March 2023

Pro-growth Tax Relief

Pro-growth tax relief, also known as expansion tax relief, is a tool that can potentially be used by a wide group of taxpayers. Under the Corporate Income Tax Act, taxpayers who have manufactured products in the course of their business activities are entitled to this tax relief.

However, there appears to be ambiguity as to whether the legislation refers to products produced exclusively by the taxpayer or products produced by taxpayers in collaboration with other businesses.

Penteris Head of Tax Piotr Prokocki believes that “Restricting the applicability of this form of tax relief to products produced solely by the taxpayer could virtually eliminate its applicability for most taxpayers. We live in an era globalisation and high specialisation where production processes are often carried out by many cooperating businesses.”

He continues, “All ‘producers’ carrying out particular stages of the production process should be able to benefit from this relief. However, this should be excluded for businesses whose role is only limited to reselling products manufactured by other businesses.”

A recent interpretation by the tax authorities, however, has thrown a spanner into the works for investors and developers in the real estate sector and has further muddied the waters.

The tax authorities believe that a developer using subcontractors is not in a position of producing or manufacturing anything and is focused only on trade or distribution activities and is thus not entitled to pro-growth tax relief.

Piotr Prokocki believes that “if the position of the tax authorities goes unchallenged, expansion tax relief will be severely limited both in its availability and applicability for the real estate industry. In the case of a division of tasks between investors and general contractors, the latter will also not be able to take advantage of the relief. These companies provide a service to investors and do not sell products.”

We expect that the interpretation of the National Tax Chamber (KIS) will be challenged, and the courts will decide on the matter. However, if you have any questions regarding the possibility of applying for pro-growth relief in the real estate industry, please contact us.

For more details, please contact Head of Tax Piotr Prokocki.