The Council of Ministers adopted a substantially modified draft amendment to tax regulations under the “Polish Deal” programme. The document has now been submitted to the Sejm. Below we present a synthetic overview of the most important changes in relation to the original proposals.
1. Health insurance contribution
The adopted project specifies that the basis for calculating the health insurance contribution, in the case of employees and entrepreneurs (taxation according to the scale or the so-called flat tax), is to be 4.9% (originally: 9%) – not less than 9% of the minimum remuneration for work .
For taxpayers paying a lump sum on recorded revenues, the rate is to be 9%, and the basis for calculating the health insurance premium is to be differentiated in terms of the income obtained:
- income up to the threshold of PLN 60 thousand zloty; – 60% of the average monthly salary;
- income between 60 thousand. and 300 thousand PLN – 100% of the average monthly salary;
- income s in excess of PLN 300 thousand PLN – 180% of the average monthly salary.
The health insurance premium is to be paid by the 20th, not by the 10th day of the following month (as originally proposed).
2. Deletion of the provision on limiting intangible services
The draft provides for the deletion of the provision of Art. 15e of the CIT Act, which today limits the recognition of certain types of intangible services as tax costs.
Similar solutions are to be introduced to the regulations governing the so-called minimum income tax (see below).
At the same time, from a practical point of view, the role of limiting costs may be taken over by the provisions on the so-called hidden dividends and income shifting taxation.
3. Minimum income tax
The provisions of the modified draft introduce, in fact, a new income tax. It will be subject to taxpayers who:
- have suffered a loss from an “operational” source, or
- achieved the share of income from the “operating” source in the “operating” income of no more than 1%.
For the purposes of calculating the loss and the share of income in revenues, the costs of acquisition or improvement of fixed assets, recognized in the tax year, including through depreciation, are not to be taken into account.
The tax base is to be the sum of:
- 4% of the value of revenues from the “operational” source and
- incurred for the benefit of related entities: debt financing costs over 30% of “tax EBITDA” and
- the value of deferred income tax resulting from the disclosure in tax settlements of an intangible asset that has not been depreciated so far to the extent that it results in an increase in gross profit or a decrease in gross loss, and
- costs of intangible services (to the extent similar to the current Article 15e of the CIT Act) over 30% of “tax EBITDA”.
The tax is to be 10% of the tax base.
The amount of minimum income tax paid for a given tax year will be deducted from the CIT liability (for the next 3 years).
- The tax does not apply to taxpayers:
- in the year of commencement of operations and the next 2 years;
- financial companies;
- who obtained revenues lower by at least 30% in relation to the revenues obtained in the previous year;
- whose shareholders are only natural persons and if the taxpayer has no shares (stocks) in the capital of another company.
Contrary to announcements, there is no exclusion of the application of these provisions to the SME sector.
4. “Hidden dividend”
The draft further provides for the introduction of regulations limiting the possibility of including artificial costs in tax costs in connection with the payment of benefits that are the so-called “hidden dividend.”
According to the new wording of the regulations, the tax cost will be the so-called hidden dividends if they are paid to a related party and, at the same time, one or more of the following occurs:
- the amount of costs or the date of their incurring in any way depend on the profit earned by the taxpayer or the amount of such profit or
- a rationally operating taxpayer would not incur such costs or could incur lower costs in a transaction with an unrelated entity, or
- costs include remuneration for the right to use assets that were owned by the partner or related entity before the taxpayer was established.
These provisions do not apply, however, when the sum of such costs incurred in the tax year is lower than the amount of gross profit obtained in the financial year in which these costs were settled.
Especially the last of these premises may be risky in practice, as it may significantly limit, for example, the lease of assets from related entities.
5. “Sealing” of the system – tax residence
Originally, a very significant extension of the definition of a Polish resident was proposed – in terms of the actual management of a foreign company by persons in Poland. This could lead to attempts to broadly question the foreign residence of many companies owned by Polish taxpayers.
The adopted draft is to clarify these premises – a foreign entity is to have a tax residence in Poland, when in the territory of the Republic of Poland current affairs of this taxpayer are conducted in an organized and continuous manner, in particular on the basis of corporate documents (acts).
Therefore, there is no direct reference to the place of residence of management in Poland.
Despite a certain adjustment of the wording of these provisions, the current indication remains that this regulation may create tax risk.
6. Tax reliefs settlement period
The project introduces a number of new tax reliefs that we mentioned in our previous alerts. The amended version of the project assumes that the period of settlement of relief for expansion and relief for monuments will be extended from 5 to 6 years, relief for the terminal from 4 to 6 years, and relief for a prototype from 2 to 6 years.
7. Simplifications – transfer prices
The initial version of the project assumed an exemption from the obligation to prepare local transfer pricing documentation for safe harbor transactions for financial transactions. Following the amendment, this exemption was extended to low-value-added transactions covered by safe harbor.
The rules for signing Information on Transfer Pricing have been changed so that the document can be signed by one person.
8. “Estonian CIT” tax – rates
The draft modified the tax rates – they are to amount to 10% for a small taxpayer and taxpayer starting a business and 20% for other entities.