Tax Alert, 21 January 2014

On 18 December 2013 the Director of Fiscal Chamber in Katowice gave an individual interpretation (ref. no. IBPBI/2/423-1220/13/MO) according to which companies are allowed to classify the actually liquidated inventories (i.e. raw materials, spare parts, semi-finished products, components) which lost their usability and do not offer a possibility of using them for production of equipment (provision of services) or for servicing as tax deductible costs.

Due the type of business conducted the majority of entrepreneurs is forced to maintain a certain inventory level, for instance, in order to keep continuity of production or allow servicing. However, as a consequence of continuing technical progress, changes in market demand or loss of use value due to long storage the companies are forced to buy more and more advanced materials in order to limit the storage costs of materials or raw materials which will not be used for production, servicing etc. Therefore, many businessmen decide to liquidate those stocks. In line with the above-mentioned interpretation the liquidation which takes place because of external factors being beyond the taxpayer’s control, according to the Minister of Finance, is an action aimed at generating income and securing and maintaining the source of income. Therefore the expense incurred, i.e. the cost of liquidated stocks can be classified as tax deductible cost. In addition, the authority underlined that for the expense to be correctly documented it is necessary to draw a liquidation protocol and proceed to scrap.

Should you be interested in discussing this topic in further detail please do not hesitate to contact Mazars Tax Advisory Department.

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