Trademark Amortization Through Licensing Structures
The utilization of trademark licensing arrangements between affiliated entities represents a prevalent tax planning mechanism across numerous jurisdictions. Polish tax authorities have increasingly challenged such structures, invoking transfer pricing provisions to reclassify transactions and deny deductions. However, recent jurisprudence from the Supreme Administrative Court (Naczelny Sąd Administracyjny, hereinafter “NSA”) has established significant limitations on administrative discretion in this domain. This article examines the evolving judicial framework governing trademark-related tax optimization, with particular emphasis on the distinction between permissible price adjustments and impermissible transaction reclassification.
I. Introduction: The Structural Asymmetry Problem
A fundamental asymmetry pervades the Polish income tax treatment of intangible assets. Pursuant to Article 22b(1)(6) of the Personal Income Tax Act (ustawa o podatku dochodowym od osób fizycznych), amortization deductions for trademarks and other intellectual property rights are available exclusively to acquirers of such assets. The original creator or developer of a trademark—irrespective of its commercial value—possesses no corresponding right to claim depreciation deductions against taxable income.
This legislative architecture creates powerful incentives for taxpayers to structure intercompany transactions that effectively monetize internally-developed intellectual property. The canonical arrangement involves transferring trademark and intellectual property rights to an affiliated entity (commonly designated a “brand company” or spółka znakowa), which subsequently licenses those rights back to the operating company. Through this mechanism, the acquiring entity claims amortization deductions while the licensee deducts royalty payments as ordinary business expenses.
The question that has occupied Polish administrative courts with increasing frequency is whether, and under what circumstances, tax authorities may look beyond the formal structure of such arrangements to impose alternative tax consequences. This inquiry implicates fundamental principles of tax law and administrative authority.
II. The Factual Matrix: E. Sp. z o.o. Sp. k. and Its Progeny
The analytical framework for examining these issues is best illustrated through the factual circumstances underlying the Rzeszów Provincial Administrative Court’s decision of April 4, 2023 (Case No. I SA/Rz 12/23), subsequently affirmed through procedural disposition by the NSA.
A. The Transactional Structure
The taxpayer held partnership interests in two Polish limited partnerships (spółki komandytowe): E. Sp. z o.o. Sp. k. (the “Operating Company”) and E.N. Sp. z o.o. Sp. k. (the “Brand Company”). The Operating Company had developed and registered several trademarks—including the marks “E.” and “W.”—as well as industrial designs in connection with its retail operations in hydraulic and heating equipment.
Through a series of corporate reorganizations and contribution transactions, ownership of these intangible assets was transferred to the Brand Company. The Brand Company subsequently granted an exclusive license to the Operating Company, generating annual royalty payments exceeding PLN 2.8 million. Concurrently, the Brand Company claimed amortization deductions of approximately PLN 3.2 million against the contributed value of the acquired intangibles.
B. The Administrative Challenge
The Head of the Podkarpackie Customs and Tax Office (Naczelnik Podkarpackiego Urzędu Celno-Skarbowego) determined that the intercompany transactions failed to satisfy the arm’s length standard. The authority’s analysis rested on several factual predicates: first, that independent parties would not have structured comparable transactions; second, that the Operating Company retained de facto control over trademark development, maintenance, and enforcement; and third, that the Brand Company’s function was limited to the mechanical administration of licensing arrangements without bearing meaningful economic risk.
Invoking Article 25(1) and (4) of the Personal Income Tax Act—the statutory provisions governing transfer pricing adjustments for transactions between related parties—the tax authority undertook a comprehensive reclassification of the arrangement. The authority reduced the Brand Company’s royalty income by PLN 2.8 million, disallowed amortization deductions of PLN 3.2 million in their entirety, and denied the Operating Company’s corresponding royalty expense deductions.
III. The Judicial Response: Delimiting Administrative Authority
A. The Statutory Framework and Its Limitations
Article 25(1) of the Personal Income Tax Act, in its pre-2019 formulation, authorized tax authorities to redetermine taxable income “without regard to the conditions arising from such [related-party] relationships” where affiliated entities established transactional terms diverging from those that would obtain between independent parties. The provision contemplated income adjustments through prescribed estimation methodologies, including the comparable uncontrolled price method, the resale price method, and the cost-plus method.
