Last week, the draft amendments to CIT and PIT was published on the website of the Government Legislative Center. Recently, there has been a lot of talk about this draft bill due to the announcement that limited partnerships will be subject to CIT (which will lead to double taxation). Below we present a summary of the most important changes provided for in the draft bill.
Taxation of limited partnerships with corporate income tax (CIT)
According to the draft bill, limited partnerships with their registered office or management board in Poland are to be subject to CIT. A similar change will also to apply to general partnerships, if their partners are not only natural persons, and a general partnership does not submit information to the tax authorities about the income of taxpayers who have, directly or indirectly, the right to participate in the partnership’s profits.
The above means that the income generated by limited partnerships and general partnerships subject to CIT will be subject to double taxation – first at the level of these partnerships, and then at the level of partners in connection with the distribution of the partnership’s profits. In the case of a limited partner, there is a tax exemption for 50% of the profit received from the partnership, with an annual limit of PLN 60 K. This limit is to be considered separately for each limited partnership. This exemption will not, however, apply to a limited partner who holds more than 5% of shares in a capital company which is a general partner of a limited partnership, or who is a member of the management board of a general partner or is a related entity of these entities. In the case of a general partner, the tax due on the profit received from a limited partnership may be reduced by a part of the tax previously paid by the limited partnership (in the part corresponding to the general partner’s share).
Limited partnerships and general partnerships are to be subject to CIT from January 1, 2021. The transitional provisions provide that these partnerships will continue the current evaluation of the tax value of assets, in particular with regard to the initial value of fixed assets and intangible assets, the adopted amortization method, rates and the amortization period, as well as the amount of previously made amortization allowances.
Real estate companies
The provisions of the draft bill introduce a definition of a real estate company. This shall mean a company, including entities which are not companies, in which at least 50% of the market value of assets, in any period of 12 immediately consecutive months, is derived from real estate located in Poland or rights to such real estate.
In the case of the sale of shares in a real estate company, if one of the parties to the transaction is a foreign entity, the real estate company will act as a tax remitter, i.e. it will be responsible for calculating, collecting and paying the tax due on the income obtained by the seller from the sale of shares in the real estate company to the tax office.
Real estate companies with their registered office or management board outside Poland will have to appoint a tax representative in Poland. The tax representative will be jointly and severally liable for the real estate company’s tax liabilities. Violation of this obligation will be subject to a fine of up to PLN 1 million.
Additionally, real estate companies will be obliged to inform the Head of the National Revenue Administration about the shareholders of these companies in each tax (financial) year. Real estate companies will also be subject to obligations to prepare and publish a tax strategy (details below).
Limitations in the settlement of tax losses
The draft bill introduces a ban on the settlement of tax losses in the event of the acquisition of another entity, acquisition of an enterprise or an organized part of an enterprise (including by way of in-kind contribution), as a result of which (1) the subject of the taxpayer’s business activity after such acquisition was completely or partially different than the subject of the business activity conducted by the taxpayer prior to such acquisition, or (2) at least 25% of the taxpayer’s shares (stocks) are owned by an entity that does not have such rights at the end of the tax year in which the taxpayer suffered a loss.
Taxation of the transfer of liquidation’s estate in kind to shareholders
The provisions of the draft bill extend the scope of the regulation providing for taxation of the settlement of pecuniary (cash) obligations through non-cash performance (datio in solutum). According to the draft bill, this regulation will also cover the release of the liquidation’s estate in kind to the shareholders of the liquidated company.
Modification of the principles of tax amortization
During the period of using the income tax exemption (both in PIT and CIT), the taxpayer will not be able to increase or decrease the amortization rate for fixed assets used in the activity from which income is exempt.
Moreover, the taxpayer will not be able to individually determine the amortization rate for the used fixed asset if he was their only user before their purchase and entry into the records.
