Consulting for the defence sector and entities from the arms industry

Income tax

Businesses operating in the defence industry often need to make replacement investments in production capacity. Investments such as purchasing new equipment, refurbishing existing equipment, or purchasing control software are accounted for as either fixed assets or intangible assets. 

However, if a company incurs substantial expenditures, recognising them in its tax result becomes more complicated. It is difficult to capitalise such expenses, for example, when obtaining new certifications for production processes, recruiting qualified personnel, or acquiring a new component supplier. These are large one-time expenses, but the company can generate revenue from increased production capacity over an extended period, which in turn supports accounting for these expenses over time – that is, more proportionately to revenue.

In such a situation, RSM Poland tax advisors will analyse the expenses to determine which cost categories they fall into and prepare a recommendation for them to be properly accounted for. To ensure maximum security (and avoid potential disputes with Polish tax authorities) if there are any questionable types of expenses, our team will also prepare a request for an interpretation to the Director of the National Revenue Administration Information Centre, along with appropriately developed supporting arguments.

Income tax

The activities involved in rolling out a defence industry product constitute a key stage in its life cycle. Before technical dialogue can be initiated between contractors and a delivery agreement is signed with the ordering party, defence industry companies must undertake dozens of activities related to product marketing.

These activities – such as participating in certification or developing required product documentation – are a necessary phase of a defence company's operations. When such activities are undertaken for a product already offered in a foreign market, market entry costs are often borne by the foreign entity (a shareholder of a Polish company or other affiliated company). In such cases, after achieving satisfactory results in the domestic market, the entity often decides to pool these costs and assign them to the newly established Polish entity.

If the company's management decides to take this step, we can offer them comprehensive advisory support. RSM Poland experts will analyse the expenses to determine which cost categories the company should include them in and prepare a recommendation for appropriate settlement. To avoid unnecessary risk, we will also request an interpretation from the Director of the National Revenue Administration Information Centre as to expenses that raise doubts about their tax-deductibility.
 

VAT

With changes in construction standards relating to garage and basement ceilings in residential buildings, the costs of implementing new investments are increasing, which may ultimately affect the gross fee of the general contractor dependent on the developer.
The amount of the general contractor's fee is calculated based on, among other things, the cost of carrying out the construction service involving the construction of individual parts of the building, and the construction service involving the construction of a parking space in the underground garage of a residential building is subject to 23% VAT.

Due to this, building protection standards and ceiling reinforcements over parking spaces and other common areas of the building are becoming increasingly important as a factor in determining the building's price. This applies to both the general contractor's fee and the developer's fee, which – given the high prices of underground parking spaces for developers' clients – is becoming a sensitive issue due to the inflated costs. The final price of an underground parking space depends on various factors, including the VAT treatment of this part of the property.

To avoid such problems, we offer advice on the correct allocation of the VAT rate to the remuneration of the general contractor and developer.

Income tax

The defence industry is characterised by the development, implementation, and integration of products within a consortium established specifically for this purpose. The consortium agreement, along with the implementation agreements, defines the areas of responsibility of individual consortium members and forms the basis for financial settlements between them.

A well-constructed agreement involving a consortium operating in the defence industry provides an adequate legal framework for achieving the intended goals, although it is also worth noting the risk that the performance of such an agreement may be subject to transfer pricing regulations. Corporate income tax regulations include a section addressing transactions, restructurings, and joint ventures between related entities. As the definition of related entities adopted for income tax purposes is broad, it is likely that consortium members will be classified as related entities.

As part of our services, we offer a functional analysis of the collaboration undertaken within a consortium. As a result, our advisors will determine whether the agreement is subject to restrictions stemming from the corporate income tax regulations and whether the division of functions, risks, and assets within the consortium requires reporting to the tax authorities.

Income tax

The ever-expanding range of materials used by uniformed services is the result of years of experimentation in materials science. This experience is further complemented by ongoing research into new technologies for producing plastics, synthetic coatings, lubricants, and preservative fluids, which may also lead to the development of new fabric technologies and allows companies operating in the defence industry to regularly develop innovative products and solutions. Such work can potentially qualify as research and development (R&D). 

Conducting R&D work offers the opportunity to claim a corporate income tax relief. As we not only provide consulting services but also have significant experience in obtaining tax benefits for our clients, we are ready to help companies identify projects that meet the definition of R&D under corporate income tax regulations.

We conduct our analysis based on the provided list of projects (with their descriptions) and the responses to our enquiries. As a result of our work, we will present opinions and recommendations regarding existing project types for which the entity may claim the exemption. Then, in collaboration with the company, we assist in developing model project documentation for the selected research project.