Interest and exchange rate differences should be classified as capital gains – ruling of the Voivodeship Administrative Court

In the judgment of 12 August 2020 (case reference III SA/Wa 2235/19), the Warsaw Voivodeship Administrative Court ruled that since income from the disposal of shares is classified as capital gains, by analogy, interest and exchange rate differences arising from a loan taken to purchase those shares should also be attributed to this source.

In the factual situation examined by the court, a Polish company purchased 10% of the shares of a foreign company, having taken out a loan in euros from another enterprise for this purpose. Due to an amendment to the provisions of the Corporate Income Tax Act in 2018, a question arose as to which source the company should assign the exchange rate differences and costs of earning income related to interest on the loan. According to the company, these costs fall within operating activities and should therefore be assigned to other sources of income. However, the Director of the National Tax Information, in the issued interpretation, held that the company incurs indirect costs related to the acquisition of shares, which should be assigned to the source of capital gains. In this judgment, the Voivodeship Administrative Court upheld the tax authority’s position.