Increasing the income limit for the so-called “small CIT taxpayer”
The draft bill increases the upper threshold of revenues entitling CIT taxpayers to benefit from the reduced CIT rate of 9 per cent. From January 1, 2021, this threshold is to be 2 million euros (currently 1.2 million euros).
The draft bill also provides for restrictions concerning the possibility of using the preferential CIT rate for entities, which after the date of entry into force of the amendment have undergone deliberate transformations, mergers, divisions or other activities aimed at taking advantage of the increased limit.
The income tax from property exemption (PIT and CIT) for the entire duration of the Covid-19 epidemic
The draft bill provides for the exemption of PIT and CIT taxpayers from income tax from property for the period from March 1, 2020 to December 31, 2020. The exemption will continue to apply after the 31 December 2020 if the state of the Covid-19 related epidemic remains in force in Poland. In this case it will apply until the end of the month in which the state of the epidemic is cancelled.
Information on the so-called tax strategy
Tax capital groups, taxpayers with revenues exceed 50 million euros and real estate companies will be required to prepare and make public the information on the so-called tax strategy. This strategy should include:
- the description of the taxpayer’s approach to:
- processes and procedures concerning the management of the performance of obligations arising from the tax law and ensuring their proper execution,
- voluntary forms of cooperation with the authorities of the National Revenue Administration;
- the description of the taxpayer’s approach to the execution of tax obligations for the territory of Poland, including the information on the number of information on tax schemes provided to the Head of the National Revenue Administration;
- information regarding:
- related entities transactions whose value exceeds 5 per cent of the balance sheet total of assets within the meaning of the Accounting Act,
- planned or undertaken restructuring activities by the taxpayer that may impact on the amount of tax liabilities of the taxpayer or related entities;
- information regarding submitted applications for release:
- general tax ruling,
- individual tax ruling,
- binding VAT rate information,
- binding excise information;
- information regarding tax settlements of the taxpayer in countries applying harmful tax competition
– except for information covered by trade, industrial, professional secrecy or manufacturing process.
The strategy will be published on the taxpayer’s website.
Failure to comply with these obligations will be punished by a fine of up to 1 million pln.
Transfer Pricing
The draft bill extends the scope of entities obliged to prepare local transfer pricing documentation. This obligation will also apply to taxpayers who make a transaction (other than a controlled transaction) with an entity from a “tax haven” if the value of that transaction for a tax year exceeds 100 thousand pln.
Similar rules will apply if the actual owner of the entity has a residence, registered office or management in a “tax haven”.
The draft bill also introduces a presumption that the actual owner has a residence, registered office or management in a “tax haven” if the other party of the transaction settles with an entity having its registered office or management in a “tax haven” during the tax year. The taxpayer should exercise due diligence in determining these circumstances.
In the case of transactions with “tax havens”, the local transfer pricing documentation will also have to include the economic rationale of the transaction, in particular a description of the expected economic, including tax benefits.
Changes in the abolition relief
The Ministry of Finance finally decided not to repeal the abolition relief in the Personal Income Tax Act, however, the amendment provides that the deduction made in connection with the application of the abolition relief will not exceed the amount reducing the tax, i.e. 1360 PLN.
Changes in the lump-sum income tax
The draft bill also provides for the introduction of a number of changes in the lump-sum personal income tax on certain revenues (apart from their adjustment to the changes introduced in the Personal Income Tax Act), among others:
- increasing the revenue limit for the choice of a lump-sum taxation on recorded revenues from 250 thousand euros to 2 million euros;
- extension of the list of professions that may benefit from lump-sum forms of taxation (including the legal professions or brokers and investment advisors);
- reduction of some lump-sum rates on recorded income (e.g. from 20% to 17% for the income from liberal professions or from 17% to 15% for the income from the provision of commercial intermediation services, among others);
- unification of the lump-sum for rent and accommodation services (reduction of the rate for the latter from 17% to 8.5%);
- allowing a temporary increase in employment by entrepreneurs paying the tax card by no more than three employees in 2021-2024.
