**2. Tax revenues**

The corporate income tax is based on the universal principle that the value of the tax which the entrepreneur is liable to pay depends on the tax base and tax rates. The tax base is subject to tax harmonization, i.e., the amount will be determined according to uniform rules for all companies covered by the CCCTB in individual EU countries. The tax base will therefore be the difference between taxable income, minus income exempt from taxation and deductible costs. Thus, to determine the tax base, it is important to indicate the notion of tax revenues, income exempt from income tax and deductible costs. Defining these categories in the system of a common consolidated corporate tax base should include a set of common rules for calculating the corporate tax base, without prejudice to the provisions laid down in Council Directives 78/660/EEC and 83/349/EEC and Regulation of the European Parliament and of the Council 1606/2002/EC.

The analysis of the tax base for corporate income tax in the Polish legislation in the context of the CCCTB concept should start with defining the tax base, i.e., taxable income. In the simplest terms, this is defined as a difference between tax revenues and the costs of obtaining them.

In accordance with the provisions of Polish law on corporate income tax, income tax represents the excess of the sum of revenues over costs to obtain them achieved in the fiscal year, subject to the special rules for determining the income (revenue) from participation in profits of legal persons and transactions between related parties and entities residing in tax havens.1 If the deductible costs exceed the amount of revenue, the difference is a loss. In certain situations, the tax base is the income without taking into account tax-deductible expenses. The income indicated in the act is the basis of income taxation regardless of the type of revenue sources from which it accrues.

The Polish law on corporate income tax does not explicitly specify the definition of "income". The rules for the generation of income are defined in Art. 12 of the Act on Corporate Income Tax. Art. 12, par. 1, only contains a catalogue of examples of taxable income subject to corporate income tax. This is indicated by the legislator with the phrase "income particularly includes". This is an open list, and tax revenues particularly include:


<sup>1</sup> Vide Law of 15 February 1992 o podatku dochodowym od osób prawnych [on Corporate Income Tax] (OJ 2000 r. No. 54, pos. 654 with later modifications, Art. 7, par. 2; Art. 10, Art. 11.


The chapter discusses the base of the corporate income tax and summarizes the provisions of Polish law on corporate income tax with the draft CCCTB directive. An analysis of tax revenues and tax costs with particular emphasis on revenue not constituting tax revenue and

The corporate income tax is based on the universal principle that the value of the tax which the entrepreneur is liable to pay depends on the tax base and tax rates. The tax base is subject to tax harmonization, i.e., the amount will be determined according to uniform rules for all companies covered by the CCCTB in individual EU countries. The tax base will therefore be the difference between taxable income, minus income exempt from taxation and deductible costs. Thus, to determine the tax base, it is important to indicate the notion of tax revenues, income exempt from income tax and deductible costs. Defining these categories in the system of a common consolidated corporate tax base should include a set of common rules for calculating the corporate tax base, without prejudice to the provisions laid down in Council Directives 78/660/EEC and 83/349/EEC and Regulation of the European Parliament and of the Council 1606/2002/EC. The analysis of the tax base for corporate income tax in the Polish legislation in the context of the CCCTB concept should start with defining the tax base, i.e., taxable income. In the simplest terms, this is defined as a difference between tax revenues and the costs of obtaining them.

In accordance with the provisions of Polish law on corporate income tax, income tax represents the excess of the sum of revenues over costs to obtain them achieved in the fiscal year, subject to the special rules for determining the income (revenue) from participation in profits of legal persons and transactions between related parties and entities residing in tax havens.1 If the deductible costs exceed the amount of revenue, the difference is a loss. In certain situations, the tax base is the income without taking into account tax-deductible expenses. The income indicated in the act is the basis of income taxation regardless of the type of revenue

The Polish law on corporate income tax does not explicitly specify the definition of "income". The rules for the generation of income are defined in Art. 12 of the Act on Corporate Income Tax. Art. 12, par. 1, only contains a catalogue of examples of taxable income subject to corporate income tax. This is indicated by the legislator with the phrase "income particularly

**2.** Value of goods or rights received free of charge or partially for a fee, as well as the value of

Vide Law of 15 February 1992 o podatku dochodowym od osób prawnych [on Corporate Income Tax] (OJ 2000 r. No.

includes". This is an open list, and tax revenues particularly include:

**3.** Value (subject to par. 4 item 8 of the Act) of redeemed or expired:

**1.** Received money, cash, including foreign exchange differences

other unpaid or partially paid benefits

54, pos. 654 with later modifications, Art. 7, par. 2; Art. 10, Art. 11.

expenses is not considered tax deductibles.

