Tax news for financial institutions

On April 26, 2021 the Polish Minister of Finance issued the long awaited general tax ruling (no. SP4.8203.2.2020) on the tax treatment of losses incurred on bond sale.

To recap: in recent years Polish tax authorities (supported by Polish administrative courts) ruled that a loss on disposal of any debt securities (for example bonds) could not be deductible for tax purposes in Poland. The rationale behind that position was that debt securities should be treated as a type of loan receivables, and according to the Polish general income tax regulations, the sale of loan receivables cannot generate losses for tax purposes.

That standpoint of tax authorities runs counter to the long-standing market practice - as a rule, Polish banks and insurers do recognize tax losses on the sale of debt securities. The discrepancy between the market practice and the standpoint of authorities generated a tax risk for market participants.

The general tax ruling issued at the end of April endorses the tax practice (with one exception). According to the Minister of Finance losses on the sale of Polish treasury bonds can be tax deductible, as Polish treasury bonds cannot be treated for tax purposes the same as loan receivables.

However, the ruling does not refer to other bonds. Therefore, formally, non-Polish treasury bonds (e.g. European Investment Bank’s bonds) or corporate / municipal bonds are not covered by the ruling. This may be surprising, as from the legal and tax perspectives there are no material differences between those types of bonds.

In the nearest future it is key to determine how the general tax ruling impacts losses on the sale of bonds other than Polish treasury bonds.

On May 15, 2021 the Polish ruling party (Prawo i Sprawiedliwość) publicly announced its programme of economic and social reforms called the “New Deal”. Some of the changes concern taxation and the health contributions system:

• introduction of a VAT grouping scheme (please refer to Deloitte Poland Tax News for Financial Institutions | November 2020 for details);
• option to treat financial services as VATable;
• increase of income-tax-free allowance up to PLN 30,000 (ca. EUR 6,600) and the threshold at which Poles start paying the higher (32%) PIT, from PLN 85,000 to PLN 120,000 (ca. EUR 26,400) per year;
• introducing 9% health contribution without its tax deductibility for everyone (also for the self-employed), which translates into a significant rise, especially for entrepreneurs (now paying ca. EUR 1,000 health insurance contributions per annum, regardless of their income).

At the moment there are no draft laws regarding the announced changes. The changes are expected to come into force as from January 1, 2022.

The Director of the National Tax Information in its recent individual tax ruling of April 9, 2021 issued to a Polish leasing company holds that sale and lease back is not a financial service and should be charged with regular 23% output VAT (and the company is entitled to deduct input VAT).

According to the Polish tax practice, sale and lease back are two separate, taxable supplies of goods and they are not treated as a single financial transaction subject to VAT exemption.

The issued ruling confirms that the applicability of the CJEU verdict of March 27, 2019 (Mydibel case, C-201/18) is limited in Poland. In the Mydibel case it was stated that a sale and lease back should be treated as a purely financial transaction not subject to VAT.

Business entities engaged in sale and lease back transactions should analyze whether the rulings trigger any tax risks for them: either regarding the VAT rate on supply of goods (23% vs. exemption) or the right to deduct input VAT.