Innovative employees tax relief – Is it available for companies in a Tax Capital Group?

The innovative employees tax relief, regulated in Article 18db of the CIT Act, was introduced into the Polish legal system as a tool to support entrepreneurs conducting research and development (R&D) activities who were unable to take full advantage of the R&D relief (Article 18d of the CIT Act) due to losses or insufficient income.

This relief is a form of recovery of the non-deductible portion of the R&D relief, through the possibility of retaining the equivalent of the unobtained tax savings in advance payments deducted for income tax of employees who spend most of their time performing research and development activities. In essence, this can be considered a form of cash refund, while direct cash refunds applying to a strictly defined group of taxpayers.

There are doubts as to whether the relief for innovative employees can be applied in a situation where the taxpayer applying the R&D relief deduction is a tax capital group (TCG).

Background

A company belonging to a TCG, which is an employer and a personal income tax payer, requested an individual ruling of the right to benefit from the innovative employees tax relief in a situation where the R&D relief as such is declared for deduction by the TGC as a CIT taxpayer.

The company requested confirmation that, although the R&D relief as such is settled by TCG and from TCG’s tax base, the company, as a member of TCG, may benefit from the deduction for innovative employees. In the applicant’s opinion, it meets all the material conditions provided for in Article 18db(1) of the CIT Act, in particular:

• it conducts R&D activities and incurs eligible R&D costs,
• it benefits from the R&D relief,
• it is a payer of PIT on the remuneration of natural persons involved in R&D work,
• it keeps appropriate records of the working time of these persons,
• it meets the conditions regarding the level of employee involvement (at least 50%) for the purposes of applying the relief for innovative employees.

The company indicated that it – and not TCG – employs so-called innovative employees and incurs eligible R&D relief costs, and therefore meets the material conditions for applying the preference. Consequently, in the Company’s opinion, the restriction resulting from the formal lack of CIT taxpayer status should not be an obstacle to the application of Article 18db of the CIT Act, especially since it is the only entity belonging to TCG that conducts research and development work. The applicant also referred to interpretations that allow TCG to settle the R&D relief. The company therefore concluded that it is entitled to benefit from the relief for innovative employees.

Position of the tax authority

The Director of National Tax Information, in an individual ruling of 1 April 2025, ref. no. 0111-KDIB1-3.4010.43.2025.1.MBD, considered the Company’s position to be incorrect.

The authority pointed out that Article 18db(1) of the CIT Act requires that two conditions be met cumulatively, according to which an entity benefiting from the relief for innovative employees must be:

• a corporate income tax payer,
• a personal income tax payer.

In the opinion of the tax authority, which is not in doubt, in the case of TCG, the status of CIT taxpayer is vested in TCG as a whole, and not in the individual companies forming it.

The lack of taxpayer status on the part of a company that is a PIT payer results in the inability of such a company to apply the innovative employees tax relief. The authority pointed to the primacy of the literal interpretation of tax law provisions, referring, inter alia, to the judgements of the Supreme Administrative Court.

The view of administrative courts

With regard to the innovative employees tax relief, there is no direct judgements of administrative courts to date. However, it should be noted that when applying only a linguistic interpretation of Article 18db of the CIT Act, companies forming part of a TCG are excluded from benefiting from this preference, even though they are PIT payers and actually incur eligible costs related to R&D activities.

At the same time, the position indicating the possibility of settling R&D relief by TCG is confirmed by the ruling of the Supreme Administrative Court of 7 November 2024 (ref. II FSK 179/22). The Supreme Administrative Court indicated that although the expenses are incurred by individual companies, the R&D relief – in the case of TCG – is settled at the level of the taxpayer, i.e. TCG, and from TCG’s income. It should be noted that this issue was also the subject of disputes with tax authorities, as the earlier position of the Tax authority indicated that the R&D relief could be deducted by TCG only up to the amount of income of the group member who incurred the specific eligible costs. This position was not approved by the courts.

Practical effects

The linguistic interpretation of Article 18db of the CIT Act and the current interpretation practice result in the exclusion of companies belonging to a TCG from the possibility of benefiting from the relief for innovative employees, even though they actually conduct R&D activities, employ committed specialists and incur eligible costs.

At the same time, TCG itself, as a CIT taxpayer, does not meet the condition of being a PIT payer, which means that it cannot benefit from this preference either.

The current structure of the regulations, which does not take into account the actual conditions of TCG’s operations, leads to unjustified exclusion from the tax incentive system. In this context, it seems reasonable to clarify the regulations or change the interpretation approach so that the relief can also fulfil its function with respect to entities belonging to TCG.

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Research and development relief & relief for innovative employees – MDDP tax advisory

At MDDP, we support taxpayers in the implementation and settlement of research and development relief, as well as in the application of relief for innovative employees. Please contact us if you have any questions regarding the scope of application and implementation of these or other tax preferences.

#MORE on our solutions page: research and development relief (R&D) & relief for innovative employees & tax capital group (TCG).