Expenses for the organization of supervisory board meetings - tax costs

Service-Tax

The companies bear the costs related to the functioning of the so-called the supervisory board. This type of expenditure can vary greatly. One of them is the expenses for the organization of supervisory board meetings. In large companies, they can be significant.

Supervisory board - tax costs

In the light of Art. 15 sec. 1 of the Corporate Income Tax Act (hereinafter referred to as the CIT Act), tax deductible costs are expenses incurred in order to achieve income or to maintain or secure the source of income, with the exception of the costs listed in art. 16 sec. 1.

The definition formulated by the legislator is general. Thus, each expense incurred by the taxpayer should be subject to individual analysis in order to qualify it in law. The exception is the situation 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 expenditure. In other cases, however, it is necessary to examine the existence of a causal link between the cost incurred and the generation of income or the real chance of generating tax revenues from their source, or maintaining or securing the source of their receipt. Therefore, a tax deductible cost is a cost that meets all of the following conditions:

  • it has been incurred by the taxpayer, i.e. it must ultimately be covered by the taxpayer's assets;

  • 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 income, preserve or secure the source of 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.

The mentioned Art. 16 sec. 1 of the CIT Act contains an exhaustive list of exclusions from tax deductible costs. This means that any cost that qualifies for any of the items on this list will not be tax-deductible, even if it was incurred to generate income. In the case of expenses related to members of the supervisory board of a specific entity, the provisions of Art. 16 sec. 1 point 38a of the CIT Act, according to which expenses for members of supervisory boards, audit committees or bodies constituting legal persons and the company referred to in Art. 1 clause 3, paragraph 1, with the exception of remuneration paid for the functions performed. The provision also requires an absolute order to exclude all expenses for members of supervisory boards, audit committees or bodies constituting legal persons from tax deductible costs, with only one exception - remuneration paid for their functions.

Pursuant to Art. 16 sec. 1 point 38a of the CIT Act, tax deductible costs despite the lack of a direct relationship between these expenses and the income. At this point, we must point out that the position regarding the possibility of recognizing expenses other than the remuneration of supervisory board members as tax deductible costs was repeatedly taken by administrative courts.

Costs related to the functioning of the legal entity

The concept of "legal person operating costs" has not been specified by the legislator. Undoubtedly, an important issue when classifying expenses to the category of costs related to the functioning of the entity is their connection with the taxpayer's ability to generate income. Taking into account the above criteria, it should be stated that the expenses related to the obligations imposed by law on joint-stock companies and sometimes on limited liability companies are expenses contributing to the company's obtaining revenues - as operating costs of a legal entity constituting tax deductible costs.

The provisions of the Code of Commercial Companies provide for a number of obligations of a joint-stock company, including: the obligation to keep a share register, periodically convening a general meeting of shareholders and publishing an announcement on the date of this meeting, organizing a supervisory board meeting and related announcements, costs related to a supervisory board meeting , providing IT services, engaging a notary in certain activities.

Expenses for the organization of supervisory board meetings

The company incurs expenses related to the organization of supervisory board meetings. We will use an example to illustrate the problem.

Example 1.

A joint-stock company convenes a supervisory board meeting to approve the financial statements. The council consists of eight people. The company's shareholders come from various countries, hence the need to arrange travel and accommodation for them for the meeting. The Company incurs the following related expenses: car rental costs, including car operation costs, taxi, plane flights, conference room rental costs and translation costs. The expenses in question were documented with source documents, i.e. VAT invoices, bills.

As for the expenses related to the functioning of the supervisory board, it is necessary to indicate, pursuant to Art. 381 of the Commercial Companies Code, that the establishment of a supervisory board in a joint-stock company (and this is the form the applicant acts in) is obligatory. It is to perform functions specified by law, related in particular to the operation of a joint-stock company. Therefore, incurring this type of expenses is financing the activities of the company itself. At the same time, these are expenses for the supervisory board as a body of a legal person.

However, in our situation, apart from the costs strictly related to the meeting of the supervisory board, the company also incurred additional costs, such as: flights, car rental, accommodation, etc. including costs of car operation, taxi services) and costs of stay (in particular accommodation costs) paid by the applicant in connection with the seconded employees of service providers performing functions in the applicant's Supervisory Board, may not be included in the company's tax costs pursuant to the above-mentioned Art. 16 sec. 1 point 38a of the CIT Act. Contrary to the applicant's assertion, the above-mentioned expenses cannot be considered remuneration paid for the functions performed by members of the supervisory board. Such expenses are only intended to cover the cost of travel to supervisory board meetings and the costs of stay in the place where the meetings are held. Their bearing is connected with the participation of specific natural persons in the meetings of the board. This means that they constitute expenses for the benefit of members of supervisory boards within the meaning of Art. 16 sec. 1 point 38a of the CIT Act. Thus, it is necessary to exclude them from tax costs.

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On the other hand, with regard to other expenses (i.e. the costs of organizing supervisory board meetings, costs of renting conference rooms, costs of interpreting), it should be stated that from the content of Art. 16 sec. 1 point 38a of the CIT Act, it does not imply the exclusion from tax costs of expenses for servicing the authorities indicated in the provision, which should be considered related to the functioning of the unit itself. Expenses incurred by the company for the organization of supervisory board meetings are not personal. They are related to the functioning of the company's obligatory bodies. Including them in tax costs is conditional on the fulfillment of the general rule of Art. 15 sec. 1 of the CIT Act, in the absence of grounds for exclusion under Art. 16 sec. 1 of the CIT Act.

To sum up, expenses related to the functioning of the supervisory board, in part relating to the costs of renting conference rooms and translation costs, may be included in the company's tax deductible costs. On the other hand, expenses incurred for members of the supervisory board in respect of travel costs (airline tickets, car rental costs, operating costs, taxi services) and costs of stay (including accommodation) do not constitute tax deductible costs.