**2. Tax revenues**

4 Taxes and Taxation Trends

sources from which it accrues.

1

The literature indicates that, based on the open list contained herein, income can be defined as any enlargement of property resulting in increasing assets or decreasing liabilities [1]. Such definition of tax revenue is also reflected in court decisions. In its judgement of 13 July 2010, the Supreme Administrative Court stated that:

*the legislature did not formulate the requirement that income may only cover the benefits mentioned in Art. 12, which are a direct result of achieving the aim of economic activity of a legal person. Therefore any cash deposit may be considered as income of the legal person, provided it meets other requirements set out in section 2 herein. In particular par. 4 of the quoted article contains a list of benefits that cannot be classified as income. It is important to note that the legal norm contained in Art. 12, par. 4 of the act on corporate income tax provides a closed list, the scope of which is not subject to extension or constriction through the use of analogy and extensive interpretation.*

Essentially, including a property benefit in the revenues of the legal person is determined by the definitive nature of the benefit in the sense that it definitively actually increases the assets of the legal person. In its judgement dated 27 November 2003, the Supreme Administrative Court in Warsaw stated that "income can include only those values that determine the final increase in the assets of the taxpayer".

At the same time, recognizing a benefit as income is not determined by the fact that it was not included in the list of tax revenues not recognized by legislature. This was pointed out by the Supreme Administrative Court in its judgement in 14 May 1998, in which it stated that:

*the essence of the income tax suggests that it is a public and legal burden on the increase in wealth (income) and, therefore, the revenue - as a source of income – is only the value in entering the property of the taxpayer, may increase their assets. Therefore, the money or monetary values received within the meaning of Art. 12, par. 1 item 1 of the Act in question only include such values that increase the assets of the taxpayer, i.e., those they can dispose of as their own.*

Taxation should cover all income, unless expressly exempted. Tax-neutral revenues and therefore those that do not constitute bases for determining the taxable income of the taxpayer are listed in Art. 12, par. 4 act on corporate income tax, where an exhaustive list is included. As a result of this regulation, this provision provides a closed list, the scope of which is not subject to extension or narrowing through the use of analogies or broad interpretation.

Income free of income tax includes payments or accrued receivables on the account of the supply of goods and services. Recognizing received or accrued contributions as deferred revenue requires the ability to allocate these payments to future accounting periods. The company must prove (pointing to the provisions of the contract or the content of the invoice) that the supply of goods or services is to take place in the following accounting periods after the accounting period in which the taxpayer receives payment (advance payment). The provision in question applies in particular to services provided on a continuous basis.

According to Art. 12, paragraph 4, item 2, income not constituting tax revenues includes amounts of accrued but not received interest on debt, including outstanding loans (credits). This provision shows that interest is neutral for tax purposes until they paid. The taxpayer receives tax revenue from interest income at the time of actual receipt. In this case, cash accounting will apply, which means that the entity, which is owed interest is required to allocate them to their tax revenues only in the accounting period in which the interest is actually received. Any decision of contractors regarding, e.g., changes in interest rates on loans, postponement of payments, etc., shall remain tax neutral until actual payment of interest.

• The accrual basis.

valuation).

