Limiting the costs of marketing coordination and development services. Does re-invoicing matter?
The cost of acquisition of a service of marketing coordination and development from an unrelated entity, re-invoiced to another related entity is treated by such other related entity as a service acquired from a related entity, and as a consequence is subject to the limitation in recognition of costs as tax deductible costs pursuant to Art. 15e (1) of the CIT Act - such a standpoint was presented by the Head of the National Revenue Information Service in the private tax ruling of April 7, 2020 (case no. 0114-KDIP2-2.4010.20.2020.1.SJ).
The case concerned a Polish company engaged in the production and distribution of food products. Its affiliate, a company incorporated under French law, is responsible for managing production, distribution and concluding trade agreements with global distribution networks, which provide a framework for the cooperation between the entities in the group, including the applicant, and the various networks. Under such agreements, the global distributors provide marketing services to related entities, including the display of goods sold by the entities in the group to local distributors. For these services, the global distribution networks are remunerated by the individual companies in the group. The remuneration constitutes a percentage of the turnover made by the company to the local distributor and is paid through the French company invoiced. The French company then reinvoices the costs incurred to related entities.
With regard to the above, the Polish company was concerned if the costs incurred to a global distributor (through a related entity) are covered by the restriction under Art. 15e (1) of the CIT Act due to the fact that the actual beneficiary of the applicant’s payment is not an affiliate. The applicant also asked whether the costs incurred may benefit from the exemption from the limitation on the grounds of their direct link with the sale of goods.
In the opinion of the Head of the National Revenue Information Service, the acquired services of marketing coordination and development have been included in Art. 15e (1) (1) of the CIT Act and therefore are subject to the limitation in being charged as deductible costs. The re-invoicing exemption will not apply to them, because the applicant does not re-invoice the costs of services, but the costs are re-invoiced to him. The authority emphasized that if a related entity purchases a service from an unrelated entity, which it then re-invoices to another related entity, then such a service is treated by that other related entity (in the present case, by a Polish company) as a service purchased from a related entity.
They are also not costs of services, fees and charges included in the tax deductible costs directly related to the production or purchase of goods or services by the taxpayer, referred to in Art. 15e (11) (1) of the CIT Act, because they are not incurred in connection with a specific product or service. In the opinion of the interpreting authority, the costs of such services have only an intermediate impact on the sale of goods and they are not costs included in particular, clearly identifiable goods as cost of their production. The marketing coordination and development services purchased by the applicant relate to products already manufactured with the aim to increase their sales. They must not therefore be regarded as costs connected with the production of the goods themselves.
On these grounds, the Head of the National Revenue Information Service stated that the costs of marketing coordination and development services are subject to the limitation in qualification as deductible costs pursuant to Art. 15 (1) of the CIT Act.
Magdalena Walczyńska, Tax Consultant, ATA Tax Sp. z o.o.
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