A Polish subsidiary performed manufacturing on a limited risk basis (a so-called contract manufacturer) on behalf of the group parent and should be remunerated based on the functions performed. During the year, sales of products are made at constant registration prices based on the standard cost. It is only after the end of the year and the summary of costs and revenues of operations that the applicant is able to determine her own profit level to a fixed level at the level of operating profit. In view of the above, the parties apply a mechanism for determining profitability, including the correction of mutual settlements. The necessary adjustment of profitability to a certain level can take place only after an annual summary of costs and revenues of operations, with detailed data on the applicant’s actual profitability only available at the end of the year or even afterwards.
Given that the operating result obtained by the applicant is subject to verification and correction at the end of a given financial year, in practice it is possible that the correcting invoice ( or other document confirming the reasons for the correction ), which respectively increases or decreases the value of remuneration for sold goods or services a) will be issued after the end of the year, or b) will be issued during the ( last day ) of the financial year.
Against the background, the company asked whether the year end adjustments should be taken into account for the accounting period in which those adjustment-invoices or documents were issued?
In the company´s opinion, the current provisions clearly indicate that adjustments to revenues or tax deductible costs should be made in the accounting period in which the corrective invoice was issued or received or – in the absence of an invoice – another document confirming the reasons for the correction. Only in the event that the correction is caused by a calculation error or other obvious mistake, should the correction be made in the accounting period in which the original income or tax deductible expenses were recorded.
The tax authorities considered the position presented by the applicant to be incorrect. As a rule, the moment when the revenue related to business activity arose shall be considered the date of “delivery”.
Decision of the Administrative Court
The administrative Court dismissed the appeal of YEA s.a. z o.o.
Excerpt in English
“The court also found the allegation of violation of art. 12 sec . 1 item 1, sec . 3 and 3e of the CIT Act to be unfounded . The body correctly found that the funds received by the complainant as a result of the profitability equalization mechanism will constitute income for her at the time of their receipt . Income, pursuant to the provisions of art. 12 sec . 1 item 1 of the CIT Act , should be understood as any property gain related to the receipt of money or monetary values , which is of a definitive nature . This condition was met in this case , because the funds received in order to increase the level of profitability to the previously assumed level are of a non-refundable nature .
In reference to the allegation of violation of art. 12 sec . 3 and 3a of the CIT Act in connection with art. 20a § 1 of the Tax Ordinance , the court notes that in the interpretation of the authority did not state that an absolute premise for recognizing corrections reducing tax revenues is obtaining confirmation of their correctness in the procedure provided for in section IIa of the Tax Ordinance . When issuing the interpretation, the authority referred to , among others, to art. 20a § 1 of the Tax Ordinance and then only stated that it follows from the supplementation of the application for the interpretation that the complainant does not have confirmation of the correctness of the profitability corrections made . Such a statement of the authority cannot be interpreted in any way as conditioning the correction of profitability to the previously assumed level on confirmation of its correctness in the procedure of section IIa of the Tax Ordinance .
Due to the invalidity of the accusation of violation of the provisions of substantive law , the court also found the accusation of violation of the principle of legalism and the principle of acting in a manner inspiring trust to be unfounded.”
In conclusion , the court finds that the contested individual interpretation is in accordance with the law.
In view of the above, the court, pursuant to Article 151 of the Code of Administrative Procedure , ruled as in the operative part of the judgment.”