The revenue-based allocation key for settling costs is of fundamental importance to business operations. It reflects the actual structure of a company’s activities, allowing expenses to be assigned in line with its real economic situation. In practice, this can translate into savings of thousands – and in the case of larger companies, even millions – of złoty. A recent ruling by an administrative court may influence the previously unfavorable stance of tax authorities on this issue, while at the same time enabling companies to improve liquidity and achieve substantial tax savings.
Revenue-Based vs. Purpose-Based Cost Allocation
What is the difference between a revenue-based allocation key and a “purpose-based” one? The difference is enormous. A revenue-based key is dynamic and reflects the real structure of a company’s operations.
Consider the following example. A company takes out a loan and initially assigns 65% of the financing costs to capital gains income (e.g., for purchasing shares) and 35% to income from other sources (e.g., operational activities). Assume that in a given year the company generates PLN 98 million in operational revenue and only PLN 2 million in capital gains income (from bonds or dividends).
Under the “purpose-based” approach promoted by tax authorities, in line with the company’s original declaration, it may allocate 65% of the loan costs to the PLN 2 million in capital gains income and only 35% to the PLN 98 million in operational income.
If the annual loan servicing costs amount to PLN 10 million, then under the tax authority’s interpretation, the company would report a loss of PLN 4.5 million in the capital gains source (PLN 2 million revenue minus PLN 6.5 million costs). This loss cannot be offset against operational income in the same year. As a result, the PLN 98 million in operational revenue would be reduced by only PLN 3.5 million in loan costs.
Millions in Potential Savings
What happens under a revenue-based allocation key? On the capital gains side, the company would report PLN 1.8 million in taxable income (PLN 2 million revenue minus PLN 0.2 million in loan costs). On the operational side, it would report PLN 88.2 million in taxable income (PLN 98 million revenue minus PLN 9.8 million in loan costs).
Under the purpose-based method, the company would pay tax on PLN 94.5 million of income (PLN 98 million revenue minus PLN 3.5 million in costs). Under the revenue-based method, it would pay tax on only PLN 90 million. The difference translates into significant tax savings.
Losses “Frozen” Due to Inability to Offset
Equally important for companies – particularly in terms of financial liquidity – is that revenue-based allocation avoids “freezing” millions in costs as a loss that cannot be immediately utilized.
Under Article 7(5) of the Corporate Income Tax (CIT) Act, a loss from a given source of income may be offset only against income from that same source in subsequent years (up to five years).
What does this mean in practice? If a company incurs a capital gains loss, it must wait until it generates sufficient capital gains income in future years to use that loss. In the meantime, it cannot reduce its substantial operational income by that loss. This effectively delays the tax benefit and, in extreme cases (if no capital income is generated within five years), may result in its complete loss.
Reduced Financial Liquidity
For a manufacturing company whose primary source of income is operational activity, and where capital investments are ancillary or strategic (for example, managing liquidity within a corporate group), there is a real risk that capital gains income will be irregular or low. Bonds may be extended, redemptions postponed, loans may be long-term without regular interest payments, and the company may not generate sufficient capital gains income in the coming years to offset the loss.
In such a situation, the purpose-based key allocates a substantial portion of loan costs to a source that does not generate adequate revenue. These costs become “frozen” as a loss that cannot be used. The company bears a higher tax burden in the current year and sees its liquidity deteriorate.
Flexibility of the Revenue-Based Key
By contrast, the revenue-based key has a fundamental advantage: it is dynamic and reflects the company’s actual revenue structure. If in one year 90% of revenue comes from operational activity, then 90% of the costs are allocated where there is real income to offset. If proportions change in the following year – for example, bonds are redeemed and interest is paid – the allocation automatically adjusts.
This interpretation allows for optimal use of deductible costs, avoids freezing expenses in low-revenue sources, and, above all, aligns with the principle that costs should be settled where they genuinely contribute to generating profits.
Conflict of Interests Between Tax Authorities and Businesses
However, given the inherent conflict between entrepreneurs seeking to minimize tax burdens and the State Treasury aiming to maximize budget revenues, a key divergence arises in interpreting regulations governing the allocation and settlement of corporate expenses.
