Poland: Changes in corporate income tax (CIT) for 2021
Poland Tax Commentary
The Finance Ministry has published a bill of amendment to the laws governing corporate income tax (bill of September 15, 2020). The bill states that corporate income tax will start being levied on limited partnerships, and places new obligations on the so-called “real estate” companies (spółki nieruchomościowe). Another new piece of legislation places large taxpayers under obligation to publish reports on compliance with their tax strategy.
At the moment, the bill is still at the stage of preparation by the government, although the amendments are scheduled to come into force in January 2021. Below is a summary of the most important changes set out in the bill:
1. Real estate companies: changes in the taxation of the capital gain and the obligation to appoint a tax representative
Under the new regulations, income from the sale of shares in a real estate company will be taxed in Poland for another year after the loss of the status of a real estate company (entity). At the same time, a definition of a real estate company is introduced, that it is an entity (it may also be an investment fund) which holds assets consisting mostly (50%) of real estate located in Poland, with the market value of the assets taken into account.
The bill introduces the tax remitter for tax on capital gain on the sale of shares in real estate companies which will be the company whose shares have been sold (even if it is not the party receiving payment for the sale of shares). On another note, any real estate companies not having their management and registered office established in Poland will have to appoint a tax representative. Lastly, real estate companies and their owners must comply with a new obligation, consisting of reporting on their ownership structure to the tax authorities and realization of tax strategy (see comments below).
2. Obligation to publish reports on compliance with tax strategy (known as “tax policy”)
Any entities that receive taxable revenues higher than 50 million euros in a year, real estate companies and tax capital groups must publish online, on a publicly accessible website, a report on tax policy compliance, including, among other items, information on the following elements:
restructuring measures that may affect their own or related parties’ tax obligations;
filed disclosures of tax planning arrangements (MDR);
filed tax resolution requests;
procedures ensuring adequate compliance with tax obligations.
The administrative fine for taxable persons breaching those obligations could be up to 1 million PLN.
3. Tax regime for limited partnerships
The bill requires limited partnerships and certain types of general partnerships to be taxed in the same way as capital companies. This increase in the number of taxable persons will result in effective double taxation on the income receive by those partnership-type entities (which will first be taxed as a partnership and later when the distribution of income to partners takes place). The new tax credits for partners in those partnerships do not fully compensate for the amendment of their tax regime, due to not allowing partners to deduct the tax losses recorded by the partnership.
The new assessment rules also give different tax treatment to partners in general partnerships and in limited partnerships, even though their legal situation under civil and commercial law is very similar. The bill does not clarify whether the payment of dividends by limited partnerships to partnership-type entities will be able to benefit from the exemption at least similar to one available under the Parent-Subsidiary Directive.
4. Taxation of hidden reserves in liquidation
It is intended that the law will end the doubts – that have been appearing in the case law– as to whether the hidden reserves established based on the market value of the transferred assets are subject to taxation at the side on the liquidated company.
5. Additional obligations in transactions with tax havens
Transactions with entities established in tax havens are already subject to a special regime, regarding their transfer pricing documentation. The bill increases the scope of application of these rules, by referring to a beneficial ownership of the payment with a presumption, unfavourable to taxpayers, referring to transactions by the taxpayer's contractors.
Also broadened is the scope of the information on transactions with tax havens to be included in transfer pricing documentation, to require, in particular, economic justification and information on the expected income. At the same time, the definition of the beneficial owner is slightly clarified.
6. Limitations on the tax consequences of mergers
Another new piece is legislation consists of restricting the option of deducting the losses of the absorbed company, in particular those recorded in the year the merger takes place.
From the published information it is expected that the Finance Ministry is also working on other bills of amendment to corporate income tax (CIT), which will affect, in particular, the deferred assessment of corporate income tax for investments at a certain level (the so called “Estonian system”), or simplification of procedures for the tax and the related withholdings.