Application of the exemption connected with the activities conducted in a special economic zone within strictly defined timeframes
Taxpayers planning to conduct business activities within a special economic zone should take into account that they will not be able to freely defer the moment of applying the exemption, e.g. by the time of deducting tax losses carried forward. According to tax authorities, the regulations clearly indicate the timeframes within which a company operating within a special economic zone is to apply the exemption.
Such an interesting inquiry was addressed to the Minister of Finance by a certain company specialising in the manufacture of shoes that is planning to conduct the activities within a special economic zone. The company was going to apply the exemption from income tax in connection with the activities in the zone only after having deducted tax losses incurred in the years 2012-2015. In the company’s opinion, the corporate income tax exemption of income earned from the activities conducted within a special economic zone is not an obligation but an entitlement, and so regardless of the fact that the activities are conducted in a special economic zone, the company may continue to tax all of its income, i.e. not apply (over a period chosen at its own discretion) the exemption it is entitled to. The Director of the Fiscal Chamber in Katowice did not agree with the taxpayer’s position (individual binding ruling of 17 June 2016, ref. no. IBPB-1-2/4510-458/16/MS).
Satisfaction by the taxpayer of the conditions laid down in Article 17.1.34 of the CIT Act means that the taxpayer’s income earned from the activities conducted within a special economic zone, as indicated in the authorisation, are exempt from tax. If the possibility of deciding freely on the application of the exemption was admitted by the legislator, it would have been clearly indicated by a relevant provision of the law. Exemption from tax is an entitlement understood as derogation from the general application of tax chargeability. Both the authorisation[R1] to conduct the activities within a zone and the resultant exemption from tax represent entitlement for the taxpayer. The exemption is not a duty – the taxpayer may always give up the exemption by submitting an application for expiry of the authorisation. And as regards the exact moment as of which the taxpayer’s activities in a special economic zone are covered by the exemption, it is stipulated by Section 5.1 of the Regulation of the Council of Ministers of 10 December 2008 regarding public aid granted to entrepreneurs operating pursuant to an authorisation to conduct business activities within special economic zones – the exemption from income tax due to the costs of a new investment is enjoyed by an entrepreneur starting as of the month in which such entrepreneur made investment outlays over the period from the date of receiving the authorisation. The same provision indicates also the end date for applying the exemption – i.e. until the admissible regional aid has been exhausted. While in the case of an entrepreneur whose enterprise or an organised part thereof has been included within the boundaries of the zone in connection with a new investment, the exemption is enjoyed from the month following the month in which investment outlays were made and the employment level was reached, as specified in the authorisation, over the period from the date of receiving the authorisation, until the admissible regional aid has been exhausted.
A decision to apply for an authorisation to conduct the activities within a special economic zone is usually motivated by one objective: the exemption of generated income from charging income tax thereon. The conditions imposed in the authorisation, such as specific value of investment in the zone or necessity to create indicated number of work positions (and maintaining specified level of employment over a certain time), are secondary for many entities if they planned anyway investments consisting in e.g. starting another production line. If, however, a company disclosed tax losses, before a decision is made to enter the zone it is worth considering whether potential advantages from the activities conducted within the zone, with regard taken of all restrictions connected with the authorisation, are worth giving up the possibility to deduct tax losses.