Recognition of depreciation costs as income generation costs P 11/24
On 21 November 2024, the Constitutional Tribunal considered the question of law filed by the Voivodeship Administrative Court in Poznań with regard to depreciation costs recognised as income generation costs.
Article 23(1)(45a)(a) of the Personal Income Tax Act of 26 July 1991 in conjunction with Article 4(1) of the Act of 15 June 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, as well as the Act on the Flat Tax on Certain Types of Personal Income – insofar as the impugned legal norm rules out the possibility of recognising as income generation costs the following: depreciation charges on the initial value of tangible assets and intangible assets, acquired free of charge via donations which are exempt from the inheritance and donations tax, the depreciation of which began but did not end before 1 January 2018 – is inconsistent with the principle of the protection of ongoing interests, arising from Article 2 of the Constitution.
The ruling was unanimous.
Derived from Article 2 of the Constitution, the principle of citizens' trust in the state and its laws implies that it is prohibited for the law-maker to set up “traps” for citizens or formulate empty promises, and for the state to suddenly withdraw from promises made or from established rules of proceeding. What has been derived from the aforementioned principle is the principle of the protection of ongoing interests such as the business and financial endeavours commenced on the basis of previously binding legal provisions, but not yet completed at the time when those provisions changed. Thus, the principle of the protection of ongoing interests guarantees protection to the individual in the situation where legal provisions set a certain time-limit for the carrying out of endeavours which, by nature, take time and which were actually commenced when the previous legal provisions were binding. Committed to respecting a certain time-frame marking the activities of state authorities, the legislature should enact transitional legal provisions that would make the completion of undertaken endeavours possible in accordance with the provisions that were binding at the time of the commencement thereof, or to create another possibility of making adjustments to the changed legal provisions. What constitutes the essence of the principle under analysis is that – within the time-frame provided for by law – there would be no changes in “the rules of the game”.
The judgment of 25 June 2002, ref. no. K 45/01 (OTK ZU No. 4/A/2002, item 46) – which also pertained to tax matters – set forth the prerequisites the occurrence of which categorically necessitates the fulfilment of the legislature’s obligation to respect the principle of the protection of ongoing interests. Those prerequisites comprise the following situations where: (1) legal provisions set a certain time-limit for the carrying out of specified endeavours; (2) a given endeavour is spread out in time; (3) the individual actually commenced the carrying out of an endeavour during the period when given legal provisions were binding.
What was crucial in the present case was to analyse the impugned legal norm in the light of the prerequisites indicated by the Tribunal in its judgment ref. no. K 45/01. Indeed, in the event of the fulfilment of those prerequisites, the legislature is obliged to ensure special protection of ongoing interests.
As regards the first two prerequisites, it should undoubtedly be deemed that they have been fulfilled. The legislature imposed the obligation on taxpayers to depreciate their assets and set the minimum deadline – in the case of an EU design right, the said period could not be shorter than 60 months. Thus, the relevant legal provisions delineated a minimum time-limit, and depreciation is – by definition – spread out in time. A characteristic feature of that legal institution is its repetitiveness and a span of many years. For a taxpayer – the said institution poses the possibility of gradual recovery of the funds invested in the purchase of tangible assets or intangible assets, subject to depreciation. On the other hand, the state ensures that it will have steady and relatively predictable tax inflows, which was also noted by the Tribunal in its judgment of 10 February 2015, ref. no. P 10/11.
Additionally, there is no doubt that the third prerequisite has been fulfilled. Indeed, the legislature has eliminated the right to recognise – as income generation costs – depreciation charges on the assets the depreciation of which began before the entry into force of the relevant statute. This also pertains not only to appellants in the cases under examination by the court referring the question of law. The scope of the question of law is broader and refers to all the situations in which the process of depreciation began prior to 1 January 2018. Due to the wide time-span of the said process, the impugned legal norm also infringes the ongoing interests of taxpayers who, when commencing the depreciation process, could not have known that the legislature would change the rules of the game. Indeed, the legislature is politically and financially responsible for the law it adopts, and if the legislature deems that the law should be changed, then it may not arbitrarily interrupt the game to which it has already “invited” taxpayers – in particular, when the said game is spread out over a period of many years, previously defined by the legislature.
To sum up, the unconstitutionality of the subject of the review should be adjudicated, since the arbitrary interruption of the tax depreciation is not admissible from the point of view of the principle of the protection of ongoing interests, derived from Article 2 of the Constitution.
Moreover, the Tribunal states that the lack of transitional provisions is to no extent compensated by public authorities’ practice of, for example, issuing the interpretation of legal provisions in individual cases, or any types of circulars or explanatory notes. Relying by revenue administration authorities on the constitutional principle of the protection of ongoing interests may at most lead to issuing a determination that is favourable to the Constitution in an individual case. However, as it follows from the facts of the case presented by the court referring the question, tax authorities also take a different approach. With a view to the state’s fiscal interests, in their decisions, those authorities also take no account of the principle of the protection of ongoing interests, invoking the statute’s literal wording. The Tribunal wishes to unequivocally emphasise that – in accordance with the standards arising from Article 217 of the Constitution – the taxpayer should determine the existence of a tax obligation and ascertain the amount of a tax liability directly on the basis of the relevant statute. If, what follows from the constitutional principle of the protection of ongoing interests is the necessity to ensure that individuals can continue previously commenced endeavours then the said obligation lies with the legislature. The default on that obligation weighs in favour of the unconstitutionality of the statutory norm.
The adjudicating bench of the Constitutional Tribunal in the case was composed of: Judge Zbigniew Jędrzejewski – Presiding Judge; Judge Rafał Wojciechowski – Judge Rapporteur; Judge Krystyna Pawłowicz; Judge Stanisław Piotrowicz; and Judge Jarosław Wyrembak.