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Income sources in CIT to be distinguished between capital gains and other sources | SSW Tax Alert

According to the Act of 27 October 2017 amending the CIT Act, as of 1 January 2018, the income from capital gains and from other sources will be taxable. The introduction of this division into de facto two separate sources of income means that if, in the course of its business activity, the taxpayer generates income just from one of these sources and the other one generates a loss, the income will be subject to CIT taxation without the possibility to deduct the loss incurred on the other income source.

In the light of the amendment, it will be possible to settle the losses generated for each source within the respective source, according to analogous principles to the currently applicable ones, i.e. over the next 5 fiscal years, assuming that the deduction in any single year must not exceed 50% of the loss.

The amendment sets forth a long list of income types which will be treated as “capital gains”, including dividends and other actual income from participation in profits of legal persons (including revenues from restructuring operations in the form of mergers or divisions), income from a non-financial contribution to a company, from sale of receivables, income from property rights, securities and derivatives, and from participation titles in investment funds.

The additional income source distinguished in the CIT Act will also imply the obligation to keep separate accounts for the purposes of determination of the respective revenues, costs and tax basis for each of the income sources. Specifically, the accounts should provide for the possibility of allocating indirect costs to the appropriate income source. When a given indirect cost applies to both income sources, an appropriate allocation key will have to be used, based on which the relevant portion of the cost will be allocated to the appropriate income source. This will lead to significant increase of the administrative burden for CIT taxpayers.

The absence of vacatio legis with respect the introduced changes means that taxpayers have very short time to adapt to the new legal requirements.

Should you be interested in discussing the impact the upcoming regulations might have on your business, please do not hesitate to contact us.

Patrycja Goździowska - Partner, Tax Advisor

Tomasz Wickel - Partner, Attorney at Law