New Polish Deal in Taxes is approaching
Tax alert (15/2021) | 27.07.2021
On 26 July 2021 the Polish Ministry of Finance has presented detailed information regarding the planned changes in tax regulations coming into force as from 1 January 2022 – all of which being part of the so-called “New Polish Deal”.
Together with this announcement, the draft of the respective legislation (“Draft”) was published on the official website of the Polish Government Legislation Centre and disclosed for public consultation. Analysis of this Draft reveals that the scope of the planned changes of the Polish tax rules is much broader than what was communicated by the Ministry of Finance over the last weeks – i.e. some new, previously unannounced, issues have been added to the list of planned changes as well as the shape of the some changes, which were publicly announced, has changed.
The full summary of the amendments is presented below – highlighting those items, which may be of primary importance for all businesses in Poland in terms of potential benefits as well as costs of their day-to-day operations:
I. As regards Corporate Income Tax Act (henceforth: the CIT Act), the changes shall include:
1. Tax incentives for businesses that incur test production costs (the so-called prototype allowance) or increase revenue from sales of products (the so-called growth-promoting allowance);
2. Tax incentives for enterprises that invest in robotics;
3. Developing an alternative taxation system in the form of lump sum tax on income of companies;
4. Modernising regulations on R&D allowance; the simultaneous use of the R&D allowance and IP Box preferences; an allowance for innovative employees;
5. Tax incentives supporting sports, culture, universities and science;
6. Tax incentives supporting the national heritage conservation;
7. Scope of tax exemptions, including tightening adjustments regarding Polish Investment Zone, in particular through elimination of interpretation doubts regarding exemption for businesses carrying out operations based on support decisions;
8. More lenient terms of establishing and operation for tax capital groups;
9. Tax preferences regarding IPO costs;
10. Simplifying and organising transfer pricing regulations;
11. Modernisation of WHT regulations;
12. Introduction of a special regime for Polish holding companies;
13. Counteracting the “grey zone” - limiting illegal employment and partial concealment of remuneration;
14. Tightening the income tax system through:
a. changes in regulations regarding Controlled Foreign Companies (CFC) ;
b. Introducing a new concept of so-called income shifting;
c. Introducing regulations limiting the generation of fake tax-deductible expenses in the form of “hidden dividend” payment;
d. changes in and clarification of regulations regarding reorganisation of entities, including cross-border transactions;
15. Changes in the scope of the small clause (Article 21.5c of the PIT Act and 17.6c of the CIT Act) in the form of extending the list with legal acts aimed solely at tax avoidance, other than concluding a contract that would result in tax optimisation measures undertaken by taxpayers, using actual measures undertaken by a taxpayer contrary to their legal purpose in order to be tax-exempt;
16. Introducing regulations to encourage CIT payers to buy shares in other entities (the consolidation allowance);
17. Introducing a new concept of so-called income shifting;
18. Introducing a temporary income tax on certain types of income generated by individuals, entities and other organisations.
II. As regards the Act on Special Economic Zones and Act on Support of New Investments:
The act includes regulations changing the statutory employment obligation, the nexus indicator regarding IP Box and other patents in the form of appropriate amendments to the Act on Support for New Investments.
