Ukraine: tax preferences for companies in Poland providing humanitarian aid in the wake of the refugee crisis
Poland Tax Commentary
On March 12 2022 the Act on aid to citizens of Ukraine in connection with armed conflict on the territory of this country came into force. The special purpose act, in addition to regulating a number of issues related to the refugee’s stay in Poland, allows for favorable tax treatment of humanitarian aid expenditures incurred by corporations. At the same time, tax deductions that had already existed before the special purpose act came into force are still available for the taxpayers. The possibility of benefiting from both tax preferences for the same expenditures simultaneously remains an open question.
Tax preferences resulting from the special purpose act
According to the special purpose act, expenses related to acquisition of property or rights donated (in-kind donations) to specific organizations / institutions for purposes related to countering the effects of hostilities on the territory of Ukraine are fully deductible for the donor. The introduced provisions are an exception to the general rules of taxation, according to which the vast majority of donations do not include the right of deduction for tax purposes.
The regulations of the special purpose act apply to in-kind donations made between 24 February and 31 December 2022 to qualified recipients, i.e. primarily non-profit organizations such as foundations, associations (in particular those with the status of public benefit organization or equivalent) operating in Poland or equivalent organizations operating under Ukrainian law, local governments, or entities performing medical activities in Poland or Ukraine.
In addition to the cost of in-kind donations, the cost of services rendered free-of-charge to the benefit of the above-mentioned qualified entities is also deductible, provided that the purpose of the service is to counter the effects of hostilities on the territory of Ukraine.
The costs of the above-mentioned donations and free-of-charge services will not decrease the profitability of the particular taxpayer for the purposes of the so-called minimum CIT regulation, as they will not - based on the exact provisions of the special purpose act - be included in the relevant calculation. Consequently, in-kind donations or provision of free-of-charge services will not deteriorate the relevant taxpayer's position for the minimum CIT tax purposes.
Preferences resulting from general tax provisions
Irrespective of the preferences introduced by the special purpose act, any donations (both in cash and in kind) made to one of the public benefit organizations, who perform socially viable services e.g. assistance to victims of armed conflicts and wars in Poland and abroad, are still deductible from income / profit for tax purposes. The aforementioned catalogue of qualified organizations (PBOs) partially overlaps with the one included in the special purpose act.
In order to take advantage of the deduction from tax on donations made, the beneficiary of the donation should be a public benefit organization (included in the publically available list of PBOs) or equivalent organizations operating in Poland or in EU countries. This deduction however is currently not available on donations made directly to Ukrainian based organizations.
The deduction is applicable to a limit, i.e. the amount of the deduction cannot exceed 10% of the taxable income in CIT and - depending on its nature (cash or in-kind) - should be properly documented (i.e. bank transfer / relevant confirmations).
The possibility of benefiting from both tax preferences at the same time with respect to the same expenditure remains open.
Garrigues professionals are there to discuss with you the tax and legal implications of various ways to support humanitarian efforts, with support on humanitarian issues on a pro-bono basis.