2

stances justify a change (consistency).2

• Gains and losses are recognized only when they are effective (principle of realization). • Taxable transactions and events are measured individually (the principle of individual

Base of Corporate Income Tax and the EU Concept http://dx.doi.org/10.5772/intechopen.72530 7

• Income calculation is performed according to uniform rules, unless exceptional circum-

The introduction of the said rules would favourably distinguish the CCCTB proposals from those used in Polish law on corporate income tax. The Polish solutions reflect the accrual basis in relation to taxable income and costs. The realization principle can be found in relation to interest income and expenses, but it lacks a general reference to taxable profits and losses. The principles of individual valuation and consistency are also slightly emphasized in Polish law. The draft directive defines the concepts of revenues, profits and losses. The term "revenues" defines income from sales and all other transactions, without the value-added tax and other taxes and duties collected on behalf of government authorities, in cash or noncash form, including proceeds from the disposal of assets and rights, interest, dividends and other distributions and proceeds from liquidation, royalties, subsidies and grants, gifts received, compensation and voluntary payments. Revenues also include in-kind donations made by the taxpayer. Revenues shall not include equity raised by the taxpayer or debt repaid to the taxpayer. According to the authors of the draft directive, "profit" means a surplus of revenues over deductible expenses and other deductible items in a tax year, and "loss" means the

excess of deductible expenses and other deductible items over revenues in a tax year.

**1.** For the purposes of calculating the tax base, transactions are evaluated by:(…)

(b) Their market value for monetary donations received by the taxpayer.

(a) Their market value, if all or part of the benefit from the transaction, is nonmonetary.

The calculation of the tax base is carried out in a uniform manner, unless exceptional circumstances justify a change in

Unless otherwise provided, tax base is determined for each tax year. Unless otherwise provided, tax year is any period

on Article 22 of the draft directive *Valuation*, which states that:

When calculating the tax base, only effective gains and losses are taken into account.

Vide draft directive Article 9 general principles:

of twelve months. Also, WP/066/2008, p. 2 item 5.

the method of calculation.

Transactions and taxable events are measured individually.

It is worth emphasizing that, in accordance with the draft directive, taxation applies not only to noncash donations collected by the recipient but also those transferred by the recipient. In the case of the donor it is in fact a fictitious revenue, resulting from the adoption of a fiction that the donated item has not been donated, but was sold according to its market value. In this way, the tax covers the so-called hidden reserves, i.e., income equal to the difference between the market value and the accounted value of a donation [3]. In the Polish law on corporate income tax, there are no solutions requiring the taxation of the donor; hence, the solutions contained in the draft directive may be considered to be less favourable for Polish enterprises. Such an approach to the valuation of monetary donations received by the recipient is based

Income exempt from taxation also includes revenue generated by redeemed shares in a company in the part constituting the cost of their purchase or acquisition. The matter also applies to the value of assets received by shareholders in connection with the liquidation of the legal entity. On the other hand, the amounts received for the redeemed shares in excess of expenditure on the acquisition of those shares are taxable income.

In accordance with the provisions of the act, tax-exempt revenues are revenues due to redistributable as well as non-redistributable capital, provided for the Code of Commercial Companies. Such subsidies are a variety of cash benefits brought by shareholders for the company to enlarge its assets. Therefore, subsidies do not affect the size of the share capital. Tax income also does not include amounts and values that are in excess of the nominal value of shares, resulting in their release and transferred to the capital.

Neutral tax cash contributions include funds brought to the capital company and noncash contributions. The provisions of the Law on Corporate Income Tax represent that property values brought to cover equity (capital) are not tax income of businesses, which means that the capital raised through the issue of new ordinary shares shall not constitute taxable income. The consequence of this is the fact that expenses related to the acquisition of capital may not be treated as tax-deductible costs. After all, they do not refer to tax income. They are directly related to the performance of a tax-neutral operation on the share capital [2].

In accordance with the provisions of the Polish Law on Corporate Income Tax, the provisions of the act shall not apply to:


The presented provisions show that income derived from these activities is not subject to income tax, i.e., it is free from this tax.

In the EU concept of a common consolidated corporate tax base, it has been determined that the tax base is calculated by decreasing income by income exempt from tax, deductible expenses and other deductible items. Next to the definition, a normative interpretation of specific rules for its determination was proposed. It has been stated that income shall be calculated according to the following general principles:

• The accrual basis.

This provision shows that interest is neutral for tax purposes until they paid. The taxpayer receives tax revenue from interest income at the time of actual receipt. In this case, cash accounting will apply, which means that the entity, which is owed interest is required to allocate them to their tax revenues only in the accounting period in which the interest is actually received. Any decision of contractors regarding, e.g., changes in interest rates on loans, postponement of payments, etc., shall remain tax neutral until actual payment of interest.

