Company costs - development of green areas


Entrepreneurs often care about the aesthetics of the surroundings of their company's headquarters. The development of the area around the company building, however, involves expenses incurred for, for example, the purchase of ornamental plants.

Can the expenses incurred for the development of green areas around the company qualify as company costs, or will they constitute a tax cost due to the relationship with representation?

Company costs - definition of the tax cost

The definition contained in art. 22 sec. 1 of the Act of July 26, 1991 on personal income tax says that tax deductible costs are costs incurred in order to generate income or to maintain or secure a source of income. Additionally, the regulations stipulate that in order for expenses to be considered as corporate expenses, they cannot be included in the list of expenses which the act does not include as tax deductible costs. In art. 23 sec. 23 of the PIT Act, it was indicated that the tax costs do not include the costs of representation, in particular those incurred for catering services, and the purchase of food and beverages, including alcoholic beverages.

There is no legal definition of the term "representation" in either tax or other legislation. Therefore, in the process of its interpretation, it is necessary to refer to colloquial language.

Entrepreneurs have many doubts as to whether the expenditure on the development of green areas can be qualified as corporate costs or whether it is an expenditure on representation. As a result, it cannot constitute tax deductible costs.

Judgment of the Supreme Administrative Court of January 25, 2012, file II FSK 1445/10:

Because according to Art. 22 sec. 1 u.p.d.o.f. tax deductible costs are costs incurred in order to achieve income or to maintain or secure the source of income, with the exception of the costs referred to in article 1. 23, and in accordance with art. 23 sec. 1 point 23 u.p.d.o.f. representation costs, in particular those incurred for catering services, the purchase of food and beverages, including alcoholic beverages, are not considered tax deductible costs, in order to recreate the norm contained in these provisions, it is of key importance to define the meaning of the term "representation". Understanding this term as "grandeur, lavishness, elegance" appears in the judgments of voivodship administrative courts (see e.g. the judgments of the Voivodship Administrative Courts: in Kraków of 18 May 2010, I SA / Kr 620/10, in Warsaw of 30 November 2010, III SA / Wa 837/10), however, it is not universally accepted (see judgments of the Provincial Administrative Courts: in Kielce of April 15, 2010, I SA / Ke 202/10, in Gdańsk of on October 12, 2010, I SA / Gd 407/10, in Warsaw of January 18, 2011, III SA / Wa 834/10 and on March 25, 2011, III SA / Wa 1484/10), in which indicate the aspect of creating a positive image of the company rather than the feature of lavishness, treating all expenses included in the catalog mentioned in Art. 23 sec. 1 point 23 u.p.d.o.f., as representation expenses. It should be added that also in some commentators, the concept of representation is understood as grandeur, lavishness (cf. "Income tax from natural persons 2010" edited by J. Marciniuk, CHBeck 2010, thesis 174 to art. 23, p. 763 ff.).

Development of green areas as a tax cost

An entrepreneur who has incurred expenses for the development of green areas around his own company may, in principle, count them as company costs. However, it is important to use moderation and common sense in this matter. It should be remembered that these costs do not imply elegance and lavishness.

The company has the right to take care of the property on which its seat is located. By developing green areas, it maintains cleanliness and aesthetics. So they are tax deductible costs. These activities are aimed at encouraging customers to visit the company and make purchases, and thus - obtaining revenues. Such expenses may include, for example, planting flowers or shrubs, sowing grass, watering plants, mowing lawns, fertilizing and other cleaning works in green areas adjacent to the place where the activity is conducted.

However, tax authorities may question the expenses incurred by the entrepreneur to develop green areas and include them in the costs of representation. This will happen when the taxpayer decides to plant plants or shrubs on the premises of his company that will stand out and deviate from the standards of the surrounding area. Examples include expensive, exotic trees or shrubs.

Not every expenditure on the development of green areas around the company can be included in the company's costs. If we want the costs incurred for this purpose not to be questioned by the tax authorities, we should approach this topic rationally.

It must be remembered that the development of the property on which the enterprise is located is primarily intended to take care of aesthetics and order.