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06 July 2018
Until 1 January 2018, authors could deduct 50% of their tax deductible expenses from the use of copyright and related rights or from the disposal of these rights by authors and performers under the Personal Income Tax (PIT) Act of 26 July 1991. Tax-deductible costs are costs incurred to earn revenue or to maintain or secure a source of revenue. However, authors could reduce the amount of tax due without having to document the expenditure incurred.
The right to settle 50% of tax deductible costs was available to all authors and performers who created a copyrightable work within the meaning of the Copyright and Related Rights Act of 4 February 1994. According to Article 1 of the act, "the subject matter of copyright is each individual creative work, embodied in any form, regardless of its value, designation, or medium of expression (work)". The Polish system, therefore, provides automatic protection of a work as soon as it has been established without the need to register it (the droit d'auteur system). This legal framework unsurprisingly resulted in a wide range of people exercising their right to settle their tax deductible expenses through the creation of a copyrightable work. The legislature held that the preferential settlement of tax deductible expenses was open to abuse and decided to introduce changes.
The Act of 27 October 2017 amending the PIT Act, the Corporate Income Tax Act and the Flat Income Tax on Certain Revenues Performed by Individuals Act amended Article 22(9b) of the PIT Act to introduce categories of creative activity which entitle authors to settle 50% of their tax deductible expenses and doubled the annual limit of tax deductible expenses from approximately €10,000 to €20,000:
9b. The provision of paragraph 9, subparagraph 3 shall apply to revenues earned on account of the following types of activity:
These changes were criticised due to doubts over their interpretation and the tax authorities' rigorous approach in the application of tax deductible expenses category to a small category of authors. The doubts concerned, among other things, the question of whether the right to deduct 50% of expenses applied to:
Due to the doubts raised, the legislature decided to modify and remedy the scope of the previous amendments. The government's draft bill to amend the PIT Act (which is currently being reviewed by the Senate), addresses the doubts raised by representatives of the creative professions concerning the scope of Article 22(9b) of the act to cover:
Further, the draft provision also covers research and didactic activities conducted in a higher education institution.
The legislature's swift response to remedy the shortcomings of the previous amendments is to be welcomed. However, technological progress and the continued emergence of new non-regulated categories of creative activity, as well as a rigorous interpretation by tax the authorities, could be an obstacle to the legitimate exercise of the preferential rights of authors to settle tax deductible expenses.
For further information on this topic please contact Szymon Gogulski or Jacek Zwara at Soltysinski Kawecki & Szlezak by telephone (+48 22 608 7000) or email (firstname.lastname@example.org or email@example.com). The Soltysinski Kawecki & Szlezak website can be accessed at www.skslegal.pl.
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