In our earlier article, “What do final court rulings mean for real estate companies regarding tax depreciation?” we discussed the controversies surrounding the restriction on tax depreciation introduced by the amendment of Article 15(6) of the CIT Act under the so-called Polish Deal. The issue has now been given a further—and highly significant—resolution by the Supreme Administrative Court, which dismissed the tax authority’s cassation complaint and upheld the position favorable to taxpayers.
Background of the case – depreciation vs. balance-sheet recognition
A property company, holding perpetual usufruct rights to land and owning warehouse halls (Group 1 of the Polish Fixed Assets Classification – KŚT), recorded the properties in its balance-sheet records as investment properties measured at fair value. Consequently, in accordance with accounting principles, it did not make depreciation charges in its financial statements. At the same time, for tax purposes, depreciation continued to be recognized on the basis of the existing initial value of the properties and the rates set out in the CIT regulations.
After Article 15(6) of the CIT Act was amended (effective 1 January 2022), the company sought an individual interpretation, asking whether it could still treat tax depreciation charges on the properties as tax-deductible costs even though no depreciation was recognized for accounting purposes.
Position of the National Tax Information (KIS) – no balance-sheet depreciation = no tax cost
The interpretative authority found the company’s position incorrect. According to the Director of the KIS, the absence of depreciation charges affecting the financial result means that the limit under Article 15(6) of the CIT Act is “0,” so tax depreciation cannot be recognized as a tax-deductible cost at all.
Administrative Court Judgment – linguistic doubts resolved in favor of the taxpayer
The Provincial Administrative Court (WSA) in Warsaw annulled the interpretation, highlighting the provision’s wording, which could not be unambiguously resolved. The court presented two possible interpretations:
- Literal – The limitation applies to all property companies, regardless of whether they carry out balance-sheet depreciation.
- Functional-Systemic – The limitation applies only when the company actually makes depreciation or amortization charges under the Accounting Act.
Invoking the in dubio pro tributario principle, the court adopted the second, taxpayer-friendly interpretation.
Supreme Administrative Court’s position – favorable judgment, though with modified reasoning
The Supreme Administrative Court (NSA) dismissed the authority’s cassation complaint, holding that:
- there is no basis for assuming that the mere absence of balance-sheet depreciation automatically eliminates the possibility of recognizing a tax cost;
- the legislature did not provide transitional provisions depriving taxpayers of the right to continue depreciation—such deprivation would violate the principle of the protection of legitimate expectations and constitutional principles (Article 2 of the Constitution of the Republic of Poland);
- the ratio legis of the amendment was to equalize accounting and tax depreciation rates, not to exclude tax depreciation altogether for companies measuring assets at fair value.
The NSA emphasized that Article 15(6) of the CIT Act applies to property companies regardless of whether a given property company makes depreciation or amortization charges under accounting regulations. Consequently, the provision, for property companies, sets limits determined on the basis of depreciation (amortization) charges made in accordance with accounting regulations and affecting the entity’s financial result in that tax year. If a company does not make such charges—meaning the depreciation value equals “0”—it is not entitled to recognize any tax depreciation (its limit is “0”).
Thus, because the provision refers to “charges made in accordance with accounting regulations (…) affecting the entity’s financial result,” the absence of such charges renders the provision inoperative. Only where balance-sheet depreciation exists can the limitation be applied.
A dissenting opinion was filed, although it did not address the substantive issue decided.
Our comment
The NSA judgment fits within a line of case-law confirming taxpayers’ right to depreciation where a literal reading would excessively restrict taxpayers’ rights and violate constitutional principles. This is another important ruling for property companies, which should now review their accounting and tax policies regarding the classification and depreciation of real estate.
Łukasz Kempa, Head of Tax Advisory, Tax Advisor
