Amendments to the Corporate Income Tax Act and certain other acts (Polish Deal 3.0)

Published on 25 October 2022, the Act of 7 October 2022 introduces new regulations for taxpayers. For the most part, the changes under the Act apply to CIT and come into force on 1 January 2023, with some exceptions. A particularly significant change is the exemption from the payment of the minimum tax for the period from 1 January 2022 to 31 December 2023.

Below we present the key CIT-related changes arising from the Act:

1. Amendment of the provisions on the documentation obligation for so-called “tax heaven transactions”:
• Complete repeal – with retroactive effect from 1 January 2021 onwards – of the documentation and information obligation for so-called indirect tax heaven transactions, including the obligation to establish the beneficiaries of the actual receivables for due diligence purposes.
• Changing the documentation threshold for controlled transactions with tax haven entities depending on the type of transaction to:
  • PLN 2 500 000 – in the case of a financial transaction,
  • PLN 500 000 – in the case of a any other transaction being not a financial transaction.

The previously obliging documentation threshold was PLN 100 000, regardless of the type of transaction.

2. Clarification of the limit for debt financing costs – exclusion from the costs generating income of the debt financing costs in excess of either PLN 3 000 000 or 30% of taxable EBITDA.
3. Exclusion from tax deductible costs of debt financing obtained from related parties for capital transactions (Article 16(1)(13f) of the CIT Act):
• limited to companies and unincorporated businesses,
• the exemption will not apply to debt financing granted:
• for the acquisition or take-up of shares or all rights and obligations in entities unrelated to the taxpayer; this also applies to the acquisition of further shares in entities in which the taxpayer has previously acquired part of the shares, if the acquisition of further shares takes place within 12 months, counting from the date of acquisition of the first shares;
• by banks or by cooperative savings and credit unions with their registered office in an EU member state or in another EEA state.
4. Clarification of the principles relating to settlement of the so-called relief for bad debts with income taxed at different CIT rates – increases and decreases of the tax base are made in the appropriate proportion of income taxed at different rates to the total amount of income.
5. Further changes have been introduced concerning foreign controlled entities (CFC – Controlled Foreign Corporation).
6. Changes to the tax on flipped income, inter alia:
• clarification of the concept of flipped income,
• clarification of the conditions to be met by related parties for which costs are incurred (at least 50% of passive income, transfer of at least 10% of such income to another entity through, inter alia, inclusion in costs, deduction from income or payment of profit),
• introduction of a definition of the tax base for the purposes of this tax,
• tax capital group as a taxpayer rather than each company separately.
7. Changes to the Polish holding company (PHC), inter alia:
• the catalogue of legal forms in which a holding company may operate has been expanded to include a simple joint stock company,
• change of the amount of exemption from taxation of dividends paid to a holding company – from 95% to 100%,
• modification or abolition of the requirements to recognise a company as a domestic or foreign subsidiary,
• exclusion of the pay&refund mechanism in relation to dividends paid to a holding company within a PHC.
8. Amendments to the Estonian CIT, inter alia:
• clarification of the deadline for filing a notice of selection of tax rate and amendment of the provisions on the conditions for entitlement to lump-sum taxation,
• the scope of events excluded from the concept of ‘expenses not correlating with business activity’ has been added, i.e. to those that are 100% used for business activities and those that are used for mixed purposes (50% of expenses, including depreciation allowances), a provision analogous to the exclusions of expenses involving hidden profits – Article 28m(4) para. 2) CIT,
• clarification of the expiry date of the tax liability for the so-called preliminary adjustment, in the case of an uninterrupted 4-year application of the Estonian CIT,
• amendment to the provision defining the deadline for payment of the tax due on income from transformation – the taxpayer is obliged to pay the tax within the deadline for submission of the CIT-8 return for the tax year preceding the first year of lump-sum taxation,
• extension of the condition of minimum employment in the case of persons employed on a basis other than an employment contract to employees exempt from PIT (e.g. persons up to 26 years of age) or ZUS (e.g. students),
• amendment of the deadline for payment of the Estonian CIT on distributed profit and net profit income used for loss squaring and the lump sum on distributed income from net profit – extension of the deadline for payment of the tax to the end of the 3rd month of the tax year following the year, in which the distribution or coverage of net profit was made, the advance payment of dividends was made or the distribution of net profit income was made after the termination of the lump sum taxation.
9. The provisions on so-called hidden dividends are repealed.
10. Changes to the construction of the minimum tax and the exemption from payment of the minimum tax from 1.01.2022 to 31.12.2023. – inter alia, an increase from 1% to 2% of the profitability ratio, a change in the methodology of its calculation, the introduction of an alternative method of determining the tax base at the choice of the taxpayer, modification of the existing exemptions and expansion of this catalogue.
11. Changes to withholding tax (WHT):
• WH-OSC filed no later than the last day of the second month following the month in which the limit of PLN 2 million of payments to a related entity was exceeded (the current wording of the provision indicates that the statement is filed no later than the tax payment date for the month in which the PLN 2 million was exceeded),
• preferential rules of taxation on the basis of the original statement submitted by the tax payer will be applicable until the last day of the tax year in which the tax payer submitted this statement,
• the obligation to submit a subsequent statement will arise only until the last day of the month following the end of the tax year.
12. Simplification of the procedure for the refund of tax on income from buildings – the tax refund will take place without the need to issue a decision, provided that the taxpayer’s refund application does not raise any doubts of the tax authority.

Source: Article prepared by our cooperation partner TaxaGroup

Legal basis:

• Act of 7 October 2022 amending the Corporate Income Tax Act and certain other acts (Journal of Laws 2022, item 2180).