It is 16 November 2020. We invite you to the next episode of the “Weekly Tax Review” prepared in cooperation with tax experts in KPMG in Poland.
In today's episode:
- Ever-increasing supervision over transfer pricing and related entities
- A request for a preliminary ruling on VAT exemptions on sub-participation contracts submitted to CJEU
- No possibility of extending VAT exemption on pre-paid services
- The biggest taxpayers to make settlements in Warsaw
- Return of the additional carer's allowance
- Draft bill on digital service tax to be assessed by the Sejm
- Tax-deductible costs related to provision of services by a partner to a private partnership
Ever-increasing supervision over transfer pricing and related entities
As reported by the Ministry of Finance, in the first three quarters of 2020, tax offices conducted a total of 4,501 inspections vs 5,341 inspections by the end of Q3 2019. However, despite the downturn, the number of inspections targeted at transfer pricing constantly grows. According to the data presented at the 10th Transfer Pricing Forum, transfer pricing-related irregularities most often found by the tax authority concern: the use of intangibles (over 33 percent), restructuring (20 percent) and the sale of goods and services (18 and 15 percent respectively).
A request for a preliminary ruling on VAT exemptions on sub-participation contracts submitted to CJEU
On 27 October 2020, Polish Supreme Administrative Court issued a decision (case file I FSK 67/18) on making a request to the Court of Justice of the European Union for a preliminary ruling. The issue at hand is whether the exemption on the granting and the negotiation of credit and the management of credit by the person granting it, provided for by Article 135 (1)(b) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, can be also applied to sub-participation contracts. In its ruling of 17 February 2016 (case file III SA/Wa 816/15), to which the request for preliminary ruling pertains, the Provincial Administrative Court in Warsaw found that the main goal of a sub-participation contract is to secure financing of the contract originator, i.e. provide them with access to funds that they can use in any way, under reimbursement obligation. This means that the objectives of a sub-participation contract are uniform with those of a loan contract and thus sub-participation contracts should be VAT-exempt. This standpoint will be now assessed by CJEU against the VAT Directive.
No possibility of extending VAT exemption on pre-paid services
In response to the parliamentary question no. 11470, the Minister of Finance confirmed that the VAT exemption on premium rate services, referred to in the Polish Telecommunications Law, provided in order to collect funds for public and religious purposes by a public benefit organization, shall not apply to pre-paid services. Despite the amendments introduced on 1 January 2014 to the provisions on the arising of a tax obligation, inter alia, for telecommunications services, it is not possible to extend the scope of the VAT exemption to pre-paid services. Furthermore, it was confirmed that at present the Ministry of Finance is not carrying out any legislative work on amending this measure, nor on extending the exemption to all registered non-governmental organizations.
The biggest taxpayers to make settlements in Warsaw
According to the draft decree of the Minister of Finance, the jurisdiction of tax offices competent for large taxpayers will be modified. As of 1 January 2021, the largest businesses (with the turnover exceeding the threshold of EUR 50m (circ. PLN 225m) per year) would be handled by the First Mazovian Revenue Office in Warsaw. Furthermore, it would also be responsible for banks, insurers, reinsurance companies, tax capital groups and listed companies, regardless of their turnover. Other large companies with a turnover of less than EUR 50m, but exceeding EUR 3m (circ. PLN 13.5 million) per year, would be serviced by the offices for big taxpayers in relevant provinces, which would also supervise cooperative banks, credit and savings unions and local government units.
Return of the additional carer's allowance
On 9 November 2020, the Cabinet decree on re-instituting the additional carer's allowance came into force. The additional carer's allowance may be granted to parents of children up to 8 years of age and insured parents of children up to 16 (with a certificate of disability), up to 18 (with a certificate of moderate to severe disability) and up to 24 (with a statement of special educational needs) years of age, in the event of the closure of a nursery, kindergarten, school or children's club attended by the child (or a disabled adult) due to COVID-19. The allowance may be also granted to insured parents or guardians of adult disabled persons who are exempt from work due to the need to provide care for such a person. Pursuant to the decree, the additional carer's allowance will be paid out in the period from 9 to 29 November 2020, subject to possible extension.
Draft bill on digital service tax to be assessed by the Sejm
The MP's draft bill on taxing certain types of digital services and on the Digital Technology Fund was submitted to the lower house of the Polish Parliament. Left-wing MP's call for introducing a new levy targeted at digital multinationals (e.g. Facebook and Google), which would be due, inter alia, on marketing campaigns using targeted advertising. The new provisions would enter into force in 2022. The draft proposes to tax provision of digital services consisting in: - conducting marketing campaigns with the use of targeted advertising; - enabling the use of a multi-sided digital platforms; - transferring collected data about users, generated as a result of user activity on digital platforms.
Tax-deductible costs related to provision of services by a partner to a private partnership
The individual ruling of 10 November 2020 (case file 0113-KDIPT2-1.4011.677.2020.2.MD) deals with the issue of how to treat deductible costs in a situation where a partner renders services to a private partnership as a sole trader. According to the applicant, provision of such services requires issuing an invoice to the civil law partnership. The amount indicated in the invoice should constitute income from business activity, and the civil law partnership should recognize it as a tax-deductible cost in accordance with the share of each partner.
However, this standpoint was challenged by the Head of the National Revenue Administration Information Centre, who pointed out that the expenses related to such a service do not constitute tax deductible costs for the partner providing services under a civil law partnership, since he actually performs the services "on his own behalf".