Loan Costs for Two Purposes – The Case
In 2018, a company belonging to a capital group took out a bank loan. It intended to allocate 65% of the funds to purchase bonds issued by a related entity and the remaining portion to refinance an earlier long-term loan used to grant a loan to another group entity.
The company incurred various loan-related costs: interest, commissions, a one-off arrangement fee, administration fees, and other expenses. It applied to the Director of the National Tax Information for an individual tax ruling: should loan costs be divided according to the revenue-based key or the purpose-based key (fixed once and for all according to the initial purpose of the loan)?
The company argued that the loan costs were indirect costs not directly linked to specific revenues. These expenses were general in nature and related to the overall business activity of the company, not exclusively to one particular income stream.
Even if the company could indicate the 65%/35% allocation of loan proceeds, this did not mean it could objectively determine what portion of loan servicing costs related to each income source. When repaying a loan installment, the company repays the entire liability, not a portion “for bonds” and a portion “for a loan.” Installments are not divided by purpose; the entire debt is serviced. Therefore, no objective and reliable criterion exists to assign specific costs to specific income sources. In such circumstances, the revenue-based key should apply.
Tax Authority’s Position – A Rigid Purpose-Based Approach
In its individual ruling of September 23, 2025 (reference 0111-KDIB2-1.4010.450.2021.10.BJ), the Director agreed that loan servicing costs were indirect costs. However, he concluded that since the company could determine that 65% of the loan was used for bonds and 35% for refinancing, it could likewise determine the same proportion for servicing costs.
According to the authority, there were no grounds for applying the allocation mechanism provided in Article 15(2), (2a), and (2b) of the CIT Act. In its view, the revenue-based key is subsidiary and applies only when a taxpayer cannot objectively allocate costs. Since the company indicated specific proportions, the authority deemed this an objective allocation criterion.
Court Ruling – In Favor of the Company
The Provincial Administrative Court in Olsztyn disagreed. It conducted an in-depth analysis of Article 15(2), (2a), and (2b) of the CIT Act, referring to established Supreme Administrative Court jurisprudence.
The court emphasized that each cost must first be assessed based on its purpose (to generate, secure, or preserve income). If it is possible to assign a cost exclusively to one income source, it should be allocated accordingly. If not, the allocation rules of Article 15 apply. Where no objective and reliable criteria exist, indirect costs should be allocated proportionally to the revenue generated from each source in a given tax year – the revenue-based key.
The court underlined that the 65%/35% ratio referred to the purpose of the loan, not to the purpose of the loan servicing costs from the perspective of tax deductibility. The fact that a loan was allocated in certain proportions does not automatically mean servicing costs must follow the same proportions.
Even if 100% of the loan had been used to purchase bonds, this would not automatically mean all loan costs should be classified as capital gains costs. Bond acquisition may serve broader purposes, such as liquidity management within a group, financing operational projects, or increasing control over related entities, all of which may influence operational income.
The court agreed that when repaying a loan installment, the company repays the entire debt. Assuming that financing costs are repaid in proportion to the initial allocation of loan proceeds is an oversimplification unsupported by law (Judgment of the Provincial Administrative Court in Olsztyn of January 21, 2026, reference I SA/Ol 517/25, not final).
Why It Pays to Defend Your Position
This ruling provides important guidance for entrepreneurs. It is relevant for companies taking out loans for multiple purposes – capital investments, refinancing, intra-group loans – and needing to allocate servicing costs properly. It also concerns capital groups where related entities finance each other through bonds, loans, and credit facilities.
The case illustrates how complex relations between businesses and tax authorities can be. Even seemingly clear tax provisions may become a source of dispute, where the stakes include not only compliance but also a company’s financial stability.
For many businesses operating in Poland and generating income from multiple sources, the judgment opens the door to a more economically rational and potentially more favorable method of settling financing costs – one that reflects real revenue structures rather than rigid formal assumptions.
