Allocation of revenues from economic activity to agricultural activity and tax exemption

The freedom to conduct a business is also manifested in the fact that an entity can run an agricultural activity and an economic activity at the same time. In addition, it is possible to allocate revenues from economic activities to agricultural activities. Therefore, we will consider whether in this case the income from business activity may benefit from the tax exemption.

Agricultural activity and economic activity

The problem presented at the outset will be analyzed on the basis of the provisions of the CIT Act.

Let us assume that we are dealing with a limited liability company that runs both economic and agricultural activities. It mainly deals with agricultural activity, therefore the income obtained from economic activity is allocated to the needs of agricultural activity.

First of all, let us point out that pursuant to Art. 2 clause 1 point 1 of the CIT Act, the provisions of the Act do not apply to income from agricultural activities, except for income from special departments of agricultural production.

Therefore, it is worth considering when in terms of CIT we are dealing with agricultural activity.

The concept of agricultural activity for the purposes of corporate income tax is defined in Art. 2 clause 2 of the Act, according to which agricultural activity within the meaning of sec. 1 point 1 is an activity consisting in the production of plant or animal products in an unprocessed (natural) state from own crops or breeding or breeding, including the production of seed, nursery, breeding and reproductive material, vegetable production in the field, greenhouse and under foil, plant production ornamental, cultivated and orchard fungi, breeding and production of seed material of animals, birds and commercial insects, industrial-farm animal production and fish breeding, as well as activities in which the minimum periods of keeping purchased animals and plants, during which their biological growth takes place , are at least:

1. month - for plants,

2. 16 days - in the case of highly-intensive specialized fattening of geese and ducks,

3. 6 weeks - for other poultry for slaughter,

4. 2 months - for other animals

- from the date of purchase.

Agricultural activity that meets the requirements set out in the Act is not subject to CIT.

Agricultural activities as subject to CIT

As we indicated previously, only income from agricultural activity is exempt from CIT. It is about the activity determined by the boundaries included in the definition in art. 2 clause 2 of the CIT Act.

However, the exemption is not applied to revenues resulting from activities related to agricultural activities or agricultural production. Revenue from agricultural activities includes revenue derived from (and not "related") from the activities listed in Art. 2 clause 2 of the CIT Act. The attribute of "tied" to a specific source of income does not mean that it comes from this source.

Therefore, the exemption does not apply to revenues from the provision of services related to agricultural activity, such as, for example, the provision of services with agricultural machinery or the sale of such components for consideration. Income from such activity as coming from non-agricultural activity is subject to corporate income tax.

To confirm the thesis presented, we can recall the interpretation of the Director of the National Social Insurance Institution of August 14, 2018 (No. 0111-KDIB2-1.4010.232.2018.1.MJ):

„When analyzing the presented facts and future events in the context of the above-mentioned provisions of the tax law, in particular the definition of agricultural activity, it should be stated that the revenues obtained by the Applicant from: lease of agricultural land (developed and undeveloped) and the rental and sale of agricultural machinery and equipment intended for for agricultural purposes, as well as agricultural services provided in the future to external entities, despite their connection with the agricultural activity performed by the Applicant, do not constitute revenues from agricultural activity, but only revenues related to this activity.

To sum up, it should be stated that the revenues described in the application cannot be treated as excluded from the scope of the CIT Act pursuant to Art. 2 clause 1 point 1 of this act. Above the revenues are therefore subject to corporate income tax”. It should be emphasized that incomes obtained from non-agricultural activities, even if related to agricultural activities, are subject to corporate income tax.

Allocation of revenues from economic activity to the needs of agricultural activity and tax exemption

There was a provision in the CIT Act that allowed for the exemption of income from economic activity when it was allocated to agricultural activity.

It is about the content of Art. 17 sec. 1 point 4e of the CIT Act, which stated that taxpayers' income obtained from non-agricultural activities, including special departments of agricultural production, in part allocated by these taxpayers for agricultural activities, was exempt from this tax.

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The condition for the taxpayer to take advantage of this exemption was the amount of income obtained by him from agricultural activity, which had to be not less than 60% of the total income obtained by such a taxpayer from all types of activity.

However, it should be clearly emphasized that this provision was in effect only until the end of December 2017. On the other hand, from January 1, 2018, Art. 17 sec. 1 point 4e of the CIT Act has been repealed.

In the justification to the draft amendment act, which repealed the above-mentioned provision, we read that the construction of the exemption of Art. 17 sec. 1 point 4e of the Act contained an element resulting in the potential lack of taxation of non-agricultural economic activity.

Example 1.

Private Limited company. he conducts economic and agricultural activities at the same time. Economic activity accounts for 10% of total revenues. The company's revenues are entirely allocated to agricultural activities. Despite this, it is required to pay CIT on business activities and submit an annual CIT-8 declaration in this regard. In the current legal situation, in the case of a taxpayer engaged in agricultural activity and other than agricultural activity, the income obtained by him from this other activity is subject to CIT.

Moving on to the summary of our analysis and at the same time to clarify the issues indicated at the beginning, it should be noted that currently the exemption provided for entities running parallel agricultural and economic activity no longer exists.

The above means that regardless of the method of allocating revenues from non-agricultural business activities, the taxpayer still has to pay CIT on this account. This will also be the case when these funds are allocated to agricultural activities that are not subject to CIT.