We informed you in the first week of September that information on the work on the draft of major changes in the PIT and CIT taxes was published on the Council of Ministers’ website. Yesterday the draft saw the light of day and, unfortunately, it confirmed major concerns associated with it. The proposed amendments involve a number of matters that have been previously signalled, including, most notably, the corporate income tax (CIT) being imposed on limited partnerships. The changes are to enter into force as of the beginning of 2021.
Limited partnership (spółka komandytowa) as taxpayer for CIT purposes
According to the draft, the status of an "income tax payer" will be assigned to limited partnerships having their registered office or management on the territory of the Republic of Poland (as well as to those general partnerships (spółka jawna) having their registered office or management on the territory of the Republic of Poland whose partners are not only natural persons – although this will only be the case where the identity of their partners who are subject to tax on income generated by the partnership is not known to Polish tax authorities and will not be disclosed to these authorities).
It follows from the statement of reasons for the draft that the main objective of the amendment in this respect is to combat optimisation schemes involving limited partnerships in which the general partner has the minimum right to share in the profit is a company (spółka kapitałowa). As assured by the promoters of the draft, this is meant to tighten the tax system.
The authors have provided for some mitigating solutions in order to limit the adverse effects of these changes for entities which are not involved in tax optimisation schemes.
Therefore, there will be rules (already applicable to general partners of limited joint-stock partnerships) allowing general partners of limited partnerships to deduct an appropriate part of the tax paid by the limited partnership from their income tax.
An exemption for limited partners' income is also planned to be introduced. 50% of the gross income (przychód) obtained by a limited partner from their share in the profits of a limited partnership will be exempt from income tax, provided that the amount of such an exemption may not be more than PLN 60,000 in a tax year separately for each limited partnership in which the taxpayer is a limited partner. However, this exemption cannot be applied if certain relationships within the partnership or the way it is managed indicated – in the opinion of the project promoter – that the purpose of the partnership is tax optimisation.
Other important changes
What will be important to some taxpayers is that there is to be a new obligation to draw up and make public a report on the implementation of a tax strategy. This obligation will apply to taxpayers whose gross income in the previous year exceeded an amount equivalent to EUR 50 million and to tax capital groups (regardless of their income). The report will have to be published on an entity's website and include, among other things: a description of the taxpayer's approach to tax compliance processes and procedures, to voluntary forms of cooperation with the National Revenue Administration authorities and to tax arrangement (“tax scheme”) reporting compliance, as well as information on transactions with certain types of entities or information on requests submitted for individual tax rulings and binding rate information.
As far as changes in PIT are concerned, the most controversial was the announcement to scrap the so-called abolition relief (ulga abolicyjna). Although, contrary to the previous announcements, the draft does not provide for a complete removal of that relief, the possibility of using it will be significantly limited. According to the objectives of the draft, the amount of the relief cannot be higher than PLN 1,360. In the statement of reasons for the draft, the stated reason behind this change are the negative consequences of utilising the relief for the purposes of pursuing an aggressive tax policy using the provisions of double taxation conventions. We wrote about the consequences of scrapping the abolition relief in one of our earlier Tax Alerts.
Some of the other changes in the draft include:
- imposing obligations on general partnerships to identify and provide information on their partners to tax authorities – if the partnership fails to fulfil these obligations, it may be assigned the status of a corporate taxpayer (CIT);
- facilitating the collection of taxes payable in the case of income from the sale of shares in so-called “real estate companies” by non-residents; these companies will be defined as entities in which real estate located in Poland or rights to such real estate represent at least 50% of the market value of the company's assets in any period of 12 consecutive months;
- introducing limitations in the utilisation of a taxpayer's losses – mainly in a situation in which the taxpayer has taken over another entity or acquired an enterprise or an organised part of an enterprise (however, this limitation will be subject to additional conditions which, if met, would show that the main purpose of the transactions was to unduly use an opportunity to reduce an income/increase a loss);
- extending the range of transactions to be verified for compliance with the arm's length principle, especially when the beneficial owner is based in a so-called "tax haven", as well as extending the range of elements required in local transfer pricing documentation (local file) for transactions with entities from such jurisdictions;
- imposing CIT on – or, as the promoter of the draft would (contrary to the opinion of administrative courts) have us believe, merely making the existing regulations “more precise” with respect to – transfers of tangible assets by liquidated companies to their shareholders when dividing assets of legal persons which are being liquidated;
- limiting the possibility of increasing and decreasing depreciation rates for fixed assets used in the exempt activities – during the period in which the exemption is used;
- increasing the limit of gross income to benefit from the reduced 9% CIT rate to the equivalent of EUR 2 million (from EUR 1.2 million);
- amending the Act on flat-rate income tax on certain income earned by natural persons to make the flat-rate taxation regime (podatek zryczałtowany) more attractive (e.g. reducing some of the flat rates on registered income).
The proposed amendments are to enter into force as of 1 January 2021. We will keep you informed about the further legislative process.
Should you have any questions or need to discuss this topic further, we encourage you to contact our expert, Piotr LISS:
tel. +48 61 8515 766
fax +48 61 8515 786
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