Income exempt from taxation also includes revenue generated by redeemed shares in a company in the part constituting the cost of their purchase or acquisition. The matter also applies to the value of assets received by shareholders in connection with the liquidation of the legal entity. On the other hand, the amounts received for the redeemed shares in excess of expenditure on

In accordance with the provisions of the act, tax-exempt revenues are revenues due to redistributable as well as non-redistributable capital, provided for the Code of Commercial Companies. Such subsidies are a variety of cash benefits brought by shareholders for the company to enlarge its assets. Therefore, subsidies do not affect the size of the share capital. Tax income also does not include amounts and values that are in excess of the nominal value

Neutral tax cash contributions include funds brought to the capital company and noncash contributions. The provisions of the Law on Corporate Income Tax represent that property values brought to cover equity (capital) are not tax income of businesses, which means that the capital raised through the issue of new ordinary shares shall not constitute taxable income. The consequence of this is the fact that expenses related to the acquisition of capital may not be treated as tax-deductible costs. After all, they do not refer to tax income. They are directly

In accordance with the provisions of the Polish Law on Corporate Income Tax, the provisions

• Income from agricultural activities, with the exception of income from special branches of

• Revenue (income) of shipowners taxed under the principles arising from the Law of 24

The presented provisions show that income derived from these activities is not subject to

In the EU concept of a common consolidated corporate tax base, it has been determined that the tax base is calculated by decreasing income by income exempt from tax, deductible expenses and other deductible items. Next to the definition, a normative interpretation of specific rules for its determination was proposed. It has been stated that income shall be cal-

the acquisition of those shares are taxable income.

of the act shall not apply to:

6 Taxes and Taxation Trends

agricultural production

August 2006 on Tonnage Tax.

income tax, i.e., it is free from this tax.

of shares, resulting in their release and transferred to the capital.

• Income from forestry within the meaning of the forest act

culated according to the following general principles:

related to the performance of a tax-neutral operation on the share capital [2].

• Revenues resulting from activities, which may not be legally effective contracts


The introduction of the said rules would favourably distinguish the CCCTB proposals from those used in Polish law on corporate income tax. The Polish solutions reflect the accrual basis in relation to taxable income and costs. The realization principle can be found in relation to interest income and expenses, but it lacks a general reference to taxable profits and losses. The principles of individual valuation and consistency are also slightly emphasized in Polish law.

The draft directive defines the concepts of revenues, profits and losses. The term "revenues" defines income from sales and all other transactions, without the value-added tax and other taxes and duties collected on behalf of government authorities, in cash or noncash form, including proceeds from the disposal of assets and rights, interest, dividends and other distributions and proceeds from liquidation, royalties, subsidies and grants, gifts received, compensation and voluntary payments. Revenues also include in-kind donations made by the taxpayer. Revenues shall not include equity raised by the taxpayer or debt repaid to the taxpayer. According to the authors of the draft directive, "profit" means a surplus of revenues over deductible expenses and other deductible items in a tax year, and "loss" means the excess of deductible expenses and other deductible items over revenues in a tax year.

It is worth emphasizing that, in accordance with the draft directive, taxation applies not only to noncash donations collected by the recipient but also those transferred by the recipient. In the case of the donor it is in fact a fictitious revenue, resulting from the adoption of a fiction that the donated item has not been donated, but was sold according to its market value. In this way, the tax covers the so-called hidden reserves, i.e., income equal to the difference between the market value and the accounted value of a donation [3]. In the Polish law on corporate income tax, there are no solutions requiring the taxation of the donor; hence, the solutions contained in the draft directive may be considered to be less favourable for Polish enterprises. Such an approach to the valuation of monetary donations received by the recipient is based on Article 22 of the draft directive *Valuation*, which states that:

	- (a) Their market value, if all or part of the benefit from the transaction, is nonmonetary.
	- (b) Their market value for monetary donations received by the taxpayer.

<sup>2</sup> Vide draft directive Article 9 general principles:

When calculating the tax base, only effective gains and losses are taken into account.

