Ruling description

The Provincial Administrative Court (WSA) in Cracow issued a ruling on September 10, 2014 (case no. I SA/ Kr 829/14) in which it held that the terms “expense” and “cost” are not identical pursuant to the Corporate Income Tax Act (CIT Act). Since Article 15 of the CIT Act indicates the notion of the bearing of the cost, it should be acknowledged that it includes not only the actual expense incurred by a taxpayer, but also the decrease in assets or increase in liabilities of the taxpayer which has no relation to the actual outflow of cash from the taxpayer’s assets. Consequently, in the event of sale of loan receivable, the price of which includes the principal amount and interest, the tax deductible cost of the seller of the receivable (assignor) will also include interest due on the said loan.


According to the stance presented by the tax authorities, the interest on the loan charged up to the date of assignment does not constitute a tax deductible cost for the assignor, because in this case there is no element of expense incurred by the taxpayer. The administrative courts present a stance to the contrary. The Provincial Administrative Court in Cracow in the commented ruling rightly indicated that the provision of Art. 15 section 1 of the CIT Act refers to the incurred costs, not expenses. These terms are not identical pursuant to the CIT Act, as had been stated by the administrative courts (e.g. Supreme Administrative Court rulings of November 21, 2012 in case no. II FSK 1509/11, and of January 4, 2005, in case no. FSK 833/04). Consequently, it should be acknowledged that the term “costs” incurred by a taxpayer is broader than the term “expenses” and also includes for instance increased liabilities. The fact that the CIT Act provides for the tax deductibility of interest on a cash basis does not affect the above conclusion. It does not change the character of the assignment agreement, namely the fact that all related rights regarding the receivable, including interest, are transferred together with the receivable to the purchaser. Hopefully, the tax authorities will now change their stance in light of the above favorable ruling.