On 26 June 2014, the Sejm passed the Act on Amending Act on Corporate Income Tax, Act on Personal Income Tax, and Certain Other Acts. The underlying assumption for the amendment is to counteract the harmful competition of some countries, primarily those referred to as tax havens, and counter deferment or avoidance of tax achieved by moving income to subsidiaries organized in countries with preferential tax systems. The above objective is to be achieved inter alia by taxing income of controlled foreign companies.
When the new regime becomes effective, a domestic resident (individual or company-payer of corporate income tax) will be required to include in its taxable basis the income of controlled foreign entities having their registered office or central administration in a country with a materially lower rate of taxation than that effective in the country of residence of its parent company. The act provides that materially lower rate of taxation (znacząco niższe opodatkowanie) occurs when the statutory income tax rate (nominal) is lower by at least 25% than the domestic rate or when the foreign income generated is exempt or excluded from income tax in the source country. Within the meaning of the amendment, an entity is deemed controlled if it holds on a continuous basis over a period of at least 30 days, directly or indirectly, at least 25% of shares in share capital or 25% of the voting rights on supervisory bodies, or 25% of shares with which the right to participate in the foreign company’s profits is associated. The amended provisions will apply if the passive revenues, i.e. received from dividends and other proceeds from participation in profits of legal persons, from sale of shares, receivables, interest and proceeds from loans, sureties, and guarantees of all types, as well as copyrights, industrial property rights, including on account of transfer of such rights and transfer and exercise of rights arising under financial instruments, account for at least one half of all the revenues of the foreign company during its tax year.
The new act also provides for exclusion of the right to a tax exemption if dividend and other income (revenues) on account of participation in profits of legal persons, deductible in the distribution company, is distributed (the so-called participation loan). Further the act also envisages among others the introduction of a fiscal penal sanction in the form of a fine for breach of the obligation to submit the financial statements on time, as well as refining the provisions on transfer pricing and related tax documentation.
In addition to the introduction of a number of provisions aimed at eliminating tax optimisation mechanisms, the amendment also includes changes that seek to bring the tax law closer to the realities in which businesses operate. In that regard, the amendment provides for arrangements that so far have not been applied under Polish law, such as the taxpayer’s right to elect the method of inclusion of loan interest in revenue costs, or the deferment in time of taxation of commercialised intellectual property contributed in kind to a company limited by shares. Further, the amended act refines a number of provisions which previously aroused construction concerns, as well as unifying a number of concepts and institutions used in both the CIT and PIT legislation.