Announcement of fundamental changes in CIT

The most important announcement concerns inclusion of limited partnerships into CIT taxation. Currently, limited partnership are not subject to corporate income tax but its shareholders can be CIT taxpayers – such construct enables a one-time taxation of incomes earned in the scope of limited partnership’s activity. After coming into force of announced amendments situation will be different – tax income will be paid also by a limited partnership. Although it does not directly result from published information, it can be assumed that distribution of profit from a limited partnership to its shareholders is going to be taxed too. Analogous taxation system also may concerns some general partnerships but only if CIT taxpayers who participate in a general partnership’s profit are not disclosed.

However, it is not the only planned change. Proposal also contains a number of other significant changes:

• introduction of the principle that in case of shares’ sale of so-called “real-estate companies” liable for tax payment arising from such sale will not be real-estate company’s shareholders but real-estate company itself;
• indication that in the case when, as a result of liquidation, the assets of the liquidated company are disposed such operation will be taxed analogically to sale of assets – on the side of the company disposing the assets (pursuant to consistent line of jurisprudence of administrative courts such situation is currently not subject to taxation under the scope of art. 14a of the CIT Act);
• limitation of possibility to utilize tax losses in case of acquiring other entity or in-kind contribution in the form of an enterprise or organized part of an enterprise;
• harmonization of tax and accounting depreciation rules;
• limitation of possibility of decreasing depreciation rates if taxpayer benefits from income tax exemption;
• changes in the manner of determining the value of debt financing costs that may be classified as tax deductible costs;
• adjustment of the principles of income source division, achieved by non-residents, to the standards introduced by the so-called Multilateral Instrument (MLI);
• extension the obligation to apply the arm’s length principle – this change is going to concern situation in which beneficial owner is established in so-called “tax haven”;
• introduction of changes to the tax on revenue from buildings which enable to prolong the exemption from this tax if state of epidemic related to COVID-19 continues after 31st December 2020;
• increase of the revenue threshold from EUR 1.2 million of revenue to EUR 2 million of revenue for so-called “small taxpayers” status which entitles to apply 9% CIT rate;
• introduction of the obligation to draw up and publish “tax policy information” for a given year.

The vast of majority of planned changes aims to close loopholes in corporate income tax’s system. Except CIT taxation of limited partnership, introduction of the obligation to draw up the tax policy information, deserves particular attention. This duty may cause another crucial documentation and reporting obligations for entrepreneurs.

Apart from changes in the CIT Act it is also planned to introduce adequate changes adjusting Personal Income Tax Act (in this Act is to be implemented analogous changes in the scope of depreciation rates as in CIT Act). Additionally it is planned to adapt changes which encourage taxpayers who carry out business activity as a natural person to settle tax settlement by flat-rate income tax (increase of revenue threshold which entitles to use this solution to EUR 2 million).

Should you have any questions, please contact Deloitte experts.