IT professionals who were hoping to benefit from the lower, 8.5% flat rate are now less likely to be able to apply it. A ruling by the Supreme Administrative Court (NSA) states that most IT services, especially those related to software, will be subject to the higher 12% tax rate.
Rate of 8.5% or 12% – what’s the point?
Until now, many IT professionals have been able to benefit from the 8.5 per cent flat rate, especially if their activities did not involve directly creating or modifying software code. Guidance in tax interpretations suggested that services related to the operation, configuration or maintenance of systems could be taxed at a lower rate. However, from the beginning of 2023. The National Tax Administration has changed its approach and started to assign a 12% rate to IT services.
Judgment of the NSA – new approach to the concept of ‘software services’
The NSA ruling (ref. II FSK 622/24) held that services such as analysis, design or maintenance of computer systems should be taxed at 12%. The Fiscal Office and the NSA adopted a broad definition of ‘software-related services,’ covering not only programming, but also activities related to the development and maintenance of systems, such as SAP.
Taxpayers’ dilemmas and lack of clarity
Despite the judgment, many doubts remain. The NSA did not provide clear criteria for distinguishing between services subject to a 12% and an 8.5% rate. IT entrepreneurs still find it difficult to precisely allocate their services to the appropriate rates, and the NSA judgment, although unfavourable to IT professionals, does not clarify all doubts.
Consequences for the IT industry
The NSA’s decision limits the possibility of applying a lower tax rate in IT, which may result in an increased tax burden for many IT professionals. Following the ruling, many IT professionals should analyse the scope of services provided and possibly adjust to the new interpretations of the tax authorities, which mean that services should be taxed at the 12% rate.
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