Welcome to the next issue of the “Weekly Tax Review” prepared in cooperation with tax experts in KPMG in Poland.
On 17 July 2023, the OECD published new documents pushing forward a major reform of the international tax system, namely:
- Consultation document on Amount B under Pillar I, providing for a simplified approach to the application of the arm’s length principle. Comments can be submitted until 01 September 2023
- GloBE Information Return for minimum tax under Pillar II, providing for amendments, including a transitional framework allowing to introduce simplified jurisdictional reporting for all taxable years commencing on 31 December 2028 or earlier
- Administrative Guidance on Pillar II, containing GloBE model rules and including new safe harbours
- Subject-to-Tax Rule (STTR) under Pillar II, i.e., a tax treaty-based rule which allows for the levying of additional tax on several categories of connected party payments, to be introduced in October 2023. Moreover, the OECD Secretariat published a summary document entitled “The Subject-to-Tax Rule in a Nutshell” clarifying the STTR provisions.
On 19 July 2023, the bill amending certain acts to improve legal and institutional environment for business was submitted before the Lower House of the Polish Parliament. The bill is to amend, inter alia, the Act on rules of registering and identifying taxable persons and taxpayers to introduce provisions under which individuals conducting non-registered business activities will be able to use their PESEL (Polish Personal Identification) numbers as tax identification numbers, except for situations where an individual is a registered VAT payer or keeps sales records using a cash register. The essential part of the amendments will enter into force on 01 January 2024.
On 20 July 2023, inter-governmental consultations between Polish and Czech Ministries of Finance were held. Works on a new bilateral agreement for better cooperation against tax fraud were announced. The talks also focused on finding fair solutions for responding to EU budget commitments and highlighting the goals of both countries to modernize reporting of cross-border transactions using electronic invoicing.
On 17 July 2023, it was announced that a clearance opinion dated 06 April 2023, issued by the Head of the National Revenue Administration was published. The opinion related to tax consequences of a voluntary redemption of shares without remuneration for the company’s shareholders and companies the shares in which are to be redeemed (case file DKP2.8082.10.2022). The Head of the National Revenue Administration stated that the voluntary redemption of shares would bring no taxable revenue neither for the Shareholders, nor for the companies belonging to the group. It cannot be assumed that obtaining a tax benefit was the primary or one of the primary purposes behind performing the transaction. The method of proceeding pursued is rational in terms of the goals to be achieved as part of the actions taken and, at the same time, has a significant impact on the further operations of the Group companies, contributing to their development. Furthermore, it should be assumed that any other entity acting reasonably and with justified purposes would apply the Applicant's modus operandi for vital economic and business reasons.
On 19 July 2023 (case file II FSK 129/21), the Supreme Administrative Court issued a ruling in the case of a company which wanted to know whether it was eligible to charge into tax-deductible costs 100% of expenses related to passenger cars used under lease contracts, which were then made available for use against remuneration to the company’s subsidiaries, even though the company has not kept vehicle mileage records. According to the Court, making the cars available to subsidiaries against remuneration is of no relevance to the fact that the company acts as a lessee, making lease payments to the lessor, covering insurance premiums, service charges etc. In fact, making the vehicles available for use against remuneration to subsidiaries constitutes a separate transaction, bringing separate tax consequences. In this case, it is immaterial whether the cars are subsequently made available for use against remuneration to third parties.
On 13 July 2023 (case file II FSK 106/21), the Supreme Administrative Court rendered a judgment in which stated how Article 19(1)(2) of the CIT Act should be interpreted. The case at hand related to a company acting as a small taxable person. The company’s revenue stems from two types of activities: taxable activities and activities exempt from tax under the VAT Act (running a kindergarten, school, and nursery). The company has received from the municipality a CIT-exempt educational subsidy to cover the costs of running the facility and a subsidy to buy children’s books. Moreover, in 2019, the company received a designated subsidy to buy a fixed asset. The company had doubts as to whether the above-listed subsidies should impact the revenue threshold set for small taxable persons and a revenue threshold set forth by Article 19(1)(2) of the CIT Act. According to the Court, despite the definition set forth by Article 19(1)(2) of the CIT Act, a small taxpayer should include in their revenue all revenues obtained (including tax-exempt subsidies), excluding only capital gains, as provided by Article 19(1)(2) thereof.
On 13 July 2023 (case file II FSK 241.23), the Supreme Administrative Court issued a judgment in the case of a company which concluded an operating agreement with BGK, under which it was to act as a money broker and committed itself to implementing and managing a financial instrument under which loans to end beneficiaries would be granted. The company had doubts as to whether the management fee it received under the agreement should be treated as CIT-exempt revenue. According to the Court, the company acts as a money broker which is not an end beneficiary, i.e., it does not use individual loans designed for end beneficiaries conducting business activity in the province. The company engages in activities related, inter alia, to the provision of the service of creating, implementing and managing a financial instrument, which operates as a separate entity conducting independent business activity. Consequently, the revenue earned by the company under management fees shall not be treated as revenue pursuant to Article 12(1)(1) of the CIT Act and, as such, should not be exempt under Article 17(1)(52) thereof. In fact, the exemption covers only end beneficiaries being the target recipients of the funds under the project.