The Rzeszów court, in a significant departure from certain prior jurisprudence—including its own earlier decision in Case No. I SA/Rz 872/21—held that these provisions did not confer authority to reclassify the fundamental character of executed transactions. The distinction, as articulated by the court, lies between adjusting the price of a transaction and substituting an entirely different transaction for tax purposes.
B. The NSA’s Doctrinal Synthesis
The appellate jurisprudence of the NSA has crystallized around a coherent analytical framework. In II FSK 2508/19 (June 9, 2022), the court articulated the foundational principle:
“Tax optimization employing lawful legal instruments may constitute one element of planning one’s activities. It is therefore necessary to distinguish and delineate the boundaries between permissible forms of tax avoidance and impermissible tax evasion.”
This formulation reflects a sophisticated understanding of the legitimate scope of tax planning. The court explicitly acknowledged that the pursuit of tax efficiency through legal structures does not, ipso facto, constitute abusive conduct warranting administrative intervention.
The NSA elaborated this principle in II FSK 744/22 (December 13, 2022), emphasizing the requirement of explicit statutory authorization for administrative action:
“Challenging, for purposes of taxation, the character of a legal transaction executed by the taxpayer must rest upon an express legal basis applicable in the year in which the tax obligation arose. The tax authority may not employ alternative provisions as a functional equivalent of an anti-avoidance clause.”
This holding establishes a critical constraint: administrative authorities may not arrogate to themselves powers that the legislature has not conferred. The absence of explicit reclassification authority in the pre-2019 transfer pricing provisions precluded the administrative treatment applied in the case at bar.
C. The Temporal Dimension: Legislative Evolution
The judicial analysis necessarily accounts for the evolving statutory framework. The General Anti-Avoidance Rule (klauzula przeciwko unikaniu opodatkowania, or “GAAR”) was introduced into the Polish Tax Ordinance (Ordynacja podatkowa) effective July 15, 2016, through the addition of Articles 119a et seq. However, transitional provisions expressly limited the GAAR’s application to tax benefits obtained after its effective date.
More significantly for transfer pricing matters, explicit reclassification authority emerged only with the January 1, 2019 amendments to the Personal Income Tax Act. Article 23o(4), introduced by that legislation, expressly empowers tax authorities to “determine the taxpayer’s income from an appropriate transaction relative to the controlled transaction”—language that unambiguously contemplates transaction substitution rather than mere price adjustment.
The Rzeszów court drew the logical conclusion from this legislative history:
“The tax authorities, under the guise of applying transfer pricing regulations, are in reality attempting to apply anti-avoidance provisions that did not exist in the Polish legal order in 2016.”
This observation reflects a broader principle of legality: administrative authority must derive from positive law, and the subsequent enactment of provisions conferring specific powers necessarily implies that such powers were previously absent.
IV. The Foundational Principle: Taxpayer Autonomy in Tax Planning
A. The II FSK 82/05 Doctrine
The conceptual foundation for the courts’ analytical framework traces to a seminal NSA decision from December 16, 2005 (II FSK 82/05), which has achieved canonical status in subsequent jurisprudence:
“The pursuit of paying the lowest possible taxes is not legally prohibited; it constitutes, as it were, a natural right of every taxpayer. It falls to the tax authorities, and subsequently to the administrative courts, to assess how effectively—that is, in accordance with law—these pursuits are realized by a particular entity.”
This formulation inverts the presumption that might otherwise attend aggressive tax planning. Rather than viewing tax minimization with inherent suspicion, the court recognized it as a legitimate exercise of taxpayer autonomy, subject only to the constraint of legal compliance. The burden rests with administrative authorities to identify specific legal violations, not with taxpayers to justify their pursuit of tax efficiency.
B. The Limits of Administrative Inference
The NSA has been particularly insistent that administrative authorities remain tethered to the taxpayer’s actual conduct. In II FSK 2711/18 (May 8, 2019), the court elaborated:
“The tax authority must at all times remain within the factual sphere defined by the taxpayer’s conduct; the authority determines the actual intent of the parties to a particular contract and, with respect to such a specified transaction—and only that transaction—may derive the legal consequences prescribed by tax legislation.”
