It is 15 November 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:
- Health insurance contributions paid in December can be still deducted by entrepreneurs
- Settling tax losses available under downstream mergers
- VAT exemption depends on the land’s primary use in the local zoning plan
- No VAT deduction on free allowances
- The Ministry of Finance’s notice on VAT payments in OSS and IOSS
- Changes in signing JPK, CUK and ALK files from 1 January 2022
Health insurance contributions paid in December can be still deducted by entrepreneurs
The tax amendments introduced as part of the Polish Deal mean that, starting from 1 January 2022, entrepreneurs will lose the possibility of deducting health insurance premiums. The new provisions already apply to premiums remitted for December, since the payment deadlines fall on 10 January 2022 (for entrepreneurs paying the premium only for themselves) and on 15 January 2022 (for taxpayers remitting the premiums for others), respectively. This means that health insurance premiums for December paid in January cannot be deducted. If, however, the entrepreneur makes a transfer already in December, the provisions currently in force, enabling deducting premiums paid for the entrepreneur themselves from the income tax, up to 7.75 percent of the accounting basis, will continue to apply. The decisive factor in this case is the payment date. It should be kept in mind that under the interim provisions provided for by the Polish Deal, the accounting basis for the health insurance premiums for January 2022 should be determined in line with the rules applicable until 31 December 2021. This means that the premium for January 2022 will be paid at a flat rate, i.e., it will amount to PLN 381.81, yet the possibility to deduct it in PIT will cease to be available.
Settling tax losses available under downstream mergers
According to the ruling of the Provincial Administrative Court in Łódź dated 4 November 2021 (case file I SA/Łd 558/21), in the case of a reverse merger, the prohibition to consider the loss resulting from the provisions of the CIT Act effective from 1 January 2021, limiting the possibility of settling the tax loss in the event of restructuring, does not apply. Pursuant to the above-mentioned provisions, when determining the taxable base, the taxpayer cannot take into account the loss incurred, in situations where as a result of the restructuring activities carried out it has acquired an enterprise or an organized part thereof and consequently the core business activity actually pursued by the taxpayer, after such purchase or acquisition, in whole or in part, differ from the one pursued before the purchase or acquisition, or when at least 25 percent of the taxpayer's shares are owned by an entity or entities that did not have such rights as at the end of the tax year.
The case at hand related to a company that was about to perform a downstream merger with another entity. In the previous tax years, the company incurred tax losses on the account of the business activity pursued. The company wished to confirm that when acquiring its shareholder (parent company) it would retain its right to deduct the tax losses incurred in the previous years. The RAC supported the Company’s stance and confirmed that in this case the statutory limitation would not apply. The Court pointed to the fact that the shares in the acquiring company would be issued to the same entities that had held shares in the acquired company (the parent entity). Consequently, according to the RAC, there were no substantive grounds for differentiating the consequences of the take-over by the parent company from the take-over by the subsidiary and to deny the latter the right to settle the tax loss.
VAT exemption depends on the land’s primary use in the local zoning plan
Pursuant to the ruling of the Supreme Administrative Court dated 10 November 2021 (case file I FSK 575/18), a given land can be treated as buildable only if in the local zoning plan it is indicated as the land’s primary use. The case at hand related to a State-run agency, which in the request for a ruling indicated that it had received an unimproved property consisting of three plots, two of which, in accordance with the local zoning plan, were to be preserved as non-public green space. The agency wanted the authority to support its stance that the sale of plots constituting non-public green space would be VAT-exempt. The tax authority, however, challenged this position, indicating that the intended uses for the two plots under the local zoning plan included construction of bike paths, off-road car parks and widening of the public road. Consequently, the two plots meet the definition of building land and as such cannot be exempt from VAT. The SAC agreed with the tax authorities and ruled that the land’s primary purpose in the local zoning plan determines whether it can be treated as building land and, consequently, is the main factor on which the exemption possibility depends. Additional functions, resulting from the permissible destination, serve only to supplement the basic form of development, but do not modify it in any way.
No VAT deduction on free allowances
In its judgment of 4 November 2021 (case file I FSK 1806/18), the Supreme Administrative Court confirmed that a recipient of a free allowance in the form of assignment of trademarks has no right to deduct the transaction tax. The case at hand related to a joint-stock company acting as a limited partner in a limited partnership. The limited partnership was about to be dissolved and the trademarks it owned were to be assigned to the joint-stock company. The partners thereto were not sure whether the joint-stock company would be eligible for a VAT deduction on the assignment of trademarks and whether they would be required to issue a VAT invoice. Both the Head of the National Revenue Information Service and the RAC in Poznań agreed that the joint-stock company would not be eligible for deducting input tax, since because of the dissolution of the limited partnership, it would acquire the allowance free of charge. They also agreed that there was no need to issue a transaction invoice, since the applicable provisions do not impose an obligation to document provision of free allowances. The SAC, however, challenged this position, stating that the assignment of intangible rights to trademarks would constitute an activity referred to in Article 8(2)(2) of the VAT Act, i.e., a free-of-charge supply of services deemed as the supply of services for a consideration, which would be consequently subject to VAT. In the case of free-of-charge activities, where the supplier of goods or services is obliged to pay the tax, the buyer is not, however, entitled to deduct input VAT.
The Ministry of Finance’s notice on VAT payments in OSS and IOSS
On 9 November 2021, the Ministry of Finance issued a notice recapitulating the new VAT payment rules introduced under a raft of amendments (jointly dubbed the VAT e-commerce package) to the VAT Act. The new provisions, applicable as of 1 July 2021, bring new rules for settling tax on on-line sales under two special procedures: One-Stop Shop (OSS) and Import One-Stop Shop (IOSS). Under the new procedures, the tax is settled by the taxpayer in a given country and then transferred to the tax administration of the relevant EU state. According to the notice, the value-added tax payable under the two special procedures should be remitted in EUR to the bank account of the Second Tax Office Warszawa-Śródmieście. The Ministry stressed that the VAT payment made under the special procedure to a micro-account will not be transferred to the Member State of consumption. It also reminded that the transfer title should always include the unique reference number (UNR) to make sure that the payment will be correctly assigned to the return. The taxpayer receives the UNR number upon submitting the return. Consequently, for the payment to be correctly assigned to the return, only the received UNR number should be entered in the transfer title.
Changes in signing JPK, CUK and ALK files from 1 January 2022
According to the notice issued on 12 November 2021 by the Ministry of Finance, the JPK (SAF-T) files (including CUK and ALK) singed with a qualified electronic signature with the use of SHA-1 algorithm can be submitted via the SAF-T gate only until the end of 2021. Starting from 1 January 2022, the SAF-T gate can be used solely for files signed with a qualified electronic signature relying on the SHA-256 algorithm. Switching from SHA-1 to SHA-256 algorithm does not require amending the qualified signature itself. However, it is necessary to update or re-configure the signature software (e.g., upgrading SHA-1 to SHA-256 in the signature parameters window) by the end of 2021. Importantly, the rules for submitting files signed with a trusted profile or authorization data remain unchanged.