III. As regards Personal Income Tax Act (henceforth: the PIT Act), the changes shall include:
1. The size of the tax wedge and its progressive nature (increasing the tax free amount and the income threshold falling under the higher tax rate and introducing “middle class exemption”);
2. Healthcare expenses (the healthcare premium shall not be tax-deductible);
3. Establishing a fairer taxation system in Poland (among others, PIT-exemption for interest on damages; restricting the single parent tax treatment in cases of joint custody);
4. Improving the attractiveness of Poland as an investment location (e.g. tax exemption upon return to Poland);
5. Adjusting the rehabilitation allowance to the needs of the disabled;
6. Tax incentives supporting the national heritage conservation;
7. More lenient terms of taxation for married couples and single parents;
8. Principles of publishing PIT templates;
9. Scope of tax preferences;
10. Scope of tax exemptions;
11. Tax incentives supporting sports, culture, universities and science;
12. Principles of bookkeeping and maintaining records of tangible and intangible assets using computer software and the obligation of filing them in a structured form with tax authorities;
13. Tax incentives for businesses that incur costs of testing production, increase revenue from sales of products through the industrial robots or that incur shares purchase costs;
14. Modernisation of WHT regulations;
15. Simplifying and organising transfer pricing regulations;
16. Tax incentives for enterprises that invest in robotics;
17. Modernising regulations on R&D allowance; the simultaneous use of the R&D allowance and IP Box preferences; an allowance for innovative employees;
18. Counteracting the “grey zone” - limiting illegal employment and partial concealment of remuneration;
19. Popularising cashless transactions in Poland;
20. Tightening the income tax system through:
a. extension of the list of items used in business operations whose sale after decommissioning qualifies as revenue for income tax purposes;
b. changes in depreciation of assets purchased prior to putting them in use in business activities;
c. excluding depreciation charges on residential buildings and flats from tax-deductible expenses;
21. Changing the competence of the tax office to which tax returns must be filed following a change of taxpayer’s address of residence.
Apart from the summary presented above, please note projected amendments to the Act on Publicly Founded Healthcare Performances regarding healthcare premium payment. The key changes include:
- For most individuals qualified as entrepreneurs, determining the healthcare premium calculation base as the difference between their revenue and tax-deductible expenses, less social insurance premiums;
- For entrepreneurs who pay taxes on a lump sum basis, determining the healthcare premium calculation base as the amount of revenue underlying the lump sum calculation less social insurance premiums; the healthcare premium rate is determined as one-third of the lump sum rate;
- Extending the obligation to pay the healthcare premiums to all individuals officially appointed to their positions and remunerated in the capacity resulting from such appointment (including management board members).
IV. As regards the Act on Lump Sum Tax on Certain Revenue Earned by Individuals, the changes in regulations should focus on the following aspects:
1. The scope of tax-exempt business activities (among others, exercising international agreements, in this case with the United States of America);
2. Reducing lump sum rates on recorded revenue for taxpayers generating certain revenue types, e.g. from healthcare services;
3. Unifying the taxation of revenue from lease, sublease, rent, subrent and other similar contracts concluded aside from business operations;
4. Principles of bookkeeping and maintaining records of tangible and intangible assets using computer software and the obligation of filing them in a structured form with tax authorities;
5. Changes in the application of fixed tax rate, which will be unavailable for new taxpayers.
V. As regards Value Added Tax Act (henceforth: the VAT Act), the changes shall includ:
a) In relation to VAT groups:
In line with the current regulations, Polish taxpayers related by finance, business and organisation are accounted for separately. Activities performed by related entities are documented with VAT invoices, and each entity files its separate JPK_VAT file that includes its VAT returns and records. Despite the existence of Tax Capital Groups, no group settlement concept exists in VAT. This necessitates laborious billing of intercompany transactions, including related party regulations, which adds to the difficulties related to business activities. The new act introduces an option of VAT group settlement to the VAT Act of 11 March 2004.
b) As regards VAT taxation option applicable to financial services
The new act introduces changes to the taxation option regarding financial services.
c) As regards popularising cashless transactions in Poland:
- Introducing fast VAT refund for cashless taxpayers. The projected change is to popularise cashless transactions in Poland through tax incentives addressed to “cashless taxpayers” accepting mostly cashless payments;
- Temporary limitation of certain VAT preferences for taxpayers who do not respect the obligation to be ready to accept cashless payments.
d) As regards Binding Rate Information (WIS):
Recent amendments to the Tax Ordinance involving the introduction of the so-called investment arrangement (see item VI below), which will include, among others, WIS related issues (determining the VAT classification and rate for goods / services included in certain VAT transactions) necessitate the corresponding amendments to WIS regulations. The purpose of these amendments is to introduce specific rules regarding collision of these concepts to disallow the same entity to motion for a ruling (indicating the classification of goods / services and the applicable VAT rates) in the same scope and at the same time but in two different forms to prevent the competent authority (Director of National Revenue Information System) from issuing decisions on matters already included in investment arrangements.
