Regulations on indirect transactions with tax havens repealed!

2022 / 11 / 17

On 21 October the President signed the Act of 7 October 2022 amending the Corporate Income Tax Act and some other acts which introduced changes to (without limitation) transfer prices.

The most awaited changes implemented by the act apply to the so-called “indirect transactions with tax havens”, i.e. transactions made with entities from outside a “tax haven” (i.e. an entity having no registered office or management on the territory or in a country applying harmful tax competition) but whose beneficial owner of payments from such transactions was a tax haven resident.

Changes introduced upon the act to transactions with entities from tax havens include:

repealing the provisions governing the obligation to apply the arm’s length principle and preparation of transfer pricing documentation for indirect transactions with tax havens; this also applies to provisions which impose an obligation on taxpayers to verify the beneficial owner of payments (Art. 11o sec. 1 and 1b of the CIT Act) – this means that the obligation to obtain beneficial owner statements from counterparties or to abstain from transactions with tax havens no longer applies.
an increase of the thresholds for documenting direct transactions with tax havens:

– to PLN 2.5 million for financial transactions and

– to PLN 500 thousand for other transactions,

In respect of documentation for transactions with tax havens, the thresholds are to apply both to controlled transactions (Art. 11k par. 2 of the CIT Act), and to transactions other than controlled (11o of this Act).

Importantly, the changes cancelling the obligation to prepare the documentation take effect on the date of promulgation of the act, but they apply retrospectively since 1 January 2021. The changes regarding transaction thresholds take effect on the date following the promulgation day.

Repealing the regulations concerning direct transactions with tax havens and (which is equally important) the obligation to carry out the burdensome procedure of beneficial owner verification in terms of determining whether the residence, establishment or management thereof is located in a tax haven (also for 2021) are undoubtedly positive changes for taxable persons.

Currently, the act is awaiting publication in the Journal of Laws.

Should you have any questions or doubts regarding the issues discussed here, we are ready to help you. Feel free to contact us.

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