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Allocation of indirect costs between revenue sources


The Head of the National Revenue Information Service (KIS) has acknowledged in recent rulings that the revenue from dividend, whether taxable or exempt from tax, is not to be taken into consideration in determining the ratios for indirect cost allocation between two different sources of revenue.


The definition of a new allocation key in the regulations is a natural implication of the introduction on 1 January 2018 of the division of revenue into revenue from capital gains and other revenues (i.e. derived from other sources). In addition to the division of indirect costs into the revenues the income from which is taxable and those not taxable or exempt from tax, taxpayers are required in the next step to allocate the indirect costs between two revenue sources, i.e. capital gains and other revenues. Taxpayers’ concerns may be aroused by how to properly include, in the allocation keys, the revenues from dividend – particularly those exempt from tax.


Until the end of 2017, it was commonly believed that dividends exempt from CIT should not be included in the key for allocation of indirect costs between taxable revenues and those that are not taxable or exempt from CIT. This follows from the fact that it is gross revenue rather than net income that provides the taxable base for dividends, whereas the relevant CIT provisions refer to the costs of revenue, where it is income rather than revenue that is taxed, or exempt or not taxable. Thus, gaining a benefit in the form of dividend did not result in a certain part of indirect costs being excluded from tax deductible costs.


Since January 2018, due to the separation of gains a new concern has arisen whether dividend exempt from CIT should be included by taxpayers in determining the key for cost allocation between two revenue sources (i.e. capital gains and other sources). This is because Article 15 (2b) requires that subsections 2 and 2a be applied to the allocation of indirect costs to either of the sources.


In a tax ruling issued on 16 May 2018 (0114-KDIP2-3.4010.89.2018.1.MC), the Head of the National Revenue Information Service held that the revenues from dividend (being exempt from CIT) should not be included at any stage of cost allocation. This position has been affirmed by the Head of the KIS in other rulings issued in August 2018.


The indirect cost allocation procedure should be carried out over two stages:


Stage I:  Determination of the value of indirect costs that can be deemed as tax deductible costs relating to taxable income, and the value of costs relating to the income exempt from CIT (or not taxable with CIT).

Stage II:  Allocation of the established amounts of costs to the revenue from capital gains and to that from other sources.


As the tax authorities have indicated, the dividends received by a taxpayer are not to be included in either the numerator or the denominator of the ratio in the key for allocating indirect costs to proper sources.

Hence, the dividends received by a taxpayer will remain neutral as regards the allocation of costs between the revenue sources as recognised since 2018.


Barbara Otrzonsek, Tax Consultant, ATA Tax Sp. z o.o.