Amendment to the CIT Act
On 28 June 2022, the bill of amendment to the act amending the Corporate Income Tax Act and some other acts was published on the website of the Government Legislation Centre (hereinafter: “Bill”). The bill is a continuation of the planned changes to tax regulations which entered into force under the “Polish Deal” on 1 January 2022 and it partially addresses the postulates of entrepreneurs, social and professional organizations.
The new regulations are to take effect on 1 January 2023, while the provisions governing TP documentation for transactions with tax havens and postponed application of the minimal income tax regulations will become effective on the day following promulgation of the Act. Presented below are the major changes proposed in this respect.
What changes are planned?
Suspension of the regulations on minimum income tax
from 1 January 2022 to 31 December 2022 and modification of some of its requirements, in particular extension of the list of exemptions from the tax, an increase of the profitability index to 2% and a simultaneous change of the calculation method, as well as implementation of an alternative method of determining the taxable base.
Repealing the regulations on “hidden dividend”.
Modification of regulations on controlled foreign corporations (CFC), in particular by:
- introduction of regulations on elimination of double taxation of CFC in case of a series of dividend payments in holding structures,
- a more precise wording of the condition for the existence of a controlled foreign corporation, pertaining to high foreign profitability of the corporation with respect to its assets in case of potential sale of assets during the year,
- a more precise definition of an associated/related enterprise.
Amendment of the provisions governing taxation of shifted profits by:
- indication that the tax applies to tax-deductible costs,
- indication that the related enterprise in favour of which the costs are incurred has no establishment or management in Poland,
- a more precise indication of the requirement of 50% income earned by the related enterprise and the requirement regarding profit shifting to another company (at least 10%) by the related enterprise,
- simplification of the requirement regarding preferential taxation in the country of registered office, management, registration or location of the related enterprise (the condition of lower taxation applies directly to income of the related enterprise from a specific payment, rather than to the entire activity or income of the related enterprise),
- adaptation of the provisions governing taxation of profit shifting to specific schemes involving tax-transparent companies or foreign entities shifting profits to other foreign companies benefitting from low taxation.
Changes to the withholding tax (WHT),
- extension of the scope of exemption of non-resident taxable person from income tax, provided for in Art. 17.1.50 of the CIT Act, to include also treasury bonds offered on domestic market and treasury bills as well as the corresponding change to the exemption from the taxable person’s obligation to collect the tax, provided for in Art. 26.1aa of the CIT Act,
- making the taxpayer’s statement required for an exemption from the obligation to apply the pay & refund mechanism more flexible by extension of the deadline until the end of the tax year (not just by additional 2 months).
Changes in accounting for the costs of debt financing (CDF) as tax costs consisting of:
- more specific indication of the amount to be excluded from tax costs (the exclusion will apply to the surplus of CDF over 3 million or 30% EBIDTA, whichever is higher),
- the regulations on CDF allocated to capital transactions by exclusion of applicability of the regulations in situations where funds are provided by banks or cooperative savings and loan unions established in an EU Member State or an EEC country; additionally, these regulations would not apply to situations of debt financing provided to acquire or subscribe for shares or all rights and obligations in entities with non-related taxable person.
Modification of regulations governing the Polish holding company (PHC) by:
- a change of the definition of “holding company”: elimination of the requirement of non-use of tax exemptions under Article 20(3) and Article 22(4) of the CIT Act.
- a change of the definition of “subsidiary”: elimination of the requirement that (i) no more than 5% of shares are held in other companies, (ii) not all rights and obligations are held in a partnership which is not a legal person and (iii) no exemption is used under Art. 17.1.34 or 34a of the CIT Act, i.e. within a special economic zone or the Polish Investment Zone.
- extension of the list of legal forms for operation of a holding company to include a simple joint stock company and
- introduction of an exemption from income tax of dividend obtained by a holding company (previously 95% of dividend).
A change of the regulations governing lump-sum taxation of corporate income in particular with respect to:
- the way of determining income from expenses not related to business activity if assets are used (e.g. cars) for the purpose of business activity and for other purposes not connected with business activity,
- the deadline for notification by the taxpayer of selection of the lump-sum taxation (ZAW-RD),
- the requirement of expiration of tax liability resulting from initial adjustment,
- the deadline for payment of the tax on income from transformation and the deadline for payment the lump sum on income from distributed profits and profit for loss coverage (it also applies to interim dividends) and the lump sum on distributed income from net profits.
Amendment to the regulations governing the obligation to document transactions with tax havens:
- making the materiality thresholds for documenting indirect and direct transactions with tax havens more realistic by their increase (for direct transactions with tax havens – twice; for indirect transactions – various thresholds will apply depending on the type of transaction),
- a change of the scope of the obligation to document with respect to direct transactions with tax havens (for domestic transactions, the verification of a transaction in terms of existence of a beneficial owner in a tax haven or settlements with an entity from a tax haven is to apply to the entity which receives payments only),
- cancellation of presumption of beneficial owner’s residence in tax haven in favor of exclusion of the obligation to document in certain situations,
- easier identification of the beneficial owner, whereby a statement issued by the entity receiving the payment from a controlled transaction is sufficient for verification of the obligation to document (unless the taxpayer or a partnership not being a legal person knew or could have known that the statement was not true).
Simplification of refund of the tax on income from buildings: there is no need to issue a decision if the amount of refund raises no doubts.
Generally, the proposed changes should be evaluated as favourable for taxpayers. In particular, postponement of applicability of the minimal income tax provision and cancelation of the regulations on hidden dividend are to protect taxable persons from potential adverse consequences of the regulations in the situation of ongoing military conflict affecting the global economy.
Additionally, the changes which make it easier to use the PHC will enable a larger group of entrepreneurs to use this tax preference, making the environment more friendly for foreign investors.
However, it is negative that no changes were made to the depreciation limit for real property companies. In this regard, the legislator did not take into account the solutions postulated by entrepreneurs and did not eliminate the controversial and adverse provisions for real estate businesses.
The Minister of Finance has informed that further changes are possible, which will be introduced with the aim of achieving the main goal of this legislative initiative, i.e. greater simplicity and transparency of the tax system.
The bill is currently at the stage of public consultations, and it is planned to be adopted by the Council of Ministers in the third quarter of 2022. As the works over the amendment are just starting, the above changes may be modified. We will keep you informed about them.
KONTAKT
E: magdalena.patryas@pl.Andersen.com
T: +48 32 731 68 84
M: +48 502 392 419
