Eligibility of leave of absence and sick leave for R&D relief
The research and development tax relief (R&D relief) intended to support innovativeness of Polish entrepreneurs attracts continuous interest. With this relief, it is possible to deduct expenses related to research and development activities from the tax base. The expenses include, without limitation, up to 200% of remuneration paid to employees to the extent the time in which they perform the research and development activities is within their overall working time in a given month.
Until recently, those who used the R&D relief in practice encountered divergent interpretations regarding the possibility of deducting the remuneration paid to employees who are engaged in R&D work from the tax base also during the period of their excused absence from work due to holiday or sick leave. Tax authorities contested this possibility, while administrative courts, in a well-established line of rulings, sided with taxpayers.
The dispute was finally resolved by the Minister of Finance in a general ruling of 13 February 2024 favorable to taxpayers.
Excused absence and eligible expenses
Pursuant to Article 18d(2)(1) of the Corporate Income Tax Act (the CIT Act) and Article 26e(2)(1) of the Personal Income Tax Act (the PIT Act), respectively, a cost eligible for deduction is defined as an expense incurred for the remuneration paid to employees in proportion of the time spent on R&D activities to the employees’ total working time in a given month.
Until recently, the tax authorities took the stance that only expenses for the remuneration of an employee who actually performs R&D work can be deducted from the tax base, to the exclusion of remuneration for leaves of absence and sick leaves. A different position was taken by administrative courts, which indicated that remuneration to be paid to an employee during leave of excused absence (due to holiday, special leave or sick leave) is inseparable from the employment relationship and must be considered part of the expenses eligible for the R&D relief.
In a general ruling of 13 February 2024 No. DD8.8203.1.2021, the Minister of Finance confirmed the position held by the administrative courts, and confirmed that costs eligible for the R&D relief included amounts incurred in a given month for the purposes referred to in Article 12(1) of the PIT Act (including remuneration resulting from the employment relationship) and contributions financed by the remitter on such amounts, as defined in the Social Security Act, in the same proportion as the time spent on R&D activities to the overall working time of the employee in a given month, including amounts paid for excused absence of the employee which the employer is obliged to incur under separate regulations, including those relating to leaves of absence and sick leaves.
This approach means that larger deductions from the tax base can be made safely when the R&D relief is used. This is positive news for those enterprises that use or plan to use the R&D relief, which has so far resulted in significant tax savings for taxpayers operating in a variety of sectors, such as food sector, industrial production or new technologies.
You are welcome to contact us if you would like to know more about the R&D relief or you need support in implementing it. Andersen experts are ready to assist you throughout this process.
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