As we have reported earlier, in the summer of 2021 the Polish Government published a package of legislative proposals to make important amendments to various tax laws, including Polish CIT regulations. The so-called Polish Deal (Polski Ład) targeting a comprehensive tax reform in the country, has been adopted on 29 October 2021 and took effect on 1 January 2022. However, on 28 June 2022 the Polish Government proposed a draft legislation with amendments to these tax regulations, which again was significantly modified on 25 August 2022. The bill to amend the Corporate Income Tax Act and certain other acts includes major changes to the Polish CIT regulations and is expected to enter into force on 1 January 2023 as a rule. However, certain provisions will have retroactive effect. Below, we summarise some of the main elements.
Transfer pricing documentation
According to the bill, applying the arm’s length price as appropriate and transfer pricing documentation are no longer required for indirect transactions with tax havens. At the same time, documentation thresholds will be increased for direct transactions with tax havens:
- PLN 2.5 million (roughly EUR 532,000) for financial transactions,
- PLN 500,000 (roughly EUR 106,000) for other transactions,
with the limits and thresholds to be increased or introduced in the PIT Act accordingly.
This new Polish CIT regulations will apply:
- in the case of controlled transactions and transactions other than controlled transactions with entities having their residence, registered office or management in a territory or country applying harmful tax competition – to transactions which were commenced and not completed before 1 January 2021 or commenced after 31 December 2020, to the extent of those parts thereof which are performed in the tax year commencing after 31 December 2020;
- in the case of controlled transactions and transactions other than controlled transactions with foreign permanent establishments situated in a territory or country applying harmful tax competition – to transactions which were commenced and not completed before 1 January 2023 or commenced after 31 December 2022, to the extent of those parts thereof which are performed in the tax year commencing after 31 December 2022;
Modification and deferral of commencement of minimum income tax provisions
Taxpayers required to pay minimum income tax will be exempt from these duties for a period of two years from 1 January 2022 to 31 December 2023. According to the newly proposed Polish CIT regulations, further exclusions will also be added regarding the minimum income tax, such as municipal companies, small taxpayers, taxpayers who derive majority of their income in connection with provision of healthcare services, taxpayers whose profitability in one out of three recent tax years was above 2%, taxpayers in bankruptcy, liquidation or restructuring, taxpayers who are party to co-operative compliance agreements and financial institutions whose core business involves provision of factoring services). The exemption for groups of companies will be modified, mainly by allowing indirect ownership.
The profit ratio will be increased from 1% to 2% and also, the calculation methodology for minimum income tax will be changed. Deductible costs will not include:
- lease payments,
- 20% of salaries, social insurance contributions and Employee Capital Plan (PKK) contributions,
- increase in deductible costs in respect of energy purchases in annual intervals,
- certain taxes.
Income will not include trade receivables sold to factoring businesses, excise tax will be excluded.
Other changes to the minimum income tax include the ratio of income other than capital gains to be reduced from 4% to 1.5%, the exclusion of deferred income tax from tax base and the modification to the rule that tax base does not include income exempt from tax according to the CIT Act and taken into account when calculating profitability ratio, as well as changes to previous income ratio used for calculation of tax base, plus taxpayers to have choice between two alternative methods to calculate tax base.
