Tax news for financial institutions

In Poland dividends are levied with a 19% withholding tax rate and interest from Polish sources with a 20% rate. The rates can be reduced under a double tax treaty. Additionally, no tax should be collected on amounts transferred to Polish pension and mutual funds, and to peer funds operating in other European Union / European Economic Area countries. Since 2011, non-Polish funds have been explicitly exempt from WHT in the CIT Act.

Mutual and pension funds (comparable to the Polish ones in regulatory terms) from non-EU/non-EEA countries (e.g. those operating in the United States, Switzerland, Jersey and, since 2021, in the UK) are not addressed by these regulations. Nevertheless, following decisions issued by the Court of Justice of the European Union (especially case no. C 190/12, Emerging Markets; or case no. C-641/17, College Pension Plan), Polish tax authorities generally have qualified non-EU/EEA funds for tax exemption (as long as such funds are comparable to Polish funds, and there is a legal framework in place allowing administrative cooperation between Poland and the country / territory of the fund’s residence).

If any tax has been deducted, such funds can reclaim it directly from a competent tax office in Poland.

One problem remains unsolved, though: the Polish tax code precisely regulates when tax authorities start and stop paying interest on overpaid tax amounts. Tax refunds triggered by the CJEU ruling that indicated non-compliance of the Polish law with the EU law include interest due for the whole period (from the date of the overpayment to the date of refund) only if a tax refund motion is filed within 30 days of the effective date of the CJEU’s decision. For motions submitted after that date, the interest is due only for the period ending on the 30th day of the decision’s effective date.

The second case (submitting the motion too late, which prevents the charging of interest on the overpaid amount until a refund is actually made) has resulted in a tax dispute. On March 15, 2022 (case no. II FSK 1602/19) the Polish Supreme Administrative Court (NSA) requested clarification from CJEU, asking a preliminary question: Is the restriction on the charging of interest on overpaid tax amounts (Article 78 § 5 of the tax code) compliant with the EU law?

If the CJEU decides that the Polish legislation contradicts the European law (which we consider likely), the concerned funds will be entitled to apply for interest on the refunded amounts of overpaid tax. The interest rate is 8% p.a. (or higher as of February 9, 2022).

If Polish tax authorities refused interest in the past, taxpayers should be entitled to resume tax proceedings.

Last but not least, the CJEU’s verdict will be important not only for withholding tax. In all cases where tax collection in Poland contradicted the EU law, taxpayers may be entitled to additional interest. Recently, several similar cases have been filed with regard to additional VAT liabilities (case no. C-935/19, Grupa Warzywna), reporting of output VAT on input VAT deduction after the deadline (case no. C-895/19), or a VAT regarding bad debts (case no. C-335/19).

In an individual tax ruling of March 7, 2022 (no. 0111-KDIB2-1.4010.573.2021.1.MK), the Director of the National Revenue Information System concluded that UK companies were not entitled to withholding tax exemptions provided for in EU directives and implemented into Polish law because the UK ceased to be a member state of the European Union (EU) in 2021, nor was it included in the European Economic Area (EEA).

For more information on the tax effects of Brexit please refer to our Tax news for financial institutions for January 2021.

Tax reliefs can be still used by UK companies under the Poland-UK double tax treaty: in principle, the 2006 Poland-UK double taxation convention provides for 5% WHT on interest (0% in exceptional cases, such as interest on bank loans) and 5% WHT on royalties. 0% WHT on dividends has been applicable after Brexit provided that the UK recipient meets the minimum holding percentage and holding period requirements (otherwise 10% WHT on dividends would be due).

The Polish government is going to amend the personal income taxation.

The key changes in taxation of individuals regarding 2022 have included: increasing the tax-free amount, raising the threshold for the application of the higher PIT rate, cancelling tax deductibility of health insurance premiums, and introducing a new tax relief (the so-called middle-class relief) for certain taxpayers to offset the negative impact of the first three changes. Although the amendments were intended to bring tax advantage to majority of taxpayers, some of them have paid higher taxes than last year as a result of amended calculation of the advance payment amounts. Additionally, the middle-class relief has turned out to be complicated and incomplete.

To address the issue, amendments have been proposed. The middle-class relief is to be cancelled and replaced by the PIT rate for the first bracket (annual income up to PLN 120,000) reduced from 17% to 12%. Sole proprietors will be entitled to deduct a portion of health insurance premium paid from their income.

Changes are supposed to come into effect on July 1, 2022.

Polish taxpayers are entitled to deduct in-kind donations (in the form of food, medical supplies, household appliances, clothes, hygiene items etc.) to charity and non-profit organisations (Polish or Ukrainian ones), local authorities (Polish) or healthcare entities (Polish or Ukrainians) from taxable revenue. Services provided free-of-charge (such as accommodation offered to refugees from Ukraine) are also deductible.

The relief includes donations made / services provided between February 24 and December 31, 2022.

Cash donations are CIT-deductible under regular corporate income tax law provisions: donations granted to public benefit and volunteer organisations (in an EU / EEA country) are tax-deductible up to their total amount not exceeding 10% of taxpayer’s income.

Since in-kind donations can also be tax-deductible, in-kind donations to Polish non-profit organisations may qualify for a double deduction.

More tax reliefs related to the Russia-Ukraine war are expected in future.