This holding forecloses administrative reconstruction of hypothetical transactions. The authority may probe the substance of executed arrangements and may adjust pricing to reflect arm’s length standards, but it may not posit alternative transactions and impose tax consequences derived therefrom.
V. The Inadequacy of OECD Guidelines as Independent Authority
Tax authorities have frequently invoked the OECD Transfer Pricing Guidelines, including the DEMPE framework (Development, Enhancement, Maintenance, Protection, and Exploitation), to support transaction reclassification. The courts have consistently rejected this approach.
The Rzeszów court stated the principle with clarity:
“The OECD Guidelines do not constitute a source of law and cannot expand the powers of tax authorities beyond those anchored in legal provisions. They should be treated as a ‘collection of good practices’ and an instrument supporting the interpretation of provisions governing transfer pricing matters.”
This holding reflects the fundamental distinction between interpretive guidance and positive law. While the OECD Guidelines may inform the application of statutory provisions, they cannot supply authority that the legislature has withheld. Administrative action must rest on domestic legal foundations, and soft law instruments—however persuasive in their reasoning—cannot bridge statutory gaps.
VI. Practical Implications and Prospective Considerations
A. The Post-2019 Landscape
The judicial limitations articulated in this jurisprudential line apply with greatest force to tax years preceding 2019. The legislative amendments effective that year fundamentally altered the administrative toolkit, conferring explicit reclassification authority and codifying substance-over-form principles in transfer pricing analysis.
For subsequent periods, taxpayers must anticipate more searching administrative scrutiny of intercompany arrangements involving intellectual property. The statutory framework now permits authorities to disregard the formal structure of transactions and to substitute “appropriate” arrangements where the taxpayer’s structure lacks economic substance beyond tax benefits.
B. Structural Safeguards
Practitioners advising on trademark licensing structures should attend to several protective measures. Documentation demonstrating arm’s length royalty rates, grounded in contemporaneous comparability analyses, remains essential. Beyond pricing, however, the post-2019 framework demands attention to functional substance: the brand-holding entity should perform genuine functions, employ meaningful assets, and bear actual risks in connection with intellectual property management.
Consideration should also be given to advance certainty mechanisms. The Polish tax system provides for binding individual tax rulings (indywidualne interpretacje podatkowe), which can provide significant protection where the presented facts are accurately and completely disclosed. Additionally, a comprehensive tax audit conducted prior to implementation may identify vulnerabilities requiring remediation.
VII. Conclusion
The jurisprudence examined herein establishes important constraints on administrative discretion in transfer pricing matters. Polish courts have drawn a principled distinction between price adjustment—an authority clearly conferred by pre-2019 transfer pricing provisions—and transaction reclassification, which required explicit legislative authorization subsequently provided in 2019.
The broader doctrinal contribution of these decisions lies in their articulation of taxpayer autonomy as a foundational principle. The pursuit of tax efficiency through lawful structures is recognized not merely as tolerated conduct but as an exercise of legitimate rights. Administrative interference requires specific statutory warrant, and the subsequent enactment of anti-avoidance provisions confirms, rather than undermines, this principle by demonstrating legislative recognition that such authority was previously absent.
For taxpayers with trademark licensing structures implemented prior to 2019, this jurisprudence provides substantial grounds for resisting administrative reclassification. The withdrawal of the tax authority’s cassation appeal in II FSK 1005/23—resulting in the finality of the Rzeszów court’s judgment—suggests that administrative authorities have themselves recognized the limitations of their pre-2019 powers. Taxpayers facing disputes with tax authorities over such structures may find considerable support in this body of precedent.
The ultimate lesson may be one of legislative supremacy in tax matters: administrative agencies derive their powers from statute, and the creative extension of existing provisions to address perceived abuses—however well-intentioned—exceeds constitutional bounds. Where the legislature has declined to confer particular authority, administrative agencies must await legislative action rather than arrogate that authority to themselves. Entities contemplating strategic tax advisory for intellectual property structures would be well-served to consider both the historical jurisprudential landscape and the more demanding contemporary statutory framework.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
