Restructuring within capital groups often involves costs associated with winding down existing business models. This raises the question of whether expenses incurred in connection with ending cooperation with a related party may qualify as tax-deductible costs or should instead be treated as financing another entity’s activities. The Regional Administrative Court in Lublin addressed this issue in its judgment of 15 July 2026, case no. I SA/Lu 263/26.
The case concerned a Polish company belonging to an international group operating in the alcohol industry. The group included a German entity acting as a contract manufacturer of rectified alcohol, which was subsequently used by the Polish and Czech companies. Settlements between the entities were based on a “cost-plus” model, with periodic profitability adjustments (true-ups).
In 2024, the Polish company launched its own distillery, which led to the termination of cooperation with the German entity and the winding down of its production activities. As a result, the parties carried out a final true-up settlement covering both the standard profitability adjustment and the costs associated with closing the German facility.
The company sought confirmation that the expenses incurred as part of this settlement could be classified as tax-deductible costs. It argued that the expenses arising from the final true-up settlement qualified as tax-deductible costs. The company maintained that these expenses resulted from the decision to launch its own distillery and change its production model, which was intended to improve operational efficiency and safeguard its source of revenue. In its view, the expenses formed part of a business restructuring process rather than the financing of another entity’s costs.
The Director of the National Revenue Information Service (KIS) disagreed. The authority concluded that the expenses incurred as part of the final true-up settlement were not connected with generating revenue or safeguarding its source. In the authority’s view, the purpose of these payments was to cover costs incurred by the German entity in connection with the termination of cooperation and, in effect, to finance another entity’s operating expenses. Consequently, the authority classified the expenses as “another entity’s costs”, which could not be treated as tax-deductible costs under Article 15(1) of the Polish Corporate Income Tax Act.
The Regional Administrative Court in Lublin disagreed with the authority’s approach and set aside the tax ruling. In the Court’s view, the Director of KIS had assessed the case too narrowly, reducing the analysis to the conclusion that the company was covering costs incurred by another entity.
The Court noted that the authority had failed to consider important elements of the facts presented. In particular, it had not examined whether part of the final true-up settlement could constitute a transfer pricing adjustment within the meaning of Article 11e of the Polish Corporate Income Tax Act. The settlement also covered costs associated with the previous cooperation model based on a “cost plus 5%” formula, which required a separate assessment.
The Court also held that the authority had failed to take into account the business rationale behind the transaction as a whole. The termination of cooperation with the German entity was part of a broader group restructuring involving the launch of the company’s own distillery in Poland. Consequently, expenses incurred in connection with winding down the previous operating model should not automatically be classified as covering “another entity’s costs”. Instead, they require an assessment of their connection with the company’s future operations, the safeguarding of its source of revenue and improvements in business efficiency.
The Court further emphasised that the authority had no grounds for disregarding the questions concerning the transfer pricing adjustment and the timing of cost recognition. In the Court’s view, these issues were an integral part of the matter presented and should have been substantively addressed in the tax ruling.
This judgment demonstrates that the tax implications of restructuring should not be assessed solely through a formal analysis of individual payments. The business rationale behind the entire transaction and its impact on the company’s future operations are also important. The Regional Administrative Court in Lublin highlighted that expenses incurred in connection with a change in the business model cannot always be reduced to the category of “another entity’s costs”, particularly where they form part of measures intended to improve efficiency and safeguard the source of revenue.