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Reproduced with permission from International Tax Monitor, 183 TMIN, 11/02/17. Copyright 2017 by The Bureau of National Affairs, Inc. (800-372-1033) <https://www.bna.com>

 

By Jan Stojaspal

 

 

Snapschot

  • Polish income tax changes to eliminate doubletaxation of equitybased incentives
  • Changes expected to take effect Jan. 1, 2018

 

U.S. companies that use equity-based incentive schemes are set for a boost following legislative changes in Poland to ensure income from such schemes is only taxed once.

The changes are expected to be voted on by the Senate during its Nov. 14-15 session—in time to take effect at the beginning of 2018—following approval Oct. 27 by the lower house of the Polish parliament.

Currently, only equity-based schemes operated by companies based within the European Economic Area are guaranteed an income tax deferral, which means that participants pay a 19 percent capital gains tax upon selling their shares but not a personal income tax upon obtaining them. Meanwhile, income from schemes operated by companies outside the area is supposed to be taxed twice—once when the shares are issued, the second time when they are sold—although practice often varies, according to local tax practitioners.

In addition to the 28 European Union member countries, the European Economic Area includes Norway, Iceland and Liechtenstein, but not the United States, for example, where equity based incentives are particularly popular.

No Need for Shareholder Approval

The changes to Poland's personal and corporate income tax acts extend the income tax deferral to all countries that have a double-tax treaty with Poland.

In addition, the changes clarify already existing rules by making them both less bureaucratic and more specific, the tax practitioners said.

For example, approvals of equity-based incentive schemes at the level of a shareholders’ meeting will no longer be required to be as specific as to “indicate the people who are entitled to participate in the plan,” Adam Mariuk, a partner in the tax advisory department of Deloitte in Poland, told Bloomberg Tax Oct. 31.

Also, the changes now make it explicit that only employees and contract individuals, such as management board members, are entitled to the income tax deferral as far as equity-based compensation is concerned, Mariuk added.

“Before, this was not regulated by the law, so it kind of applied to everyone,” he said. “Now you have to have a specific legal relationship with the company to be covered by the new rules.”

According to Mariuk, U.S. companies will be the chief beneficiary of the proposed changes, particularly if they are in the new technologies and financial sectors.

“I would say that, given the practice of U.S. companies where to have an equity plan is very popular, U.S. entities will be the ones who are the most affected,” he said.

But all companies with equity-based incentive schemes are advised to review their programs, he added.

“If you are a company with an incentive plan, which is operated from outside the EU, then definitely it is worthwhile to review the plans to see if you qualify for the tax deferral,” he said. “I would also strongly say that if you are an EU company, do it as well because the rules have changed.”

Restricted Stock Options Common in U.S

Piotr Liss, a tax partner at RSM Poland in Poznan, agreed that employees of U.S. firms will be chief beneficiaries of the tax changes.

“I think the United States is one of the most important beneficiaries,“ he told Bloomberg Tax Oct. 31. ”Such schemes as the restricted stock option plan are very well known and common in the U.S. It will also be important for the U.K., once they leave the European Union. Of course, they will probably remain part of the European Economic Area.”

“I don't think that such schemes are very popular in Asia, so this would not be of great importance for South Korea or Japan,” he added.

He also welcomed more clarity on when tax obligations under the schemes arise, an area where the tax authorities and Polish courts have disagreed in the past.

“There was a lot of different court verdicts, which said it was not possible to pay the tax twice on the same,” he said. “It was really a hot topic and quite a difficult situation for everyone.”

Now, “it's less uncertainty as to what the obligations are and what is being taxed,” he added. “For most Polish firms, it has absolutely no impact because for them this exemption works the same as it used to. But, for sure, for the Polish subsidiaries, for the Polish branches of the multinational firms, especially from the U.S., it's quite important. Now they have the certainty in terms of whether they should be taxed, and under what tax rate and conditions.”

To contact the reporter on this story: Jan Stojaspal at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

For More Information

Changes to Poland's personal and corporate income tax acts approved by the lower house of parliament are available, in Polish, at https://orka.sejm.gov.pl/opinie8.nsf/nazwa/1878_u/$file/1878_u.pdf.