On 4th October 2017, the draft bill amending the PIT and CIT Acts as well as the Act on Lump Sum Income Tax (‘the Draft’) was submitted to the Parliament. Based on justification to the Draft, its main objective is to tighten the CIT system in order to ensure the link between the tax paid by large multinational enterprises to the actual place of deriving profits, in particular through preventing the use of mechanisms of the so-called aggressive tax planning.
As compared to the original draft bill presented in July the envisaged regulations have been partly liberalised (thin capitalisation, intangible services), but new provisions have been also introduced which had not been previously submitted for public consultation (e.g. regarding debt push down structures).
As opposed to the original version of the Draft, it has been decided to include in the capital income catalogue i.a. profits from sale of receivables previously acquired by the taxpayer as well as receivables arising from profits of capital nature. Further, profits derived from financial instruments used to secure flows or revenues/costs not included in income of capital nature have been also excluded from the capital income catalogue.
The calculation method of EBITDA ratio has been modified as compared to the original draft. The ratio is now to be computed as the surplus of the total income from all sources less interest income over the sum of the deductible expenses decreased by depreciation on fixed and intangible assets and costs of debt financing.
The original annual limit of PLN 120 thousand of the surplus of debt financing costs over interest income below which the tax cost limitation does not apply, has been increased to PLN 3 million.
In addition, the original limit has been revised and according to the new draft is set at 5 percent of EBITDA calculated in accordance with the rules similar to those used for the purpose of thin capitalisation ratio.
The above restrictions should not apply to re-invoiced costs nor to costs directly associated with the production of goods or the provision of services.
Similarly as in the case of thin capitalisation, the annual limit of unrestricted expenses has been raised to PLN 3 million.
The above cost deductibility limitations should not apply to payments for intangible services within companies forming TCG.
Adjustment of the list of annual depreciation rates to the 2016 Fixed Assets’ Classification.
The impact of the planned amendments on the situation of taxpayers requires an individual case-by-case analysis. However, the principal objective of the Draft is to tighten the existing corporate tax system. In addition, new forms of taxation are to be introduced increasing the overall level of tax burden suffered by many taxpayers. Hence, the general effect of intended changes on taxpayers should be assessed as negative.
Please contact us if you would like to obtain more information on the draft amendments or discuss their impact on future tax obligations of your company as well as any possible changes in current business activity model to be best prepared for the new law.
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