KPMG Weekly Tax Review 07 OCT - 14 OCT 2024
Act on cash PIT scheme amended by Senate.
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Welcome to the next issue of the “Weekly Tax Review” prepared in cooperation with tax experts in KPMG in Poland.
According to the judgment of the Supreme Administrative Court dated 10 October 2024 (case file II FSK 722/24), undistributed profits of an entrepreneur operating a sole proprietorship retain their character after the business is converted into a z o. o. company (Polish private limited company). According to the continuity principle set forth by Article 584(2) of the Code of Commercial Companies and Partnerships, such undistributed profits do not become profits of a legal person. An analysis of the company’s books of account makes it possible to determine what part of the company's supplementary or reserve capitals comes from the natural person’s business activity. These profits have already been subject to income tax in previous years and adopting the authority's position, which would lead to double taxation of the same income, is unacceptable, according to the court.
According to the judgment of the Supreme Administrative Court dated 10 October 2024 (case file II FSK 92/22), revenue can be put into the “other sources” category in line with Article 10(1) of the PIT Act only when it does not match any of the eight existing sources of revenue. Only when the revenue does not match any of the categories provided, it can be qualified into the “other sources” category. Article 30(1)(2) of the PIT Act only applies to situations when the revenue from winnings is earned incidentally and taxed at a flat rate. However, this does not cover situations, where the essential source of revenue is business activity and winnings that result from it (including sports activities). In such situation, this is the source into which the revenue from winnings should be categorized.
According to the judgment of the Supreme Administrative Court dated 9 October 2024 (case file II FSK 45/22), an expense can be categorized as a tax-deductible cost only if it remains in direct connection with the taxpayer’s business activity. In the analysed case, such a direct connection exists only for the subsidiary. The parent company's expenditures on promotion and incentivizing distributors to intensify their business activities are also linked solely to the subsidiary's revenue. If the parent company counts on increasing revenue from selling the shares in the subsidiary, an indirect relation is formed. To sum up, expenses incurred by the parent company that serve the subsidiary cannot be considered its own tax-deductible costs under Article 15(1) of the CIT Act.
A preliminary paper on the bill amending the Act on healthcare services financed from public funds was published on the website of the Chancellery of the Prime Minister of Poland. Amendments relate to Article 81 of the Act, which sets forth the principles of calculating the accounting basis for health insurance contributions. According to the new rules, income from the sale of fixed assets would not be covered by the calculation of the amount of the health insurance contribution for those settling their taxes under general rules or using flat tax or lump-sum on recorded revenue schemes. As a result, gainful disposal of fixed asset by entrepreneurs will not increase the accounting basis for their health insurance contributions.
On 7 October 2024, it was announced that the Head of the National Revenue Administration refused to issue a clearance opinion (case file DKP2.8082.7.2023/4) on converting a Dutch cooperative into a Dutch limited liability company (B.V.) and then merging it with company Y, together with placing its effective place of management in Poland. According to the authority, the sole purpose of the transaction was to obtain a tax benefit going against the provisions of the CIT Act. It was noted that leaving company Y’s registered office in the Netherlands without assets and management suggests that its presence is merely simulated. In fact, instead of simplifying, the transaction made the XYZ Group structure more complex. A result, the Head of the National Revenue Administration denied a clearance opinion, confirming that the planned transaction was aimed at tax avoidance.
On 10 October 2024, the Sejm submitted the bill introducing the global top-up tax to the Public Finance Committee. The tax is to cover groups with annual revenue exceeding EUR 750 million, subject to effective tax rate below 15% in the given jurisdiction. New regulations are to become effective at the beginning of 2025, as part of Pillar II of the OECD Global Anti-Base Erosion Rules (GloBE). Furthermore, to keep the Special Economic Zones attractive for investors, at the conference on the future of the Polish Investment Zone and Special Economic Zones under the Global Minimum Tax held on 4 October 2024, it was announced that the current zone reliefs would be replaced with cash grants, based on the investment value, location, and quality criteria.
On 9 October 2024, two amendments to the bill amending the Personal Income Tax Act and certain other acts were made by the Senate. Consequently, the Act was re-submitted before the Sejm. According to the new rules, entrepreneurs with income below PLN 1 million are to pay tax only when they are actually paid for the goods delivered or services performed and are to deduct the tax-deductible costs on the date of payment for goods received or services performed. After 2 years, counting from the date of the invoice, if the entrepreneur fails to receive payment, they can take advantage of the bad debt relief.
New provisions are expected to enter into force on 1 January 2025.
The National Fund for Environmental Protection and Water Management has increased the funding available under My Electricity [Mój Prąd] program by another PLN 850 million. Aid can be received by prosumers in the net-billing system, who after 1 January 2021 incurred expenses related to installing solar panels. Applications are accepted from 2 September to 20 December 2024 or until the funds are exhausted. The subsidy for solar micro-installations in investment projects that also include energy storage and/or heat storage facilities is up to PLN 7,000 and up to PLN 6,000 in other cases. Prosumers can receive a grant of up to PLN 5 thousand for heat storage facilities providing a capacity of at least 20 dm3 and of up to PLN 16 thousand for electricity storage facilities providing a capacity of at least 2 kWh.
