A company’s expenses incurred in connection with the implementation of its corporate social responsibility policy are in the nature of promoting the company and, therefore, related to taxable activities – judgment of the Supreme Administrative Court in Poland (NSA) from 8th of March 2022 (signature I FSK 1760/18).
What is corporate social responsibility (CSR)?
CSR (corporate social responsibility) is a concept whose main assumptions are to conduct business in an ethical manner, taking into consideration social matters and environmental protection. Examples of such activities include scholarship programmes or supporting the local community in the vicinity of a company’s headquarters through the renovation of public spaces or environmentally friendly measures such as improving waste management.
Such investments additionally result in promoting the company and building a positive image of it not only among customers, but also among the community.
Taxpayer’s dispute with the Director of National Tax Information (KIS) over the right to deduct VAT on CSR
A request for an interpretation in this case was made by a company that manufactures and sells furniture and runs a programme aimed at supporting employee involvement in charitable activities for the benefit of the local community.
The Director of the National Tax Information disagreed with the company’s justification that the aforementioned activities are intended to, among other things, build bonds between employees, integrate and build a long-term strategy to benefit from socio-business synergies. The Director of KIS indicated that these expenditures have neither a direct nor an indirect relationship with the Company’s taxable activities in the form of the sale of furniture manufactured by the Company.
Position of administrative courts in Poland
The dispute was brought to the Voivodship Administrative Court in Warsaw (WSA), which upheld the Company’s position and overturned the challenged interpretation. Director of KIS disagreed with the ruling and filed a cassation appeal to the Supreme Administrative Court (NSA).
The court of second instance dismissed the cassation appeal and upheld the earlier judgment. According to the NSA, CSR can have a positive impact on new markets and promotes the creation of new growth opportunities. In addition, the NSA recognises CSR as a widely accepted marketing tool, especially in industries where traditional advertising is unsuccessful.
Don’t lose out where you don’t have to
Taxpayers carrying out corporate social responsibility activities should be mindful of their right to deduct VAT on such activities and verify that the activities are related to taxable activities. If you have any questions regarding your right to deduct on CSR, we encourage you to contact the tax department of our law firm.
Aleksandra Philips, LL.M., VAT-Specialist
Maciej Gryka, Junior tax consultant