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.

Apart from the above detailed changes to the Polish CIT regulations, the latest amendments to “Polish Deal” include changes in law relating to management representations for withholding tax purposes, in tax on shifted income and in law to renew anti-inflation measures and maintain VAT rates at their current level, among others. If you are also interested in reading about these changes, please click here and read the full article on the homepage of WTS&SAJA Sp. z o.o., the exclusive representative of WTS Global in Poland.

A Polish CIT regulations from 2023 bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

The new ruling on factoring applies where a taxpayer (principal) in Poland uses a factoring contract to assign to another party (factor) so-called “own receivables”, meaning claims from the taxpayer’s earlier sales of goods or services to a third party (debtor).

Previous problems

Previously there was no uniform approach on how the taxpayer should recognise tax-deductible costs on such a transaction. The interpretation uncertainty arose from Article 16(1)(39) of the Polish CIT Act, which says that losses on sales of receivables for consideration are not tax-deductible, except where the receivables have been wholly or partly accounted for as income receivables, in which case the amount of the receivable that has been accounted for in this way may be deducted for tax purposes.

Clarification of calculation 

This ruling on factoring resolves the interpretation uncertainty to confirm two essential points:

• the amount to be taken into account when calculating tax-deductible costs in such a situation is the gross amount receivable (i.e. the full amount, including VAT); and

• the limit under Article 16(1)(39) of the CIT Act only applies to losses which are deductible up to what was previously recognised as the income receivable at the net amount.

The ruling on factoring ends interpretation disputes in Poland about how to calculate tax-deductible costs in those situations, and in this sense, it is positive. It also shows taxpayers how to properly calculate those costs:

• Determine whether and how much cost has been incurred for the purposes of the CIT Act; this will generally be the nominal gross amount of the sold receivables.
• Determine if the sale of receivables has generated a loss.
• If no loss is involved, then the cost will be tax-deductible in full.
• If there is a loss, and the sold receivables have been accounted for as an income receivable, then it is necessary to determine the proportion of the loss to that income.
• If the loss is higher than the income, the difference should be deducted from the cost and it is only the cost so decreased that may be deducted for tax purposes.
• If the loss is lower than or equal to the income, then the cost is tax-deductible in full.

Further aspects of the ruling on factoring

It is good to know that the ruling on factoring does not have any retroactive effect. However, it is worth examining past transactions and verifying whether the argumentation behind the ruling may be applied in the event of potential corrections.

The ruling on factoring also makes it clear that taxpayers in Poland assigning their own receivables to factors under factoring contracts should recognise income “again” because this transaction is separate from the original sale of goods or services.

If you would like to know more about the new ruling on factoring and how to calculate tax-deductible costs attributable to the sale of own receivables under factoring contracts, please visit the homepage of WTS&SAJA Sp. z o.o., the exclusive representative of WTS Global for Poland.

A New ruling on factoring in Poland bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.