On 25 February 2016, the Polish government published draft amendment to income tax laws. This draft amendment would introduce new lower CIT rate @15% for so-called small taxpayers, as well as a number of important changes relating to catalogue of categories of non-resident income subject to taxation in Poland, exclusion of deferral of taxation of share exchange, where one of primary aims of this transaction is tax avoidance, rules of taxation of in- kind contribution of assets (other than going concern) and application of withholding tax exemption for interest and royalties depending on whether the recipient is beneficial owner thereof.
Lower CIT rate for small taxpayers and taxpayers commencing activities
Under the draft amendment, a new 15% CIT rate (as opposed to standard 19%) would be introduced for ‘small taxpayers’ (reporting gross sales for the preceding tax year of no more than EUR 1.2m). Lower CIT rate would also be applicable to the taxpayers commencing business activities in the first year of these activities. However, the preferential rate will not be applicable in the year in which activities are commenced and in the subsequent year where the taxpayer (i) was formed as a result of merger, demerger or transformation (except transformation between limited liability company, joint-stock company and joint- stock partnership), (ii) was formed by entities that contributed in-kind a going concern or assets exceeding the value of EUR 10ths, (iv) was formed by entities that contributed in-kind assets received as a result of liquidation of other taxpayers.
Catalogue of non-resident income subject to taxation in Poland
Draft amendment would introduce to the CIT Law and expand in the PIT Law a catalogue of income categories of non-resident taxpayers which are deemed earned in the territory of Poland, hence subject to taxation in Poland.
Besides income related to business activities carried out in Poland and Polish real property, such categories would include income from receivables settled by entities resident in Poland, regardless of the place where the agreement is concluded or performance is executed. Income earned in Poland would also include income from securities and derivatives quoted on Polish stock exchange, as well as direct or indirect transfer of shares in a company, partnership or investment fund whose assets are composed in at least 50% of real state or rights to real estate located in Poland. Also, dividends, interest and other payments subject to withholding tax would be deemed earned in Poland.
The proposed catalogue is exemplary, i.e. it does not exclude classification of other income categories as earned in Poland. It should be noted that Double Taxation Treaties concluded by Poland may in practice result in specific income being not taxable in Poland.
No deferral of taxation for share exchange lacking business justification
Deferral of taxation with respect to share exchange would not be applicable where one of the primary aims of the transaction is tax avoidance. This would be deemed to be the case where share exchange does not have business justification.
Taxation of in-kind contributions
The proposed amendment changes rules on recognition of taxable revenues related to in- kind contribution of assets other than a going concern.
Taxable revenues would no longer be equivalent to the face value of the shares issued in exchange for the contribution. Instead, in practice, taxable revenue would correspond to the market value of the contributed assets.
This change would eliminate existing controversies regarding taxation of in-kind contributions. At the same time, it would negatively affect execution of intra-group restructurings.
New requirements regarding withholding tax exemption for interest and royalties
It is proposed that the condition for application of exemption from withholding tax of interest and royalties – paid to associated companies from the European Union – would be that the interest recipient is beneficial owner thereof.
In order to apply the withholding tax exemption, the Polish payer would have to obtain a written statement which – besides other items – would confirm that the recipient company or permanent establishment is the beneficial owner of the payment.
Annihilation of shares in case of demerger
Draft amendment addresses also certain ambiguities relating to demerger of companies where the number of shares in a company being demerged remains unchanged while the face value thereof is decreased.
Status of amendment and entry into force
Draft amendment is currently at an early legislative stage within the Council of Ministers and is now open for public consultation. It is envisaged that the changes to the legislation would generally become binding as of 1 January 2017, while CIT taxpayers whose tax year will begin before that date would still be subject to ‘old’ regulations until the end of such tax year.