Tax news for financial institutions
Summary of key tax developments for financial institutions in Poland.
Poland is on the eve of the WHT system reform, transitioning from the “relief at source” to the “pay and refund” mechanism. Under the new regulations (scheduled to take effect on January 1, 2022), 19% (for dividends) or 20% (for interest and royalties) withholding tax will be charged on virtually all payments over the annual threshold of PLN 2 000 000 (ca. EUR 400 000) between related parties. According to the new regulations it is still possible to apply the preferential treaty rate if the withholding agent submits a special statement or an advance ruling is issued.
1) a special statement is a statement of the management board of the withholding agent (to be filed online to the tax office) confirming that the conditions for applying the exemption have been met;
2) an advance ruling (issued by the Polish tax authorities) confirms that conditions for applying the exemption (under Polish CIT Act) have been met. The advance ruling will be valid for 3 years, and during that period the withholding agent should not be obliged to submit the special statement in order not to withhold tax.
Otherwise, WHT (19% or 20%) should be collected, and the withholding agent / payee can apply for a tax refund. The tax refund application should be submitted electronically to the tax office by the withholding agent (if a gross-up clause is in place) or by the payee, together with all documents confirming the applicability of a lower than standard WHT rate.
Banks running brokerage accounts (custodians) and brokerage houses are withholding agents for dividend and interest payments on securities held in securities accounts or omnibus accounts. It is therefore their duty to gather and process all data necessary to withhold the tax due. In particular, the bank / brokerage house should, as part of its due diligence process, determine the beneficial ownership of payments, whether the payor and the payee are related parties (the payor should provide the bank / the broker with such information), and whether the annual threshold of PLN 2 000 000 has been exceeded. Failure to comply with these obligations and collecting preferential WHT may result in the withholding agent’s liability for tax arrears.
Financial institutions should implement procedures and processes to make sure that collecting WHT will be in line with the new regulations.
Under the Polish tax law, purchase / sale of a business or part of a business as a going concern (so called “TOGC”) falls outside the scope of VAT, but instead is subject to Polish tax on civil law activities (a kind of transfer tax, in Polish called: podatek od czynności cywilnoprawnych, “PCC”). TOGC is charged at 1% or 2% PCC (the rate depends on the type of assets transferred – in the case of tangible assets, the rate is 2%, while for intangibles it is 1%) of the fair market value of the transferred assets (generally reflected in the sales price). The tax due should be paid by the purchaser / transferee (the seller has no obligation here).
A TOGC may result in creating goodwill. Goodwill is the positive difference between the sales price and the value of all sold items. If the sales price is higher than the value of individual assets, it means that the transferor is selling goodwill, i.e. brand recognition, reputation, profitability, etc.
Charging 1% PCC on goodwill has been controversial for many years. Polish tax authorities believe that goodwill is an intangible asset and should be charged with 1% PCC. That view has been confirmed in several court judgements.
At the same time, some taxpayers take the standpoint that goodwill should not be subject to PCC arguing that goodwill is not an asset at all, and from a legal point of view it cannot be sold or leased. Goodwill arises at the very moment of the TOGC transaction. This line of reasoning has also been followed by some administrative courts.
To resolve these doubts, on October 19, 2021 the Polish Supreme Administrative Court referred a question for a preliminary ruling to the full panel of the Supreme Administrative Court (case no. III FSK 271/21). If the court decides that no PCC is due on goodwill, then taxpayers should be able to claim a refund of the tax already paid.
Please note that in most cases, a claim for a tax refund must be filed within five years of the end of the calendar year in which the tax was due. If there is a risk that overpayment claims become time-barred before the Supreme Administrative Court’s ruling, the taxpayer should consider taking some pre-emptive action.
In August 2021, the Ministry of Finance published the latest draft law introducing the National System of e-Invoices (“Krajowy System E-faktur”, KSeF in Polish) which will allow taxpayers to issue and receive a new type of e-invoices, i.e. structured invoices. The National System of e-Invoices will serve as the certifying unit that verifies invoices and releases them into legal circulation.
During the transitional period, structured e-invoices will be used in parallel with traditional (paper) invoices and non-structured e-invoices. A draft of the relevant legislation is still on the legislative path, and the new regulations are expected to come into force in January 2022, with the structured invoice system to be applied voluntarily for the time being. The Polish Ministry of Finance has announced that most likely, the system will become mandatory as of 2023.
Using the new type of invoices in Poland may require preparation and a time-consuming implementation process (from both the legal and the technical perspective). This may be a challenge, especially for financial institutions that are generally exempt from VAT and are not used to issuing and receiving VAT invoices on a large scale. Please note that although issuing invoices for VAT-exempted services is, as a rule, optional, taxpayers have to issue an invoice if the client requests it. In the case of structured invoices, which are obligatory for all taxpayers, financial institutions will also have to issue such invoices using the central platform of the Polish Ministry of Finance (e.g. using the API to communicate with government servers).
Please join us on November 18, 2021 for our free webinar in English, during which we will discuss the main aspects of the new regulations:
- present in detail what the new Polish e-invoicing system will consist of;
- explain what the new e-invoicing process will look like;
- present the potential benefits to the taxpayers arising from structured e-invoicing;
- identify the biggest challenges for the taxpayers that decide to use structured e-invoicing.