Package of tax changes to the Polish Deal affecting CIT

Objectives of the proposed changes relating to the real estate market

Minimum CIT (Article 24ca of the CIT Act)

Application of the minimum CIT provisions is planned to be suspended until the end of 2022.

Regardless of the above, the structure of this tax is also expected to be modified through:

• increasing the profitability ratio to 2% while modifying the methodology of its calculation, e.g. through the exclusion of lease payments associated with fixed assets or revenues from trade receivables sold to factoring companies from the tax-deductible expenses when making the profitability ratio calculation;
• introducing an alternative method of determining the tax base for the minimum CIT;
• extending the list of taxable persons eligible for the minimum CIT, to include for example: municipal companies, taxpayers that generate their revenues mainly in the healthcare sector, small taxpayers, those whose profitability in one of the past three years exceeded the ratio of 2% and those declared bankrupt or placed in liquidation.

Elimination of the so called “hidden dividend” provisions (Article 16.1(15b) of the CIT Act)

The so called “hidden dividend” provisions are planned to be repealed.

Amendments to Tax on shifted profits (Article 24aa of the CIT Act)

The changes planned in this regard are aimed to:

• ensure that only incurred costs classified as tax-deductible expenses will be subject to this tax;
• clarify that the related party, for which costs regarded as shifted taxable profits are incurred, is a non-resident entity;
• specify clearly the condition regarding 50% revenue generated by the related party and the condition regarding revenue shifting to another entity (at least 10%);
• simplify the condition regarding preferential taxation in the related party’s country;
• impose the rule of proper application of the provisions governing the taxation of profits shifted to specific arrangements with the involvement of tax-transparent entities or foreign entities that shift taxable profits to other foreign entities benefiting from low tax.

Amendments to debt financing cost limitations (Article 15c of the CIT Act)

The changes planned in this regard are aimed to:

• specify precisely the debt financing cost limit as the higher of (i) PLN 3 million and (ii) 30% of the tax EBITDA;
• provide an exemption from the provisions setting the limit on debt financing costs for equity transactions in situations where a bank or a credit union having its registered seat in an EU member state or in an EEA country is the financing institution. Additionally, these provisions would not apply to debt financing provided for the acquisition or subscription of shares or all the rights and obligations in entities that are unrelated to the taxpayer.

Amendments to withholding tax (WHT)

The changes planned in this regard primarily concern payouts
made through securities accounts or through collective accounts.

These changes are aimed to:

• provide an exemption from some obligations imposed on payers in a broad sense (i.e. both issuers as payers in the narrow sense and entities being the so-called technical payers) with regard to withholding tax on interest and discount on treasury securities (i.e. treasury bills and bonds);
• increase the flexibility of the structure (extension of the period) of the payer’s declaration in the case of entities making payouts, excluding the obligation to apply the pay & refund mechanism (submission of such a declaration would be sufficient to not apply the mechanism for the next seven months versus three at present).