cannot depreciate it. In order to obtain tax benefits, the Company transfers the ownership of the trademark to another entity. After performing the above operation, after some time, it takes over the entity to which it applied the trademark (of course, at a higher value). The above allowed it to depreciate the trademark on the value of the trademark by the end of 2017, i.e. to include WNIP in tax costs. From January 1, 2018, the Company will not be able to do so.

Example 2

The taxpayer owns a trademark manufactured by himself. It is given to the owner's son who runs a business. The original owner concludes a license agreement with his son to which he has transferred the mark. The amounts related to the payment for the license agreement until the end of 2017 could be recognized in costs. The above form of optimization is no longer possible from the new year.