Tax news for financial institutions
Summary of key tax developments for financial institutions in Poland.
The Polish Minister of Finance and the Parliament have extended the filing deadline for certain corporate income tax (“CIT”) payments and returns, as well as for transfer pricing (“TP”) obligations.
The March 31, 2021 due date for 2020 CIT returns and payments for entities operating on a calendar year basis has been extended to June 30, 2021. Extension of the deadline for the settlement of CIT until June 30, 2021 is also available for entities with a fiscal year ending between December 1, 2020 and February 28, 2021.
The law provides also for an extension of the deadline for preparing TP documentation (a local file) submitting the special TPR-C form and filing a statement on preparing the local file by three months, i.e. as a rule from September 30, 2021 to December 31, 2021.
The Minister of Finance granted a three-month extension of the deadlines regarding 2020 financial statements (their preparation and approval). However, the extension is not applicable to consolidated financial statements and to financial statements of most financial institutions.
The Parliament adopted a law increasing fines for minor violations of tax regulations (misdemeanor). The maximum amount of a fine ticket that may be imposed by tax authorities was increased from two minimum monthly wages (ca. EUR 1,200) to five minimum monthly wages (ca. 3,000 EUR).
The Court of Justice of the European Union (“CJEU”) has recently ruled on two VAT cases directly related to Polish tax matters. In both cases the CJEU admitted that the Polish law was incompatible with the VAT Directive and that it was too restrictive. Polish VAT payers are entitled to a refund of unduly paid interest and sanctions.
20% VAT sanction illegal (Grupa Warzywna, C-935/19)
Since 2017, the Polish VAT law has provided for an additional VAT liability (corresponding to between 15% and even 100% of e.g. underestimated VAT liability) for a VAT payer. This extra sanction (apart from the due tax with penalty interest to be paid) may be imposed regardless of a taxpayer’s intention or involvement in identified irregularities.
In the judgment of April 15, 2021, the CJEU stated that the Polish law imposed an additional 20% VAT sanction when an irregularity was caused by an error in assessment made by the parties of the transaction and there was no indication of fraud and damage to the state treasury. So, according to the CJEU, automatic extra liabilities in all cases are contrary to the VAT directive and the VAT neutrality principle.
The judgment related to the 20% sanction only (and as mentioned before, sanctions may refer also to 15%, 30% or even 100% of a tax irregularity), but depending on a case, the ruling may be relied on also in other VAT sanctions.
The judgment is in favor of the taxpayers. In cases where an additional tax liability has been established – the judgment of the CJEU may constitute the grounds for resumption of such proceedings and reclaiming the VAT sanctions paid.
But time is of the essence. A taxpayer has only one month (if a final decision was not appealed against to a court) or three months (if a decision was upheld by an administrative court) to submit a motion for reopening of such proceedings. Such one-/three-month deadline starts from the date of the official publication of the CJEU judgment.
Impact of late reporting of output VAT on input VAT deduction (C-895/19)
As a rule, in line with the principle of VAT neutrality, in the case of intra-Community acquisitions of goods, charging output VAT and deducting input VAT should occur in the same period. However, in 2017 Poland introduced a special regulation regarding the timing of exercising the right to deduct VAT on intra-Community acquisitions of goods and imports of services. If intra-Community acquisitions of goods or imports of services are not declared on a timely basis, within three months, then output VAT is payable together with penal interest for late reporting, because input VAT can be deducted only on an ongoing basis (so there is a split between output and input VAT).
In the ruling of March 18, 2021 the CJEU stated that Polish limitations are not in line with the EU Directive as they break the rule of neutrality and proportionality of the VAT system. The CJEU decided that taxpayers are entitled to deduct output VAT and input VAT on intra-Community acquisitions of goods in the same VAT return, regardless of the circumstances. The judgement could be relied on also in other cases where reverse charge mechanism is applicable (particularly in the case of imports of services).
Polish taxpayers should be entitled to correct their VAT returns and to apply for a refund of e.g. unduly paid interest.
In the first quarter of 2021, the Administrative Court in Warsaw (a first-tier court) issued two verdicts regarding application of Article 15e of the Polish CIT law, which introduced significant limitations on tax deductibility of “intangible-related costs” applicable to certain types of intangible services purchased from related parties and residents of tax havens. The requirement imposed by Article 15e is a practical issue for multinational companies that outsource functions within a capital group, especially for shared service centers (SSC).
Exceptions to the limit (case no. III SA/Wa 2133/20)
Article 15e does not apply to the costs of services, fees and amounts due included in tax-deductible expenses directly related to goods manufactured or purchased, or services provided by the taxpayer. The exception (Article 15e.11.1) was supposed to provide regular taxpayers whose expenses are clearly business-related with cost-deduction options.
Certain individual tax rulings issued by Polish tax authorities indicate that shared service centers may qualify for the limitation, even if costs incurred by them are recharged to service recipients under the cost-plus transfer pricing method. According to the tax authorities, the relation between costs and revenues is too vague to exclude application of Article 15e.
To taxpayers’ benefit, Polish administrative courts rejected the position of the tax authorities. In the verdict of March 9, 2021 (case no. III SA/Wa 2133/2) the Administrative Court in Warsaw ruled that if there is a direct link between costs and services provided, then Article 15e is excluded.
Applicability of Article 15e to relationships between a branch and its headquarters (case no. III SA/Wa 1827/20)
In the verdict of February 18, 2021 (case no. III SA/Wa 1827/20) the Administrative Court in Warsaw stated that Article 15e of the CIT Act should be applicable to the relationship between a branch and its headquarters. The court argued that even if a branch is not legally separate from its headquarters, for certain CIT consequences (e.g. for TP issues) fiction should be applied that they are separate.
Therefore, according to the court, allocation of costs from the headquarters to a branch (a permanent establishment) is also subject to limitation envisaged by Article 15e (as the branch and its headquarters are related parties). As a result intangible-related costs attributed to a branch will not – in most cases – be fully deductible for Polish CIT purposes.
The verdict is not final and may be subject to the appeals process.