Act on income tax changes signed by the President

Analysis

Act on income tax changes signed by the President

As of 2021, partnerships shall pay CIT

Tax Alert (28/2020) | 30 November 2020

On 29 November 2020, following the rejection of amendments introduced by the higher Parliament house (Senat) by its lower house (Sejm), the President signed the act imposing CIT on limited partnerships (and certain general partnerships). Consequently, in principle, as of 1 January 2021, the existing taxation model applicable to these entities shall change. Instead of one-level taxation applicable to partners, two-level taxation will be introduced: on the level of the partnership and on the level of its partners to whom the profit is distributed.

A similar taxation system shall apply to certain general partnerships in cases when taxpayers that participate in their profits are not disclosed.

The Act introduces a partial exemption from CIT, applicable to general partners’ revenue from profit sharing (up to 50 percent of such revenue, with the value cap of PLN 60,000), provided a partnership has not been incorporated for “tax optimization” purposes.

In principle, the provisions that introduce tax on limited partnerships come into effect on 1 January 2021. Please note, though, that the affected entities may decide to postpone the adoption of new regulations until 1 May 2021.

Largest market players to publicly disclose their tax policy

Apart from the above, special attention should be paid to the common obligation to prepare and publish a report on tax strategy implementation coming into effect as of 1 January 2021. The obligation will apply to:

  • taxpayers whose revenue for a fiscal year exceeded EUR 50 million;
  • tax capital groups and their member companies; 
  • real estate companies. 

The scope of the report on tax strategy implementation is quite broad and includes an open list of items. Additionally, although there is no direct reference in the new regulations, the above obligation may imply the need to early prepare a corporate tax strategy, as well as to structure and formalize processes and procedures regarding management and to ensure that obligations resulting from tax regulations are properly fulfilled. Taxpayers will have nine months from the date of submitting the annual CIT return to publish the report.

Those who fail to fulfil the above obligations shall pay an administrative fine of up to PLN 250,000. Additionally, they may be held liable under the Fiscal Penal Code.

Other changes that tighten the tax system

Other solutions introduced by the amended CIT Act include:

  • Stricter tax depreciation/amortization principles, in particular applicable to CIT-exempt entities

The regulation shall apply mostly to entities whose tax exemption results from operating within SEZ or is based on a Decision on Support. Under the current CIT Act, taxpayers have the freedom to increase or reduce amortization/depreciation rates in specific cases. Under the amended Act, in relation to tangible and intangible assets entered in corporate records after 1 January 2021, such an option will be eliminated for SEZ players, and the possibility to apply individual rates to used tangible assets will be limited.

  • Transferring the obligation to settle tax on the sale of shares in real estate companies from the seller to the real estate company

Under this revolutionary mechanism, the entity being the transaction subject acts as the tax remitter. The amendment introduces a series of other obligations applicable to real estate companies, such as the necessity to appoint a tax representative in certain cases and the obligation to provide information regarding shareholders of such companies.

  • Limited possibility to settle tax losses by taxpayers who acquired assets of other entities constituting an enterprise or its organized part as a result of acquisition, in-kind contribution or a purchase financed with cash contribution

As a result of the amendments, in practice there will be no option to use tax losses incurred by another entity that cannot settle them.

  • Tax on distribution of assets of a liquidated legal person

In this context, the amendment equalizes the tax treatment of distribution of assets of a liquidated entity with that of a sale transaction, thus responding to disputes between tax authorities and taxpayers regarding the application of Article 14a of the CIT Act to the distribution of assets of a liquidated legal person.

  • Changes in tax on commercial property allowing an extended tax exemption period during pandemic

Under the amended regulations, the solution allows taxpayers to use an exemption from tax on revenue from buildings if after 31 December 2020 (the end date of the prior exemption) the pandemic status caused by SARSCoV-21 is maintained.

  • Increasing the revenue limit qualifying for the nine percent CIT rate to EUR 2 million

Introduction of the formerly announced change of revenue treatment - “small taxpayer” qualification. As announced by the Ministry of Finance, owing to this amendment, entrepreneurs will be able to retain approx. PLN 400 million more per annum.

Most of the amendments, including those on taxation of limited partnerships, come into force as of 1 January 2021. Please note that such entities may decide to postpone the application of the new regulations until 1 May 2021.

If you have any questions, please do not hesitate to contact Deloitte experts.

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