The Ministry of Finance presented a draft act amending the acts on Corporate Income Tax Act alongside other legislation. As the Prime Minister’s Office has published draft heads of proposed amendments, below we list the most important of the expected changes:
- CIT
- Modifications to minimum income tax regulations:
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- Article 24ca CIT Act would be suspended for the duration of this year (from 1 Jan 2022 to 31 Dec 2022).
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- Changes to characterisation of the tax:
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- the profit ratio to increase to 2% and have a new calculation method (e.g. deductible costs will not include lease payments on tangibles, income will not include trade receivables sold to factoring businesses, excise tax will be excluded);
- taxpayers to have choice between two alternative methods to calculate tax base: either tax base equals 4% of gross income (with tax rate being 10%), or tax base equals 2% of gross income + passive costs, i.e. borrowing costs and intangible services + disclosure of intangibles (with tax rate being 10%);
- additional exclusions (municipal companies, small taxpayers, taxpayers who derive majority of their income in connection with provision of healthcare services, taxpayers whose profitability in one out of three recent tax years was above 2%, taxpayers in bankruptcy or liquidation);
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- new frequency of data updates for large taxpayers:
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- publicly disclosed data on large taxpayers to be updated once a year instead of once a quarter;
- changes to controlled foreign corporations (CFC) framework:
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- introduction of measures to eliminate double or multiple CFC taxation of dividend waterfalls in holding structures (CIT Act’s Article 24a(2)(4), 24a(2)(4)(12a) and 24a(2)(4)(12b));
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- refined definition of subsidiary (CIT Act’s Article 24a(2)(3));
Corresponding changes proposed to be made in personal income tax (PIT Act’s Article 30f(2)(3), 30f(2)(5), 30f(3f), 30f(12), 30f(13a), 30f(13b));
- changes to regulations governing the taxation of shifted income:
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- the tax to apply only to costs that are deductible for CIT purposes;
- the related party for which these costs are incurred must not be a resident of Poland (no seat, registered office or management in Poland);
- more elaborate definition of the 50% gross income condition applicable to the related party and of the condition that income must be shifted to another party;
- simplified structure of the condition concerning preferential taxation applied in home country of the related party (the condition that the taxation must be lower expressly applies to related party’s income represented by specific type of payment);
- shifted income tax regulations to apply as appropriate also to certain schemes involving fiscally transparent entities or foreign entities that shift income to other foreign entities which enjoy low taxes;
- changes to withholding tax (WHT) framework
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- the exemption for non-residents under Article 17(1)(5) CIT Act (Article 21(1)(130) PIT Act) to be extended to include also Treasury bonds offered domestically and Treasury bills, with the corresponding change to be made to the exemption from withholding agent’s withholding duties as per Article 26(1aa) CIT Act and Article 41(24) PIT Act;
- validity of withholding agent’s representation allowing for exemption from pay-and-refund mechanism to be extended for another 7 months;
- changes to tax treatment of borrowing costs:
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- Article 15c(1) CIT Act to be amended to refine the calculation of deduction cap – the higher of PLN 3 million or 30% EBITDA;
- Article 16(7i) and 16(7j) CIT Act to be amended to exclude application of the law where the finance party is a bank or cooperative savings and loans association established in an EU or EEA country;
- the regulation will not extend to borrowings incurred to purchase or subscribe for shares or interests in unrelated entities;
- changes to Polish holding company (PSH) regulations:
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- the definitions of subsidiary, domestic subsidiary and foreign subsidiary to be replaced with definitions of domestic subsidiary and foreign subsidiary;
- certain fine-tuning to be made to various regulations, including on the one-year holding period;
- simple public limited company (prosta spółka akcyjna) to be added as a legal form available to holding companies;
- holding company to have the right to dividend tax exemption under Parent Subsidiary Directive;
- the PSH framework to allow domestic subsidiaries to enjoy exemptions applicable in special economic zones or the Polish Investment Zone;
- 100% exemption for dividends;
- changes to flat-rate corporate income tax (ryczałt od dochodów spółek), or Estonian CIT:
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- new method to quantify income represented by non-business expenses in situations where assets (e.g. passenger cars) are used for business and non-business purposes (50% of expenses, depreciation charges and permanent diminution in value on non-business assets will not be non-business expenses);
- new deadline for taxpayer to file notice of election of flat-rate corporate income tax (ZAW-RD) before the end of taxpayer’s tax year (the notice to be filed until the end of the first tax year in which this tax is to apply to the taxpayer);
- more refined provisions on the condition that involves expiry of tax liability in respect of initial adjustment (this liability expires in full after at least one full period of flat-rate taxation, which is 4 tax years);
- determination of time to pay tax on conversion income (if the tax is paid in full, it must be paid by the due date for the filing of CIT-8 return for the tax year preceding the first year of flat-rate taxation);
- designation of a due date for payment of tax on distributed profit and profit used to fund losses (applies also to interim dividends) and of tax on allocated net profit;
- amendments to the provision on due date for payment of employer-funded social insurance contributions on employment and similar income, contributions to Labour Fund, Solidarity Fund and Guaranteed Employee Benefits Fund:
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- simplified and more precise provisions on deduction of insurance contributions for tax purposes (CIT regulations amended to follow the solution proposed earlier for PIT);
- change to provision on refund procedure for tax on income from commercial real estate:
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- simplified refund procedure where refund is based on request as per Article 24b(15) and 24b(16) CIT Act;
- more precise language saying that refund will be made without the need for a formal decision whenever the amount to be refunded does not give rise to doubts (as in Article 30g(15) and 30g(16) PIT Act);
- changes to provisions on documentation required for transactions with tax havens:
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- higher thresholds for direct and indirect transactions with tax havens which trigger the tax (the new threshold is twice as big for direct transactions and has different amounts for indirect transactions, depending on transaction type);
- changed scope of documentation required for indirect transactions;
- presumption that beneficial owner resides in a tax haven to be abolished (the law will expressly say that it applies to beneficial owner of the payment under the transaction, in addition it is proposed that presumption of tax haven residence for BO should be abandoned and replaced with a waiver of disclosure requirements in certain cases).
2. Changes to Tax Code
- more precision added to provisions on mandatory disclosure to relevant tax authorities of contracts with non-residents in obligatory transfer pricing report forms TPR (Tax Code Article 82(1c));
- no duty to disclose contracts with non-residents in the case of entities required to file transfer pricing report forms pursuant to PIT Act’s Article 23zf(1) or CIT Act’s Article 11t(1).
3. Other proposed changes
- repeal provisions on “hidden dividend”;
- refine provisions on tax treatment of losses by companies in tax groups, i.e. the regulations will apply to new losses, meaning those that have arisen in any tax year beginning later than on 31 December 2021;
- change of law on mandatory provision of return forms by Finance Minister pursuant to CIT Act, PIT Act, Flat-Rate Tax Act and Tax Code – it will be sufficient for Finance Minister to merely provide for a visualisation of the return, with the visualisation to be made available by the Digitization Minister in the Central Register of Electronic Document Forms.
The proposed legislation is expected to be adopted by the Cabinet in third quarter of 2022. We will keep you updated on the details of changes proposed by the Finance Ministry.
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