Tax credit for enhanced product sales

Taxpayers actively promoting their own products may, starting from 2022, make more deductions from their tax base. Tax credit for enhanced product sales is a kind of closing bracket for other deductions introduced with regard to taxpayers’ manufacture of their products. This time, the legislator touches upon the final element of selling one’s own products, namely their promotion and advertising. It is noteworthy, therefore, that in the proposed tax credit package, the legislator looked favourably at all stages of product manufacture – through its invention (prototype tax credit, R&D tax credit), manufacture (robotisation tax credit) and commercialisation (i.e. the tax credit for enhanced product sales in question).

Pursuant to the provisions, a taxpayer earning income other than income from capital gains may deduct from the tax base the tax-deductible costs incurred to increase income from the sale of products up to the amount of income earned by the taxpayer in the fiscal year from income other than income from capital gains, but not more than PLN 1,000,000 in a tax year.

The tax credit applies only to products (devices) manufactured by the taxpayer. The tax credit does not extend to (trade) goods. Thus, taxpayers who only sell and distribute goods manufactured by others are not eligible for the sales tax credit.

A taxpayer is entitled to take advantage of  the deduction provided that, within a period of two (2) consecutive tax years, counting from the tax year in which  the costs for the enhanced sales were incurred, the taxpayer has increased the income from the sale of products in relation to the income from such sales established on the last day of the fiscal year preceding the year in which the costs were incurred, or the taxpayer has earned income from the sale of products not previously offered at all or earned income from the sale of products not previously offered in a given country.

The above provision introduces a kind of obligation to record the sales of certain products and then analyse whether the sales of a given product have increased in two consecutive fiscal years. Alternatively, in the case of products not yet offered or not offered in a given country, it is sufficient only to earn income.

Earning income is crucial to benefit with given tax relief however not all income is taken into account. Only income which is taxable in Poland satisfies the conditions of tax relief.  In this way, the legislator excludes possible income earned and taxed by foreign establishments of the Polish taxpayer. It is also worth noting that should the condition is not met, the taxpayer will be obliged, to appropriately add the amount previously deducted. Therefore the taxpayer, as at the date of the deduction, have to anticipate whether the product will sell in the following two fiscal years.

Tax-deductible costs incurred to increase income from the sale of products, which may be additionally deducted under the tax credit are considered to include the costs of:

  1. participation in trade fairs for the purpose of:
    a) organising an exhibition site,
    b) purchase of air tickets for the staff,
    c) accommodation and meals for the staff

  2.  promotional and information activities, including the purchase of advertising space, preparation of a website, press publications, brochures, information catalogues and leaflets relating to products;
  3. adaptation of product packaging to the requirements of contractors;
  4. preparation of documentation enabling the sale of products, in particular concerning certification of goods and registration of trademarks;
  5. preparation of documentation necessary to bid for a contract, as well as for the purpose of submitting bids to other entities.

The deduction is made in the return for the tax year in which the costs were incurred in order to increase income from the sale of products. Where a taxpayer has incurred a loss for a tax year or the amount of the taxpayer’s income is less than the amount of the deductions which the taxpayer is entitled to, the deduction – either of the full amount or of the remainder, as the case may be – could be made in returns for the consecutive six tax years immediately following the year in which the taxpayer applied or was entitled to apply the deduction.

Tax deductible costs incurred to increase income from the sale of products are deductible if they have not been reimbursed to the taxpayer in any form or have not been deducted from the income tax base.

In the case of taxpayers applying the special economic zone exemption or by virtue of obtaining a decision on support for new investments, the tax credit is only available in respect of the tax-deductible costs incurred to increase income from the sale of products which are not taken into account by the taxpayer in the calculation of tax-exempt income under these provisions.

In my view, the tax credit for enhanced product sales is one of the few tax credits that will be effectively applied by taxpayers. This is mainly indicated by the rather low number of restrictions and limitations on its application, also the amount of PLN 1 million that can be additionally considered as a cost. Nevertheless, we see the potential for this tax credit to be applied more widely – by a larger group of taxpayers.

First and foremost, entities engaged in the distribution and sale of non-domestic products were wrongly excluded from the group of entities taking advantage of the tax credit. The legislation introducing the tax credit explicitly states that only the manufacturer of its product may apply the tax credit. Moreover, taking advantage of the tax credit involves additional record-keeping work. Firstly, the accounting records should show an increase in income in respect of the products the tax credit applies to. The legislator does not stipulate what should be done if we advertise several products as part of one marketing campaign, one of which will sell better and the other will do the opposite. Secondly, the taxpayer has to foretell whether, as of the date the tax credit is applied, more income will be generated in the future from the sale of specific products.  In this way, the legislator burdens the taxpayer economically with unpredictable market changes and other variables.