On 14 December 2022, the European Council approved Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (OJ L 328, 22.12.2022, p. 1). It provides for transposing of the OECD Global Anti-Base Erosion (GloBE) Model Rules or, in other words, the core principles of OECD’s Pillar II, into EU secondary law. According to GloBE, the largest multinationals will be expected to check each year if they are subject to minimum effective tax rate of 15%. If the effective tax rate for the entities belonging to a group in a particular jurisdiction is below the 15% minimum, the group must pay a top-up tax. The bill published on the Government Legislation Centre’s website is to implement the Directive provisions into the Polish law.
How does the bill implement the provisions of the directive into Polish law?
The global minimum tax regime being implemented into the Polish law is to rely on three types of top-up tax, namely:
- global top-up tax – referred to as the Income Inclusion Rule (IIR) in the directive,
- Domestic minimum top-up tax – depending on the context also referred to as ”qualified” ((Q)DMTT),
- tax on under-taxed profits – called the “under-taxed profit rule” (UTPR) in the directive.
In this regard, the directive adopts the formula of various top-up tax collection rules and integrates them into a single tax system. In fact, it does not provide for “separate” tax categories, as the Polish bill does, yet it seems that this deviation should not have any practical impact.
Global top-up tax
The Income Inclusion Rule (IIR) imposes, in principle, the obligation to pay the global top-up tax on ultimate parent entities (UPEs).
Minimum domestic top-up tax
The qualified domestic minimum top-up tax (QDMTT) works in a way similar to IIR, the difference is, however, that the right to collect it rests with the country where a low-taxed entity of the group is located, i.e., QDMTT is most often paid in a jurisdiction where a low-taxed income is located (and not necessarily where the parent entity is).
Compared to the OECD standard, the directive extends IIR and QDMTT schemes to cover large-scale domestic groups , i.e., groups of entities operating in a single member state.
To compute the domestic minimum top-up tax - in particular, the qualifying income or loss, the amount of covered taxes and the substance-based income - taxable persons must consider items recorded in the financial accounts held pursuant to the Polish Accounting Act and financial statements made under the Accounting Act, including International Accounting Standards and International Financial Reporting Standards.
Tax on under-taxed profits
The under-taxed profit rule (UTPR) imposes the obligation to pay top-up tax due from a parent entity to another group entity situated in a given jurisdiction, provided that such a parent entity operates in a jurisdiction where no IIR applies.
Points to consider
The bill provides for implementation of a new legal instrument: a top-up tax opinion. This opinion is to be a treated as a "qualified" type of individual ruling, responding to the specific nature of the global minimum tax questions.
It will be issued by the Head of the National Revenue Information Service upon application and will grant the applicant - should they act in line with its content - protection similar to the one ensured by an individual tax ruling.
A top-up tax opinion application will be subject to an initial and final fees, amounting to, respectively: PLN 25,000 and a maximum of PLN 75,000.
Public consultation
The bill has been added to the list of legislative work and policies of the Council of Ministers under no. UC20. The Minister of Finance announced via Government Legislation Centre’s website that public consultations on the bill will continue until 17 May 2024. Opinions can be submitted by email to: globalny.minimalny@mf.gov.pl
The bill is expected to enter into force on 1 January 2025
Given the delay in implementing the directive by Poland, an interesting solution that the Legislature is currently working on is the possibility of voluntary application of the Act's provisions as early as from 1 January 2024. This would allow Poland to "retain" the 2024 top-up tax revenues from all groups of companies that opt for "taking advantage" of such a solution.
In order to use the possibility of applying the top-up tax to income earned in 2024, a group must prepare a statement, in the form of a notarized deed, that from 1 March 2026 to 30 May 2026, it decides to apply the provisions of the new act to a taxable year beginning after 31 December 2023. Importantly, such a statement will be irrevocable. The Polish legislator has therefore opted for a constitutional solution that does not assume retroactive/ retrospective legislation.
Further steps of the proceedings (in Polish) can be tracked at: Bill (rcl.gov.pl)
The bill (in Polish) can be found at: Bill
More information on the legal impact of the new regulations (in Polish) can be found at: Legal impact assessment
The explanatory memorandum to the bill (in Polish) can be found at: Explanatory Memorandum
