It is 06 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:
- GAAR can only be applied to activities following its entry into force
- Voluntary redemption of shares subject to Local File requirements
- Reduced excise duty on electricity and fuels under the anti-inflation package
- Polish Deal and the threshold for intangible services costs
- Polish Deal – mandatory health insurance coverage for Board Members
- Re-launch of consultations on TPR draft decrees in terms of PIT and CIT
- New provisions on simplified restructuring proceedings
GAAR can only be applied to activities following its entry into force
In its rulings of 25 November 2021 (case files II FSK 669/19 and II FSK 670/19), the Supreme Administrative Court found that any activity performed before the date of entry into force of the General Anti-Avoidance Rule (Article 119a of the Polish Tax Code), i.e., 15 July 2016, remains outside the Rule’s scope of application, even if the resulting tax benefits occurred after this date. The case in which the rulings were issued related to a Polish limited liability company, which in 2015 transformed into a joint-stock company and currently grants licenses to use trademarks to special purpose vehicles, which in turn pay license fees. The issue of whether it is possible to apply the General Anti-Avoidance Rule to the tax consequences of the events that occurred before its entry into force has long raised serious and numerous doubts. The Anti-Tax Avoidance Council, operating at the Ministry of Finance, has issued two related resolutions (no. 2/2021 and 3/2021) in which it expressed doubts as to the constitutionality of the situation where the provisions of GAAR are used to assess the ongoing tax consequences of activities performed before 15 July 2016.
Voluntary redemption of shares subject to Local File requirements
In an individual ruling dated 16 November 2021 (case file 0111-KDWB.4010.60.2021.1.ES), the Head of the National Revenue Information Service confirmed that voluntary redemption of shares by a partner constitutes a controlled transaction and as such requires the establishment of a Local File. The case at hand related to a natural person being a partner, who decided to withdraw from the company, which was to result in a voluntary redemption of their shares without remuneration. The Head of the National Revenue Information Service found that redemption of shares constitutes a business activity. Consequently, if the value threshold specified in the CIT Act for such activities is exceeded, they automatically become subject to the documentation requirement, meaning that the local transfer pricing documentation must be established.
Reduced excise duty on electricity and fuels under the anti-inflation package
On 30 November 2021, the draft bill amending the Excise Duty and Retail Sales Tax Acts was submitted before the Lower House of the Polish Parliament. The bill introduces a raft of amendments prepared by the government, dubbed “the anti-inflation package”. The amendments include, inter alia: reduction of excise duty rates for energy products to the minimum authorized amount (including the fuel surcharge and the emission fee), reduction of the excise duty rates for diesel oil, bio-components which constitute self-contained fuels, motor fuels and LPG (in the period from 20 December 2021 to 3 May 2022) and exemption from excise duty on electricity (from 1 January 2022 to 31 May 2022), as well as exemption from excise duty on electricity sold to households (from the effective date of the Act until 31 May 2022). Furthermore, the package brings a 3-month exemption of fuel sales from retail sales tax (from 1 January 2022 to 31 May 2022) and a reduction of VAT on gas, electricity (from 23 percent to 8 percent) and heat (from 23 percent to 5 percent) supplies, from January to March 2022.
Polish Deal and the threshold for intangible services costs
The Act introduced under the Polish Deal program brings a raft of tax amendments, including the repeal of Article 15e of the CIT Act, setting a cap on the deductible costs incurred in relation of purchase of intangible services from related entities. From 1 January 2022, such costs will be included in the calculation of the so-called minimum tax, payable by entities reporting losses or profitability equal to or below 1 percent. In other cases, the costs incurred in relation to purchase of intangible services from related entities can be deducted without any limitation. Pursuant to the interim provisions, taxpayers who, until the end of the tax year commenced before 1 January 2022, acquired the right to deduct costs pursuant to Article 15e, retain the deduction right to the extent and on the terms set out in this provision, i.e., for the subsequent 5 tax years under the limits applicable each year. In response to a press inquiry, the Ministry of Finance clarified that the deduction cap for such costs should be calculated as if Article 15e of the CIT Act was still applicable.
Polish Deal – mandatory health insurance coverage for Board Members
Under the tax amendments brought about by the Polish Deal, the list of entities subject to mandatory health insurance coverage in Poland got extended by a new category of entities, i.e., individuals performing their functions under the act of appointment. Up to now, such individuals were not covered by the mandatory social security and health insurance. The Act extends the mandatory health insurance contribution scheme to individuals receiving remuneration for performing functions under the act of appointment, such as members of companies’ boards or proxies. The emergence of a new obligation to pay health insurance contributions is likely to further complicate social security settlements for this group of insured. This means that in the case of individuals seating in the boards of Polish companies who are at the same time employed by foreign entities, e.g., under employment contracts, it is necessary to thoroughly examine social security insurance provisions to establish which of them will prevail starting from 1 January 2022.
Re-launch of consultations on TPR draft decrees in terms of PIT and CIT
The latest revisions of the draft decrees amending the decrees on transfer pricing documentation (TPR) related to corporate income tax and personal income tax will be again put out to consultation. The consultation sessions for the previous versions thereof were already held in September 2021. According to the announcement of the Ministry of Finance, the necessity to supplement the draft decrees and refer them to external consultations is due, in particular, to the promulgation of the act containing a package of tax changes under the Polish Deal program. The decrees will apply to transfer pricing reports for tax year commencing after 31 December 2021.
New provisions on simplified restructuring proceedings
On 1 December 2021, provisions of the Act of 28 May 2021 amending the National Debtors' Register Act and certain other acts entered into force. By virtue thereof, provisions on simplified restructuring proceedings have been permanently introduced into the Polish regulatory framework, replacing the interim provisions brought by the Anti-Crisis Shield 4.0. Pursuant to the new provisions, notice on the opening of proceedings will not be made by the debtor, as in the case of simplified restructuring, but by the restructuring supervisor. Such a notice can only be issued only after a table of claims is made. The debtor will be entitled to appeal to the restructuring court against the refusal to issue the notice. Issuing the notice will, however, be unacceptable if, in the last ten years: the debtor has conducted proceedings for approval of the arrangement, in which the notice on the arrangement date was issued, or the restructuring proceedings against the debtor have been discontinued, except where the restructuring proceedings were discontinued with the consent of the creditors' council.