Key important changes in Polish tax legislation 2019
Exit tax Withholding tax No such regulations in Polish tax system in place. In general, certain payments abroad (e.g. interest, dividends, royalties, payments for advisory / legal / marketing services) are subject to withholding tax rate in Poland at 20% (e.g. interest) or 19% (dividends) rate. However, under certain conditions a reduced tax rate or tax exemption may apply. General: Exit tax will be imposed both on all taxpayers in case of: (i) transfer of assets, (ii) change of tax residence or (iii) transfer of permanent establishment of a taxpayer outside the territory of Poland. Tax basis: Positive difference between market and tax value of assets. PIT/CIT tax rates: 19% PIT/CIT (3% in PIT if the tax value of an asset is not determined). Payment: Tax would have to be paid by 7th day of the month following the month in which (i) with respect to CIT income subject to exit tax was created, (ii) with respect to PIT - market value of transferred assets exceeded PLN 4m. Dedicated tax return should be filled in the same timeframe. Refund: Only possible with respect to PIT (provided within 5 years from exit the residency will be changed back to Polish / transferred assets will return to Poland). General: In case of payments exceeding in one tax year PLN 2m to one foreign recipient withholding tax will have to be collected by the payer in full amount (19%/20%) no reduced rates or tax exemption would be possible. Tax refund: Foreign recipient (as a taxpayer/ or in certain cases Polish tax remitter) will have the right to ask for a refund to the Polish tax authorities. Except for documentation supporting the payment when asking for refund a taxpayer would need to evidence that conditions to apply reduced rates or tax exemption existed (this may include among other business substance proof). Tax should be refunded within 6 months since the refund application is filed. Exception: In specific cases the Polish tax remitter will be allowed to apply the reduced rate or tax exemption at the moment of payment: (i) by submitting a written statement to the tax authority (under pain of criminal fiscal liability) that it holds all documentation required to apply the reduced tax rate / exemption as well as confirming, that all additional requirements have been met (i.a. regarding the business substance of the recipient) or (ii) by obtaining a special opinion from the tax authority authorizing to apply a tax exemption (such opinion should generally give protection for 3 years). Currently, the government works on the secondary bill of law aimed to postpone fully entry into force of the above regulations till 30 June 2019 and partly limit the application as regards certain groups of taxpayers / tax agents. New provisions may be perceived as another powerful fiscal tool, thus any future international transfer of assets (including donations, in-kind contributions etc.) should be carefully analysed and well thought taking into account possible tax effects thereof. The taxpayers should anticipate the impact of changes on their cash-flows and check legal documentation with foreign partners in terms of gross-up clauses. The approach towards new changes should be agreed, considering: (i) if the special opinion needs to be obtained, (ii) if submitting of the statement may expose to penal fiscal liability risk, (iii) if the tax refund related procedures are possible to be implemented. 1
IP Box Tax rulings Tax penalties Notional interest deduction CIT rate No similar Polish tax regulations in place (to some extent similar is a state aid for research and development, but it is a relief only for certain costs incurred by a taxpayer). As a rule, taxpayers may request a ruling on the tax treatment of a specific transaction. A taxpayer enjoys full protection based on the ruling provided that it relates to tax implications that arise after the ruling is obtained and the taxpayer follows the standpoint expressed in the ruling (assuming that the presented background fully reflects reality). If irregularities are identified during a tax audit (also based on the tax avoidance regulations), any tax benefits can be denied and additional tax liabilities with penalty interest can be imposed. Separately, penal fiscal liability may apply depending on particular case. No similar Polish tax regulations in place. Currently, the standard CIT rate is 19%. A reduced CIT rate of 15% is applicable to small taxpayers earning revenues equivalent to EUR 1.2m or less and for taxpayers starting a new business for their first tax year. Preferences for innovation activities: Income resulting from commercialization of created, developed or improved intellectual property rights (e.g. patents) should be taxed with a preferential 5% CIT or PIT rate. Eligible income: Special formula would have to be used to calculate income subject to this preferential taxation which basically depends on the types of costs incurred for research and development. Under the new regulations it will be explicitly forbidden to apply for tax rulings regarding any provisions related to tax avoidance matters (i.e. both General Anti Avoidance Regulations as well as other existing abuse clauses, e.g. on