VI. As regards Tax Ordinance, the changes shall include:
a) In relation to the investment arrangement:
The regulations proposed by the Ministry are to introduce a fiscal instrument that would promote investment in Poland, providing investors with assurance regarding interpretation of Polish fiscal law as far as tax effects of the planned investment are concerned.
b) Changes enabling easier application by the Polish tax administration of anti-tax avoidance measures, structured in order to mitigate the following situations:
The changes result from the observations made and challenges faced by the Polish tax administration during tax audits, referring to the following issues:
1. tax avoidance schemes are frequently implemented by several entities that intentionally change their registered offices (residence address) to hinder tax office head’s supervision of all participants of such scheme;
2. the current wording of the regulations regarding the determination or refund of tax overpayment disregard the fact that the general anti-tax avoidance clause and means limiting contractual benefits may apply in cases regarding tax overpayment, while its appropriateness may be assessed only by the Head of National Revenue Administration, as opposite to the tax authority that receives motions to determine tax overpayment;
3. when carrying out tax inspections, local tax authorities of the first instance are not entitled to decide whether the anti-tax avoidance clause or means limiting contractual benefits apply to a given case, nor are they specialised in counteracting such breaches. In practice, the application of the anti-tax avoidance clause or means limiting contractual benefits may be disclosed later, following the completion of a tax inspection. In such cases, without assessing entity’s operations in other reporting periods or actions performed by other entities, the tax avoidance scheme used may remain undetected in the course of tax inspection and result in an issue of an inspection report without a motion to the Head of NRA to take over the inspection procedures in line with Article 119g§ 3 of Tax Ordinance;
4. Currently tax authorities are obliged to request an opinion of the NRA Head, also if they do not know whether the case in question will involve tax avoidance and, therefore, whether the proceedings will be taken over by NRA Head. Such a takeover of tax proceedings in cases where a collateral decision was issued without asking for opinion will mean non-compliance with the binding regulations on tax proceedings.
5. In practice related to the issue of such an opinion, cases have occurred when, upon completion of appropriate procedures by tax authorities and explained doubts regarding the contents of a motion, the motioner, aware that the tax authorities knew much about the disclosed tax avoidance scheme, or changing its business plans, decided to withdraw the motion in order to be refunded at least part of the paid fee. Bearing in mind the goal of the fee, the refund of half of it lacks merit if after a few months of proceeding the decision draft is nearing completion.
6. Under the current legal status, if tax benefits have been obtained in several fiscal years, the interested entity would be obliged to motion for a decision determining the conditions to reverse the related tax avoidance effects each time such a benefit has been obtained and the related fiscal year closed. This legal status makes the procedure unattractive for entities that want to reverse tax avoidance effects, also with regard to future tax benefits.
VII. As regards Act on National Revenue Administration (henceforth: NRA Act), the amendments will include the following aspects:
a) Introducing temporary seizure of property
The Ministry wants to introduce measures that would improve the efficiency of NRA with regard to administrative enforcement. In order to enhance the performance of NRA in this respect, amendments to the NRA Act and to the Act on Enforcement in Administration are proposed to secure the interests of the State Budget and improve the effectiveness of overdue tax collection by enforcement bodies, i.e. tax office heads.
b) Introducing a test purchase
The Ministry has identified the problem arising from neglecting the obligation to record sales using cash registers, which gives rise to the grey zone, i.e. loss of proceeds receivable by the State Treasury, which is harmful to business in general as it distorts the fair competition principles.
The Ministry believes the system needs more elements to become stronger and more efficient. In order to eliminate the above issue, National Revenue Administration must have additional control tools to enforce compliance with the fiscal law, as well as effective prevention measures. The Ministry believes that the existing legal instruments provided for in the NRA Act of 16 November 2016 require the broadening of competencies of both tax authorities and financial authorities in charge of preliminary proceedings.
In light of the above, the Ministry considers necessary to introduce mechanisms that, on the one hand, will allow taxpayer protection against unfair competition, and on the other hand, will allow more effective disclosure of unfair behaviour, its penalisation and elimination.
The above changes affect many areas of business operation in Poland. It is worthwhile to analyse them in terms of potential threats to or opportunities for your enterprise and business in Poland.