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Notional interest is an attractive tax mechanism allowing companies to reduce their CIT tax base by recognising a tax-deductible cost equal to the NBP reference rate (plus one percentage point) multiplied by the amount of additional contributions or retained profits transferred to reserve capital.
A seemingly simple solution has raised serious doubts in practice for years. The main question is whether the reference rate should be set once, when the contribution is made or profit allocated, or updated every year.
Legal basis: what does the law say?
Under Article 15cb(1) and (2) of the CIT Act:
The tax-deductible cost is the NBP reference rate on the last working day of the year preceding the tax year multiplied by the additional contribution or allocated profit.
The cost can be settled over three years: in the year of the contribution or capital increase and the two subsequent tax years.
The crucial question is which reference rate should apply in the second and third years:
The same one as in the first year, the “fixed-rate” model,
or a new rate set at the end of each year preceding subsequent tax years, the “variable-rate” model.
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Tax authorities: a variable rate each year
The Director of the National Tax Information Office (KIS) and tax offices adopt an interpretation under which each of the three years uses the reference rate applicable on 31 December of the preceding tax year. Many individual tax interpretations support this calculation method.
It reflects current market conditions and, significantly, may be more advantageous when interest rates rise.
The court: a rate set once applies for three years
Meanwhile administrative court rulings, including those of the Supreme Administrative Court (NSA), often present a different position. In NSA case II FSK 28/24 and the Gorzów Wielkopolski Regional Administrative Court case I SA/Go 262/23, the courts found that:
“The provision does not say that an interest value once determined based on the reference rate applicable on the last working day of the year preceding the contribution or allocation of profit should be applied throughout the entire deduction period.”
The courts thus indicated that a new rate should be determined for each settlement year, consistent with the tax authorities' interpretation.
Interestingly, earlier judgments also included views favouring a uniform fixed rate, hence the confusion.
Two schools of interpretation, neither definitive
Although the provisions have been in force since 2018, neither the courts nor the tax administration have yet taken a uniform approach. Consequently, two models coexist:
Option I: fixed rate
Set once at the end of the year preceding the contribution or allocation of profit; applicable throughout the three-year settlement period.
Option II: variable rate
Set separately for each tax year, always at the end of the preceding year. KIS and tax offices favour this option.
And the taxpayer? In dubio pro tributario
Given the unclear provisions, recall a fundamental principle of tax law: “In dubio pro tributario”: where there is doubt, in favour of the taxpayer.
Thus, if a taxpayer chooses the more advantageous interpretation, such as the fixed-rate model, and also obtains an individual interpretation in this regard, their position should not be challenged.
What should you do in practice?
Choose the model you want to adopt, fixed or variable.
Apply for an individual tax interpretation to protect your position.
Document the cost calculation, clearly indicating which reference rate you used and why.
Follow court decisions, as the situation may still change.
If you found this article interesting, explore our tax advisory services and read how we can help you:
Summary
The lack of precise rules in Article 15cb of the CIT Act means both methods have a rationale. Under the current law and case law, until the legislature resolves the doubts, either may be considered permissible, provided it is properly justified.
If you want to be sure your notional-interest settlements follow the current line of interpretation, contact an experienced tax adviser.
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