It is 8 November 2021. We invite you to the next episode of the “Weekly Tax Review” prepared in cooperation with tax experts in KPMG in Poland.
In today's episode:
- Amendments to tax acts brought by the Polish Deal
- Activities for companies and trusts and in the field of virtual currencies to be regulated
- Debtor to make VAT adjustments despite the ongoing dispute over payment
- New draft bill on family foundations
- TPR navigator – answers to questions on transfer pricing reporting obligations
- General ruling on settling tax losses incurred before entering a tax capital group
- Limited partnerships may submit their tax strategies by the end of 2022
- Amendments to provisions on payment delays in commercial transactions applicable as of 2022
Amendments to tax acts brought by the Polish Deal
On 29 October 2021, the Lower House of the Polish Parliament passed the bill amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts, containing an amendment package provided for under the Polish Deal program. The most important amendments in terms of PIT and health insurance premiums introduced under the Polish Deal include increasing the personal income tax-free allowance to PLN 30 thousand annually for taxpayers using tax scale, raising the threshold for entering the highest personal income tax bracket of 32 percent to PLN 120 thousand, and eliminating PIT deductibility of health insurance premiums. In terms of CIT, the Polish Deal provides for imposition of a new minimum income tax due from CIT payers reporting losses from a source of revenue other than capital gains or for which a share of income from a source of income other than capital gains in revenue other than capital gains amounts to 1 percent or less, introduction of regulations on shifted profits and hidden dividends, as well as changes to the method of WHT collection and the Estonian CIT scheme. Importantly, the Polish Deal introduces new tax incentives promoting innovation, including a relief for entities hiring innovative employees, a prototype relief, and a pro-growth relief. In terms of VAT, the Polish Deal provides for introducing VAT groups, and new options of taxation of financial services that currently VAT-exempt. The majority of amendments proposed under the Polish Deal are likely to enter into force on 1 January 2022.
Activities for companies and trusts and in the field of virtual currencies to be regulated
In connection with the amendment to the Act on counteracting money laundering and terrorist financing (the AML Act), starting from 31 October 2021, activities performed for the benefit of companies and trusts and in the field of virtual currencies take form of regulated activities. Pursuant to the amendment, activities performed for the benefit of companies and trusts consist in establishing a legal entity or organizational unit without legal capacity or providing a registered office, business address or postal address, as well as providing other related services to legal persons or organizational units without legal capacity. In turn, activities in the field of virtual currencies consist in trading in virtual currencies and means of payment or exchange between virtual currencies as well as brokerage and maintenance of accounts in the above-mentioned range. Consequently, entities involved in such activities must, inter alia, obtain an entry in the proper register of regulated activity: the register of activities performed for the benefit of companies and trusts or the register for activities in the field of virtual currencies, respectively. Both registers are kept by the Head of the Regional Revenue Administration Office in Katowice. Entities performing activities for the benefit of companies and trusts or in the field of virtual currencies without a valid registration may be subject to a fine of up to PLN 100 thousand.
Debtor to make VAT adjustments despite the ongoing dispute over payment
In its judgment of 26 October 2021 (case file III SA/Wa 356/21), the Provincial Administrative Court in Warsaw ruled that tax proceedings do not have to be suspended despite the ongoing dispute over payment of an invoice between the debtor and the creditor, and tax authorities may still require the debtor to reduce input VAT. The case at hand related to an entrepreneur who has not paid for the delivery of tractor units and semi-trailers. Consequently, the head of the tax office stated that a procedure of Article 89b(1) of the VAT Act, pursuant to which the debtor shall adjust the deducted input tax, should the period provided for in this provision elapse, must be applied. As a result, the authority ordered the taxpayer to pay the understated VAT. The entrepreneur, however, contested this decision, arguing that the dispute over payment for the delivered goods is still pending before the commercial court, which means that the authority should suspend the tax recovery action until the court proceedings are over. The Regional Administrative Court in Warsaw challenged this position and confirmed that the head of the tax office was authorized to launch the procedure provided for by the VAT Act. Since the collected evidence showed that the entrepreneur did not pay the invoices, the proceedings for payment pending before the commercial court could not hamper the tax proceedings, as in the opinion of the Provincial Administrative Court this was not a preliminary issue preventing the proceedings from being continued.
