The dispute regarding the classification of insurance premiums and compensation within the business conducted in a Special Economic Zone (SEZ) was resolved by the Supreme Administrative Court (NSA) in its ruling of 4 June 2025 (case no. II FSK 707/22). The Court sided with the company, which demanded that these items be recognized as costs and revenues associated with zone activity. As a result, the compensation received by the company may be subject to the tax exemption provided in Article 17(1)(34) of the CIT Act.
The case concerned a company conducting business in an SEZ. The company insured fixed and current assets used in zone operations against accidental events, including lost profits resulting from such incidents. A fire in the company caused damage to two machines used in the business, resulting in the suspension of production. The company had to bear the cost of replacing one of the machines. The received insurance covered 50% of the value of such a machine, and the company awaited further compensation payments.
As a result, the company applied for an individual tax ruling, arguing that the compensation received constituted income from zone activity. It stated that it was irrelevant whether the insurance related to the destroyed property or lost profit. The company also claimed that insurance premiums and losses caused by the fire were tax-deductible costs related to zone activity since they involved assets directly used in the SEZ business.
This view was not shared by either the Director of the National Tax Information (KIS) in their tax ruling or the Voivodeship Administrative Court (WSA) in Kraków (judgment of 27 July 2021, case no. I SA/Kr 848/21). The court argued that the compensation was not generated as a result of business activity in the zone and could not be treated as income derived from such activity. According to the court, the income resulted from a separate insurance agreement and an incident described therein, namely the fire. The compensation was only related to the activity but could not be equated with it or considered a necessary consequence. Likewise, the court found that insurance premiums and lost profit insurance lacked sufficient connection to SEZ-derived income.
In its ruling of 4 June 2025 (case no. II FSK 707/22), the NSA sided with the company, overturning both the tax ruling and the WSA’s decision. The court noted that the literal interpretation of Article 17(1)(34) of the CIT Act may raise doubts, and thus systemic and purposive interpretation is needed. From such interpretation, it is difficult to conclude that the legislator intended to exclude insurance premiums from tax-deductible costs, especially when not explicitly excluded.
The court further noted that although compensation is not directly the result of economic activity in the zone but rather of a random event, it should still be treated as income closely related to zone business. Otherwise, this would lead to a de facto taxation of damages, which would place taxpayers in an unfavorable position.