taxation of mergers or dividends). Also, any tax rulings regarding these areas obtained by the taxpayers in the past will expire on 1 January 2019. Additional tax penalties: Under the new law a sanction in the form of an additional liability of 10% (with respect to CIT / PIT) or 40% (other taxes) of the tax liability assessed by the tax authorities based on the General Anti Avoidance Regulations or other anti-abuse clauses, transfer pricing settlements and withholding tax cases (see above) The above additional penalty payment rate may be substantially increased in certain cases. Additional tax costs: Possibility to deduct from the taxable base of the hypothetical costs of obtaining external funds in case the company receives funding in the form of additional payments to equity or retained profits are used. Capital financing costs cannot exceed PLN 250ths in the tax year. This mechanism is to apply from 2020 (including also retained earnings from 2019). CIT rate of 9% should be, in general, available for taxpayers which will keep the status of small taxpayer (i.e. whose irevenue both in the preceding as well as in the current tax year does not exceed the PLN equivalent of EUR 1.2m). The reduced rate does not apply to income from capital gains. In order to benefit from this incentive, the taxpayer should (i) monitor, if its business activities are directly related to creation, commercialization, development or improvement of IP rights and (ii) keep detailed accounting records presenting qualified costs and revenues. The taxpayers should review their tax rulings in order to assess, to which extent they may be perceived as falling under new regulations and, in consequence, what areas may be exposed as no longer benefitting from the tax ruling protection would be available. Internal tax risk management policy should be reviewed considering new potential exposures. Impact of these regulations should be considered during analyses of available funding scenarios. The taxpayers should monitor, if their revenue level would allow them for applying the reduced 9% CIT rate. 2
Mandatory Disclosure Rules No similar Polish tax regulations in place. New regulations introduce an obligation to notify the head of the National Tax Administration about the details of applied tax schemes. The notification should be done, in general, by tax advisers, legal advisors, advocates and other experts (called promotors), but also in certain situations by taxpayers themselves. The notification should outline details of the tax arrangements / tax schemes with estimation of expected tax benefits. The notification duties should not apply to the local (Polish) tax schemes if taxpayers revenues/costs or total assets do not exceed EUR 10m or if the market value of assets or rights covered by the tax scheme is below EUR 2.5m. Deadlines: (i) cross-border tax schemes implemented between 25 June 2018-1 January 2019 should be reported until 30 June 2019 by the promotors and until 30 September 2019 by the taxpayers (if the promotors will not report), (ii) domestic tax schemes implemented between 1 November 2018-1 January 2019 should be reported until 30 June 2019 by the promotors and until 30 September 2019 by the taxpayers (if the promotors will not report). Starting from 1 January 2019, tax schemes should be reported within 30 days after the day when the scheme is: (i) available for the client, (ii) ready for implementation, or (iii) started, whichever is sooner. The above-notification in certain cases would also have to be done by other persons (like banks, financial advisors, etc.) which are assisting implementation/execution of the tax scheme. In addition, taxpayers that implemented a tax scheme and realized certain tax benefit should make special statement to the tax office within the deadline to submit tax return for the period in which the above tax scheme and tax benefit occurred. The taxpayers should (i) review the implemented / planned tax arrangements and discuss with advisors to which extent disclosure in such a case is mandatory and (ii) prepare required reporting policies so that they will be ready to meet the new requirements starting from 2019. 3
Minimum tax on commercial real estate From 1 January 2018 a minimum tax on commercial real estate, including shopping malls, department stores, independent shops and boutiques, other commercial and service buildings and office buildings (excluding public buildings) was introduced. The tax is 0.42% of the acquisition cost of the building per year (applicable to the excess of the initial tax value of the building over PLN 10m, excluding cost of land and movables). It is possible to offset the tax due against "regular" CIT. Minimum tax will apply to all buildings (with an exception for residential buildings leased under social housing programs) subject to lease regardless of their type. The tax would apply only to leased buildings (i.e. no tax on vacant buildings or parts of buildings) this amendment would also apply retroactively in 2018. The minimum threshold of PLN 10m, currently applicable to each building separately, would be applicable to a whole portfolio of buildings possessed by a given taxpayer. The minimum tax shall be reimbursed (assuming excess of minimum tax in a given year over "regular" CIT liability) if the tax authority confirm that there were no irregularities in the amount of "regular" CIT liability (in particular debt financing costs of the acquisition or construction of the building were in line with market conditions). This change would retroactively apply to the minimum tax for 2018. An anti-avoidance clause will be introduced to apply when a taxpayer disposes of or leases his building out in whole or in part without good commercial reasons in order to avoid the minimum tax. The taxpayers should assess the impact of new changes on their business activity, in particular with respect to (i) the buildings covered by minimum tax and (ii) the application of minimum PLN 10m threshold. Also retroactive effect of the selected new regulations should be assessed. Transfer pricing ( TP ) The TP documentation in Local File / Master File format already applicable from FY 2017. Details required in the TP documentation under the current Polish regulations often exceed OECD standards. Reduction of the scope of TP documentation obligations: increase the transaction value thresholds - PLN 2m exempt for services, PLN 10m for sale of goods and financial services; unification of the required scope of Polish documentation with OECD standards; extending deadlines for preparation of the TP documentation: 9 months after the end of the documented tax year for local file. Simplification of rules applicable to low-value adding services and loans: introduction of the cost + 5% margin safe harbour for lowvalue adding services, safe harbour interest levels for loans to be published by the Ministry of Finance. Increased focus on tax planning and restructurings: Direct introduction of the possibility of disregarding the transaction or its reclassification in the absence of economic justification. Introduction of conditions for the application of the transfer pricing adjustments. Electronic simplified TP-reporting will replays the current CIT/TP and PIT/TP forms. TP is already one of the major areas of audits for multinational entities operating in Poland. New TP regulations may allow to decrease the documentation burden especially related to small and simple transactions. However, at the same time, the new regulations may allow tax authorities more efficiently select taxpayers for audits and may in practice result in even increased TP audit pressure in case of complex transactions and restructurings. 4
Other The draft bill introduces numerous other amendments, of which some are already regulated in the Polish tax provisions. WHT on Eurobonds: no withholding tax will apply to any interest or premium (i.e. discount) received by non-polish tax residents in respect of bonds issued and admitted to trading on: (i) a regulated market (such as the Warsaw Stock Exchange or London Stock Exchange); (ii) an alternative trading system (for example multilateral trading facilities such as Turquoise). Each of these markets has to be located either in Poland or a country with which Poland has signed a double tax treaty with. Tax exemption only applies to bonds (i) issued after 31 December 2018, (ii) with a redemption period of 1 year or longer; and (iii) where related entities do not hold more than 10% of the bonds. In the case of bonds issued prior to 1 January 2019, issuers can choose between the current regulations (i.e. with tax withheld at source) or a new form of taxation shifting the obligation to pay tax to the issuer. Costs of receivables trading: The new provisions should enable taxpayers to recognize the full amount of the cost, up to the amount of taxable revenue derived. Cryptocurrencies: introduction of new rules relating to so-called virtual currencies. This area has not been regulated for tax purposes in Poland so far. New solidarity tax: Individuals with a tax year income exceeding PLN 1m will be obliged to pay solidarity tax at the rate of 4% on the excess of this amount. The new tax will be imposed on income received from employment (and other sources taxed according to the progressive tax rates), business activity income (including one taxed at the 19% flat rate) and certain categories of capital gain income (with the exclusion of the dividend and interest income). Tax losses: the taxpayers will be allowed to utilize up to PLN 5m of a tax loss incurred in a given tax year based on a one-off basis (in the five-year period). General rules (uner current wording of the tax law) will apply to the excess amount over PLN 5m. Participation exemption for alternative investment companies: capital gains realised on disposal of shares in qualified shareholdings (direct participation of 10% or more for at least 2 years) should be CIT exempt. The taxpayers should assess to which extent the particular regulations could impact their business activity. With respect to Eurobonds, new provisions will facilitate issuance of Eurobonds directly by the Polish companies or SPVs located in Poland. Under such new structures tax risks could be effectively mitigated. Also issuance of bonds placed on the Polish regulated and alternative markets will be more effective tax wise. 5
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