It is 13 December 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:
- Changes in withholding tax to come in 2022
- More entities to become CFCs
- E-invoice template
- Related-entity transactions to be covered by the report on the tax strategy pursued
- Agreement to allow reduced rates of VAT
- Tax information provided outside of the relevant procedure grants no legal protection
Changes in withholding tax to come in 2022
1 January 2022 is to bring amended regulations on the withholding tax (WHT) collection and settlement method, several times postponed by the Ministry of Finance. From 2022, eligible payments exceeding PLN 2 million annually will be subject to withholding tax in a properly calculated amount, regardless of the possible exemptions available, and only then will the taxpayer or the remitter be authorized to apply for a WHT refund. The original amendments to the regulations concerning the new mode of withholding tax collection have been partially modified by a raft of changes to tax regulations under the Polish Deal. Pursuant to the amended provisions, the new WHT collection mechanism is to apply solely to passive payments, such as dividends, interest, or license fee payable to related entities. This means that that the list of payments covered by the WHT collection requirement is now to exclude payments for intangible services. Importantly, the amendments also bring changes to the definition of beneficial owner. Finally, the new regulations enable the use of copies of residence certificates in all cases, regardless of the transaction value, as long as the information contained therein does not raise reasonable doubts as to compliance with the facts.
More entities to become CFCs
From 1 January 2022, the minimum effective tax rate, and the catalogue of passive revenues, determining the recognition of an entity as a controlled foreign corporation (CFC), are to be amended. The extension of the definition of a foreign corporation and controlled foreign corporation consists in, inter alia, introducing the rule that from the entry into force of the new regulations, when establishing the threshold of relationship (over 50 percent) between the Polish taxpayer and the foreign entity, it will be necessary to take into account not only the taxpayer's (indirect or direct) relationships maintained independently or jointly with related entities, but also relationships with other taxpayers having their place of residence or registered office or place of management in the territory of Poland, even if they are unrelated entities. Another important amendment consists in extending the list of sources of income qualifying a foreign corporation as a controlled foreign corporation. Moreover, the definition of controlled foreign corporation will be extended which may translate into situations where passive entities that do not generate a sufficiently high income in relation to their assets will be taxed on the value thereof. The 8 percent tax is to be payable on the value of assets of the foreign corporation.
The Ministry of Finance presented a template of the new e-invoice logical structure (FA_VAT). The template is available in the Central Repository for Electronic Documents (CRWDE) that can be accessed via ePUAP platform. Introduction of the new template relates to the amendments to the VAT Act, applicable as of 1 January 2022. Pursuant to the amended provisions, taxpayers will be able to issue and transfer structured electronic invoices using the National e-Invoicing System. At first, the e-invoicing mechanism can be applied on a voluntary basis. Staring from 2023, however, the use of e-invoicing solutions is likely to become mandatory.
Related-entity transactions to be covered by the report on the tax strategy pursued
In reply to inquiries made by individual taxpayers, relating to information on related-party transactions that should be provided in the report on the pursued tax strategy, the Ministry of Finance indicated that according to the legislator’s intention, transactions with related entities should be understood as broadly as possible. This means that, according to the Ministry, the notion should cover all (sale and purchase) transactions entered into or performed with related entities. Consequently, the obligation to include information on transactions with related entities in the tax strategy report will arise if the aggregated value of such transactions exceeds 5 percent of the balance sheet total. This position, criticized by tax advisers as not resulting directly from the wording of the regulations, means that once the threshold of 5 percent of the balance sheet total is exceeded, information on all transactions involving related entities should be provided in the tax strategy report.
Agreement to allow reduced rates of VAT
During the Economic and Financial Affairs Council (Ecofin) meeting held on 7 December 2021, EU Finance Ministers reached an agreement as to the amendments to the EU VAT Directive. The updates to the legislation are to give Member States more flexibility to apply zero VAT rates to goods and services listed under Annex III to the EU VAT Directive. In principle, the 5 percent rate will still apply, but according to the agreement, Member States will be allowed to use reduced rates or even zero rates to a maximum of seven categories on the list considered to cover basic needs, e.g., foodstuffs, medicines, and pharmaceutical products. The European Parliament now must review the final draft law by March 2022. Once formally adopted by Member States, the new rules will enter into force 20 days after their publication in the Official Journal of the European Union, allowing Member States to start to apply lower rates.
Tax information provided outside of the relevant procedure grants no legal protection
In its ruling of 2 December 2021 (case file II FSK), the Supreme Administrative Court found that information provided orally by a tax officer to a taxpayer cannot provide relevant legal protection. The case at hand related to a taxpayer who purchased an apartment under a life estate deed and sold it after two years. In the PIT-39 annual tax return, the taxpayer recognized the income from apartment sale and undertook to use it within two years for their own housing purposes in order to benefit from the housing relief. Shortly before the expiry of the two-year deadline, the taxpayer took part in a bailiff auction of another apartment, which ended past the deadline. The taxpayer claimed that an employee of the tax authority had previously informed them orally about the possibility of taking advantage of the housing relief, even if the process of acquiring real estate under a bailiff auction was completed after the expiry of the two-year period commencing with the sale of the previous real estate. The SAC determined, however, that although the tax authorities are obliged to provide the taxpayer with the necessary information, it should take place in the course of appropriate proceedings. Consequently, information provided outside the relevant procedure has no legal effects and grants no legal protection.