New draft bill on family foundations
The latest version of the draft bill on family foundations, developed by the Ministry of Economic Development, Labour and Technology in cooperation with the Minister of Finance, was published on the Government Legislation Centre’s website. The new version of the bill includes comments to provisions submitted in the public consultation process. The main goal of the bill is to introduce the institution of family foundation to the Polish legal framework to facilitate family business succession, as well as accumulation and securing of the family’s assets. Key amendments to the bill include authorizing a family foundation to perform specific actions in the field of business activity as part of asset management and investments, along with amendments to the rules of taxation of income from capital gains and interest obtained by family foundations, which will not, in principle, be taxed at the foundation level. The new draft bill is currently being assessed by the government. New provisions are likely to enter into force on 1 June 2022.
TPR navigator – answers to questions on transfer pricing reporting obligations
The Ministry of Finance has published an updated TPR Navigator [Polish: Informator TPR”], i.e., a list of answers to questions on transfer pricing reporting obligations. It is the second document of this kind published by the Ministry. The document provides extended answers to the questions contained in the first version of the Navigator of September 2020 and focuses on new issues, including the issue of how information on restructuring transactions, agreements entered into with entities that are not legal persons, joint venture contracts and contracts of similar kind should be presented in TP reports. Moreover, the extended edition of the TP Navigator provides examples of fulfilling the TP report for financial and insurance transactions, along with multi-annual contracts. The TP report must be submitted within 9 months after the end of the tax year. For taxpayers whose tax year corresponds to the calendar year, the deadline falls on 30 September. Because of the state of epidemic declared due to COVID-19, the deadline for submitting TPR got extended until 30 September 2021, if the deadline expires in the period from 1 February 2021 to 30 June 2021 and by 3 months, if the deadline expires in the period from 1 July 2021 to 31 December 2021.
General ruling on settling tax losses incurred before entering a tax capital group
On 25 October 2021, a general ruling of the Minister of Finance on the way of settling tax losses incurred and not accounted for by the company in the years preceding the company’s entry into a tax capital group after the tax capital group is dissolved (case file DD 6.8202.4.2021) was published. Pursuant to the general ruling, a loss incurred before entering a tax capital group should be settled by such a company without taking into considerations the tax years of being member of the group. This means that the five-year loss settlement period is suspended as a result of the company's accession to the tax group and begins to run again at the beginning of the company's first tax year outside the group.
Limited partnerships may submit their tax strategies by the end of 2022
On 20 October 2021, the Head of the National Revenue Information Service issued an individual ruling (case file 0111-KDIB2-1.4010.312.2021.1.PB), pursuant to which the first deadline for submitting the report on the executed tax strategy for limited partnerships covered by CIT regime in 2021 expires with the end of 2022. The same applies to general partnerships becoming CIT payers in 2021. Pursuant to the CIT Act, the largest taxpayers and tax capital groups are required to publish the report on the tax strategy pursued in the given tax year. The regulation, however, lacked clear interim provisions indicating for which tax year taxpayers are required to publish their first report on the tax strategy being implemented. This, in turn, brought several doubts among the taxpayers. Pursuant to the interpretation of the Ministry of Finance, the first report should be published already in 2021 and cover the previous tax year. However, in an individual ruling issued by the Head of the National Revenue Information Service it was stated that since the limited partnerships were not yet CIT payers in 2020, they are in no obligation to publish information on the implemented tax strategy for that year. Consequently, the tax strategy publication obligation is to arise by the end of 2022.
Amendments to provisions on payment delays in commercial transactions applicable as of 2022
On 1 January 2020, regulations prohibiting excessive delays in cash payments made by non-public entities came into force. An “excessive delay” means a situation where in the period of three subsequent months the total value of cash payments not made or made after the set deadline by an entity amounts to at least PLN 2 million. Pursuant to the interim provisions, by the end of 2021 an elevated threshold of PLN 5 million was applied by the Head of UOKiK (Polish Office of Competition and Consumer Protection) to launch the proceedings against late payers. The interim period ends on 1 January 2022, meaning that the increased threshold for payment arrears in commercial transactions will cease to apply. Lowering the threshold from PLN 5 million to PLN 2 million is likely to translate into growing number of initiated proceedings and increased penalties. Administrative penalties for exceeding payment deadlines are imposed by the President of the Polish Office of Competition and Consumer Protection (UOKiK) who also identifies the entities in arrears, inter alia, based on the annual reports on the payment dates in commercial transactions carried out. Importantly, under the amended provisions, the list of entities required to submit such reports got extended with real estate companies.