Transactions and taxable events are measured individually.

The calculation of the tax base is carried out in a uniform manner, unless exceptional circumstances justify a change in the method of calculation.

Unless otherwise provided, tax base is determined for each tax year. Unless otherwise provided, tax year is any period of twelve months. Also, WP/066/2008, p. 2 item 5.

The list of exemptions from income tax contained in the draft directive is relatively short. Article 11 *Income exempt from taxation* reads:

Exemption from tax should also apply to income from dividends, proceeds from the disposal of shares in the company outside the group and the profits of foreign establishments. By granting relief for double taxation, the majority of member states exempts the dividends and proceeds from the disposal of shares, thus avoiding the necessity of calculating the amount to be deducted for tax paid abroad, in particular when while calculating the vested deduction, one must take into account the amount of corporate tax paid by the company paying the dividend. The exemption of income earned abroad meets the same requirement

While conducting research on a common consolidated tax base and its importance for the Polish and EU companies, questions were asked regarding the significance of revenues other than tax income. The test results are very interesting also from the point of view of simplifying the Polish tax system. Data showing the answers given by Polish companies is included

The analysis of the data contained in **Table 1** shows a high insignificance of amounts of income not constituting tax revenues. This may be due to the fact that many of these exemptions are specific and relate to specific companies, e.g., in the agricultural production and forestry activities in the SEZ. These subjects were relatively few in the total group of

The provisions of the Corporate Income Tax Act do not contain a strict list of expenses that are treated as tax-deductible costs [4]. According to the Act, deductible costs are costs incurred to generate revenue or maintain or secure sources of income, apart from the costs, which

sion leads to the conclusion that all incurred expenses, excluding those restricted by law,4

tax-deductible costs as long as they remain in the causal link with revenues, including those aimed at maintaining or securing the functioning of the source of revenue. The provisions of the Act show that it is possible to recognize as deductible costs these expenditures, which judging rationally—can help to create or increase the company's revenue, provided that the expenditure has not been excluded from such costs. In the jurisprudence of administrative courts and tax authorities, the notion that costs within the meaning of the Corporate Income Tax Act may include those expenses that are in a causal relationship to the economic activity

While defining deductibles for tax purposes, one should not use the definitions contained in other laws, e.g., the Accounting Law. The definitions presented in the theory of economics and

The basic condition for the recognition of the expense as a deductible cost is the absence of this expense in the catalogue of expenditures that are not recognized by the legislature as deductible costs. A list of these expenditures is set out in

A literal interpretation of this provi-

Base of Corporate Income Tax and the EU Concept http://dx.doi.org/10.5772/intechopen.72530 9

are

of simplifying the system.

in **Table 1**.

3

4

corporate income tax.

the law on corporate income tax.

companies surveyed.

**3. Cost of acquiring income**

are listed numerically in the laws as not deductible.3

and the revenue obtained in respect thereof has perpetuated.

Expenses that are not deductible for tax purposes are defined by the legislator in Art. 16, par. 1

The following is exempt from corporate tax:



**Table 1.** The importance of nontax revenues for polish businesses (0, insignificant; 5, very significant) (in %).

Exemption from tax should also apply to income from dividends, proceeds from the disposal of shares in the company outside the group and the profits of foreign establishments. By granting relief for double taxation, the majority of member states exempts the dividends and proceeds from the disposal of shares, thus avoiding the necessity of calculating the amount to be deducted for tax paid abroad, in particular when while calculating the vested deduction, one must take into account the amount of corporate tax paid by the company paying the dividend. The exemption of income earned abroad meets the same requirement of simplifying the system.

While conducting research on a common consolidated tax base and its importance for the Polish and EU companies, questions were asked regarding the significance of revenues other than tax income. The test results are very interesting also from the point of view of simplifying the Polish tax system. Data showing the answers given by Polish companies is included in **Table 1**.

The analysis of the data contained in **Table 1** shows a high insignificance of amounts of income not constituting tax revenues. This may be due to the fact that many of these exemptions are specific and relate to specific companies, e.g., in the agricultural production and forestry activities in the SEZ. These subjects were relatively few in the total group of companies surveyed.
