Changes in rules on payments made via bank account
Tax Alert 13/2016 | 15 June 2016
On 30 May 2016, the President of the Republic of Poland signed the Act Amending the Act on Corporate Income Tax and the Act on Freedom of Economic Activity (the “Act”). The Act provides that payments related to transactions with a value surpassing PLN 15 000 made via a bank account can constitute tax-deductible expenses. The new law comes into effect on 1 January 2017.
Current legal status
Article 22 of the Act on freedom of economic activity (AFEC) provides that payments related to the economic activity conducted by entrepreneurs must be made or received via the entrepreneur’s bank account in each case if another entrepreneur is party to the transaction, and the one-off value of the transaction, regardless of the number of resulting payments, exceeds the equivalent of EUR 15 000 converted into PLN based on average foreign currency exchange rate set by the National Bank of Poland as of the last day of the month preceding the month during which the transaction was concluded.
Under the laws applicable today there are no sanctions for a breach of this which, as stated in the justification to the draft law, is the main reason for supporting the amendment.
Under the amended law, personal income tax payers conducting non-agricultural business activity and corporate tax payers will not be able to deduct from tax the expenses related to transactions paid for via a bank account as referred to in Article 22 of the Act on freedom of economic activity.
A significant change has also been made to the wording of the aforesaid Article 2 of AFEC. The limit of a cash payment has been reduced from EUR 15 000 to PLN 15 000. Transactions denominated in foreign currency are converted into PLN at the average foreign exchange rate set by the National Bank of Poland on the last day of the month before the transaction date.
According to the justification of the amendment, reduction of the current cap will result in transactions being more transparent. Furthermore, it will improve the fairness of competition, reduce the size of the shadow economy and increase the state’s revenues as a consequence. The justification also gives examples of other EU Member States that have reduced their cash payment caps (e.g. Hungary and Bulgaria which have reduced their caps to EUR 5 000 each, and Greece with the new lower cap of EUR 1 500).
During the legislative process, however, the Public Finance Commission questioned the lowering of payment cap on cash transactions. After the first reading of the new law in the Parliament, the Commission requested that the existing cap of EUR 15 000 be retained. The arguments raised against the lowering of the caps on cash transactions include concerns about the interest of small and medium businesses (a higher limit helps them maintain financial liquidity) and reservations about ineffectiveness of the proposed changes to the realisation of the Finance Ministry’s goals. In the meeting after the first reading of the new law, members of the Committee enquired, also without success, about the estimated government revenues once the new cap is in place. In spite of the Committee’s bad recommendation for the draft after the first reading, the Act was ultimately passed with the new cash transaction cap at PLN 15 000.
Additionally, the new Act includes a provision whereby tax payers who make tax deduction of payments referred to in Article 22 of the Act of economic freedom, i.e. made via a bank account, will have to decrease the amount of tax-deductible expenses or - should the decrease in tax deductible expenses be impossible – increase the revenue amount in the month of the transaction.
Effective date and interim provisions
The new provisions of the Act will apply to payments made in the tax year beginning on or after 31 December 2016. Payments made before 1 January 2017 will be subject to the existing cap of EUR 15 000. The same applies to cost and revenue adjustments made to payments classified as tax deductible expenses before the effective date of the new law.
The Act will come into effect on 1 January 2017.