It is 25 October 2021. 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:
- Amendments to DTT with the Netherlands and Malta
- Poland at tail end of OECD’s International Tax Competitiveness Index
- Publication of a draft bill on whistle-blower protection
- EUREKA tax and customs information system
- Possibility for the taxpayer to challenge entries in the land and building register
- The amount equivalent to the VAT due received from a partnership is not revenue
Amendments to DTT with the Netherlands and Malta
The Sejm passed the Acts ratifying amendments to double taxation treaties concluded with the Netherlands and Malta. The key changes to the treaty concluded between Poland and the Netherlands include introduction of the principal purpose test, designed as a tool for counteracting any possible double taxation treaty abuse, introduction of the real estate clause and transparent entity clause, as well as modifications to the definition of a permanent establishment. In turn, the key amendments to the treaty concluded between Poland and Malta cover extending WHT to technical service fees, changing the taxation principles for remuneration of directors, introducing a new method for avoiding double taxation, i.e. the proportional tax credit method, as well as clarifying the wording of the clause on taxing the sale of real estate companies.
Poland at tail end of OECD’s International Tax Competitiveness Index
Poland ranks low at 36th place out of 37 countries in OECD’s International Tax Competitiveness Index, with the last position taken by Italy. For the eighth time in a row, Estonia was ranked first. OECD’s International Tax Competitiveness Index seeks to measure the quality of tax systems across five categories: Corporate Taxes, Individual Taxes, Consumption Taxes, Property Taxes, and Cross-border Tax Rules. At the same time, it takes into account not only the rates, but also the complexities related to the number of preferences or exceptions. However, it does not take into account the aspect of variability of regulations and the uncertainty related to their adoption. According to the authors of the Index, a well-structured tax code can promote economic development of a country. The authors also pointed to the fact that the biggest issue with the Polish tax system is its complexity. Poland also performs poorly in terms of the tax base for taxing consumption.
Publication of a draft bill on whistle-blower protection
On 18 October 2021, a draft bill on protecting individuals reporting abuses of law was published on the Government Legislation Centre’s website. The purpose of the bill is to introduce a protection mechanism for whistle-blowers, meaning individuals reporting or revealing information on law abuses obtained in the context of work they perform. Measures to protect whistle-blowers against the negative consequences of their reports are to be introduced into the Polish legal system. The new provisions are to impose on entities employing at least 50 employees the obligation to establish internal procedure for accepting reports of irregularities from whistle-blowers, including reporting channels to ensure the protection of the identity of the reporting persons mentioned therein, the obligation to appoint an impartial person or department competent to act on reports, or the obligation to undertake adequate follow-up actions. Importantly, all financial sector entities, regardless of their size, will be obliged to establish such systems. In companies employing less than 50 employees, the mechanism can be applied on a voluntary basis.
EUREKA tax and customs information system
The Ministry of Finance has made the new EUREKA Tax and Customs Information System available on the website podatki.gov.pl. The system provides users with comprehensive tax and custom information, including individual and general rulings, binding excise duty and rate information, tax clarifications and information brochures. Information can be searched by: phrase, information category, author, or key words. The website of the system also includes, among others, communications regarding the operation of the EUREKA system and the publication of new or modified fiscal information.
Possibility for the taxpayer to challenge entries in the land and building register
In its rulings of 13 October 2021 (case files: III FSK 225/21, III FSK 226/21, III FSK 363/21, III FSK 364/21) , the Supreme Administrative Court stated that entries in the land and building register are not strictly binding with regard to the taxation of buildings with real estate tax. The case at hand related to a company owning an office building, which was classified in the land and building register as a utility building. In reality, however, part of the building was used for housing purposes. The tax authorities were of the opinion that since the building is classified in the records as a utility building, it means that tax should be charged on it at the rate appropriate for facilities used in business activities. This approach was backed up by the RAC in Warsaw, which ruled (case file: III SA/Wa 1307/17) that records from the land and building register are binding since they constitute an official document. The ruling was challenged by the SAC, which stated that the amount of tax due on buildings is determined by the provisions of the tax act and the actual state of affairs, and not entries in the land and building register. Such entries are decisive in terms of land classification, but not buildings. The taxpayer may challenge them by indicating other evidence, including documents on the basis of which the entries in the records were made.
The amount equivalent to the VAT due received from a partnership is not revenue
In its ruling of 19 October 2021 (case file: II FSK 559/19), the Supreme Administrative Court stated that the transfer by a limited partnership of funds corresponding to the value of VAT resulting from the issued invoice documenting the fact of making a contribution in form of a trademark constitutes output VAT which, according to the literal interpretation of the PIT Act, does not constitute revenue. The case at hand related to a partner, being an active VAT taxpayer, intending to make an in-kind contribution in form of the owned trademark in exchange for an increase in the value of their share in the partnership's capital. The SAC ruled that the amount received by the taxpayer from the partnership, being the equivalent of the VAT due, is not a definitive asset gain on the part of the partner, which excludes the possibility of classifying this amount as the partner's income.