Companies that own warehouses incur significant expenses related to acquiring new tenants and extending existing lease agreements. A significant portion of these costs is the commission paid to agencies that mediate the process of commercializing the property. The tax treatment of such expenses raises numerous doubts in business practice.

 

Qualification of commission costs under the CIT Act

 

According to the current tax regulations, there is no doubt that costs related to the commercialization of real estate — as expenses incurred to acquire or maintain tenants, and thus generate rental income — can be classified as deductible expenses.

 

Due to their general nature and connection to business operations, these costs should be classified as indirect costs of obtaining income under Article 15(4d) of the CIT Act. Tax authorities consistently state that these expenses are not direct costs of obtaining income, as they cannot be attributed to specific rental income.

 

Indirect costs of obtaining income are deductible in the year they are incurred. However, if they relate to a period extending beyond the tax year, and it is not possible to determine exactly which portion of the cost applies to the given year, they should be prorated over the period to which they relate.

 

Understanding the "date of incurring the cost"

 

This is where significant doubts arise regarding the interpretation of the term "date of incurring the cost."

 

According to Article 15(4e) of the CIT Act, the date on which an expense is incurred for the purpose of obtaining income is considered to be the day on which the cost is recorded in the accounting books (based on the received invoice), excluding cases involving provisions or accruals of costs.

 

In individual rulings, the Director of the National Tax Information has indicated that commission fees for mediating tenant acquisition are not treated as expenses spread over time (not relating to a period exceeding the tax year), as they refer not to the duration of the lease but to the very act of concluding the lease agreement. This is evidenced by the fact that the commission for mediators is paid for facilitating the conclusion or extension of the lease agreement and, as a rule, is not dependent on its duration.

 

As a result, these costs should be recognized immediately — in the year they are incurred. This means that the taxpayer is entitled to recognize them when the invoice is recorded in the accounting books, regardless of the account on which the entry is made, unless the costs are recognized as provisions or accruals. This approach is confirmed, for example, by individual ruling No. 0114-KDIP2-2.4010.27.2023.1.AP.

 

Discrepancies between accounting and tax treatment

 

It is worth noting that for accounting purposes, according to the Accounting Act or International Financial Reporting Standards (IFRS), agency commissions are capitalized and recognized proportionally to the period covered by the lease agreement. This follows the matching principle of revenues and expenses. However, tax law operates independently of accounting law, meaning that the accounting treatment of the cost does not affect its tax qualification or the timing of its deduction.

 

In the past, tax practice often reflected the accounting approach, i.e., commission costs were spread over time in accordance with the accounting treatment of costs. However, judicial rulings and tax interpretations now clearly emphasize the autonomy of tax regulations. It is consistently indicated that entries made in accounting books cannot create or modify substantive tax law. The Accounting Act only governs the way books should be kept and, as such, cannot decide what is or is not a deductible expense.

 

Undoubtedly, the qualification and timing of the deduction of indirect costs are complex. For example, costs such as insurance or subscriptions that apply to a period exceeding the tax year are typically spread over time. However, other costs, although they provide long-term benefits — such as commission costs for mediating a loan agreement — can be recognized immediately in the year they are incurred.

 

Conclusions for the warehouse industry

 

The current position of the tax authorities, confirmed by judicial rulings, clearly indicates the possibility of one-time recognition of commission expenses for tenant acquisition or lease renewal as deductible expenses. The key condition is their proper recognition in the accounting books.

 

This approach can be beneficial for taxpayers who generate high income in the year the expense is incurred, as it allows for an immediate reduction in the taxable base. On the other hand, for entities starting their business or showing low income, one-time recognition of high costs may result in a significant tax loss.

 

Considering the variability of interpretations and the complexity of the regulations, it is recommended to continuously monitor the positions of tax authorities and judicial rulings in this area.

 

Author: Senior Tax Manager, Marta Skrodzka, ASB Group