It is 4 May 2022. 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:
- Draft decrees of the Minister of Finance on transfer pricing reporting in PIT and CIT
- Amendments to PIT under the Polish Deal adopted by the government
- Latest clearance opinion on mergers through acquisition
- Meaning of “in the tax case indicated or another indicated case falling within the competence of a tax authority”
- Payments under operating lease are not debt financing costs under Article 15c(12) of the CIT Act
- Protocol amending the Convention between Poland and the Netherlands published in the Journal of Laws
Draft decrees of the Minister of Finance on transfer pricing reporting in PIT and CIT
On 25 April 2022, draft decrees of the Minister of Finance on transfer pricing reporting in PIT and CIT were made available on the Government Legislation Centre’s website. The goal thereof is to adjust the scope of data and information disclosed via transfer pricing reports to the amended provisions. The changes brought by the draft decrees include limiting the scope of transfer pricing information provided by entities exempt from the obligation to prepare the Local File, yet required to establish transfer pricing reports, or clarifying the content of the entity's declaration that the Local File has been prepared in accordance with the actual situation, and that the transfer prices covered by this documentation are set on an arm’s length basis.
Amendments to PIT under the Polish Deal adopted by the government
On 22 April 2022, the Council of the Ministers adopted the draft bill amending the act on personal income tax and certain other acts bringing PIT-related changes to the Polish Deal package. The list of changes passed by the Council of Ministers includes reducing the PIT rate for the first personal income tax bracket from 17 percent to 12 percent, eliminating the middle-class relief, introducing the possibility of return to tax settlements in line with the tax scale for entrepreneurs who had opted for lump-sum or flat taxation, and introducing a deduction of a part of the remitted health insurance contributions available to flat-tax, lump-sum tax and fixed amount tax payers. Furthermore, the bill restores the possibility of filing a joint settlement by single parents and their children, replacing the currently applicable allowance of PLN 1,500. Moreover, from 1 January 2023, the option of applying the tax-free allowance to advance payments made under contracts where it has not been possible so far, e.g., under contracts of mandate, will be introduced. What remains unchanged is, inter alia, the tax-free allowance amount (PLN 30 thousand) and the raised threshold for entering the highest income tax bracket (PLN 120 thousand). The bill is now to be assessed by the Public Finance Committee of the Lower House of the Polish Parliament.
Latest clearance opinion on mergers through acquisition
On 21 April 2022, a clearance opinion dated 14 April 2022 (case file DKP1.8011.34.2021) on mergers through acquisition was published. The analysis performed by the Head of the National Revenue Administration (NRA) related to a situation where a single company acquires two other entities from the same group where it acts as the sole shareholder. Such a transaction aims, inter alia, at limiting the number of group entities, improving cash flows within the group, and tackling challenges brought by unforeseen circumstances, such as the COVID-19 pandemic. In the Head of the NRA’s opinion, the above-described activities can bring a tax benefit, which, however, is not the primary or one of the primary purposes behind performing them, nor does it go against the subject or purpose of tax law or its provision, and the action described by the applicant would not be deemed of artificial character. Consequently, Article 119(1) of the Tax Code finds no application.
Meaning of “in the tax case indicated or another indicated case falling within the competence of a tax authority”
In its resolution dated 25 April 2022 (case file II FPS 1/22), the Polish Supreme Administrative Court (SAC) determined whether a special power of attorney, e.g., granted to a tax advisor, should be attached to files separately for each type of proceedings (e.g., tax audit, tax proceedings or proceedings concerning precautionary measures), or whether it can be submitted only once. According to the SAC, the phrase “...in the tax case indicated or another indicated case falling within the competence of a tax authority” used in Article 38e(1) of the Polish Tax Code should be understood as referring to the material scope of the special power of attorney resulting from the basic legal relationship. This means that it can relate to each case within the competences of a tax authority to which the provisions of the Code apply. However, to produce a procedural effect, it is necessary to attach a special power of attorney to the case file in a specific proceeding before the tax authority, pursuant to Art. 138E(3) thereof.
Payments under operating lease are not debt financing costs under Article 15c(12) of the CIT Act
On 26 April 2022, the Polish Supreme Administrative Court issued a ruling (case file II FSK 2197/19) relating to a company that entered into a locomotive lease contract which - for tax purposes - was treated as the so-called operating lease. The company was not sure whether payments made under the contract could be treated as debt financing costs under Article 15c(12) of the CIT Act. In the opinion of the Supreme Administrative Court, to decide whether the limitations resulting from Article 15c of the CIT Act apply to lease-related fees incurred in connection with an operating lease contract, a linguistic interpretation of Article 15c(12) thereof should suffice. Debt financing expenses shall be understood as any expenses related to obtaining funds from other entities and to using those funds. The phrase “any expenses” should, therefore, be limited to expenses related to obtaining funds from other entities and to using those funds, excluding the use of any items or things. Consequently, the cap on debt financing costs should not apply to operating lease of items.
Protocol amending the Convention between Poland and the Netherlands published in the Journal of Laws
On 27 April 2022, the Protocol dated 29 October 2020, amending the Convention between the Republic of Poland and the Kingdom of the Netherlands for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, concluded in Warsaw on 13 February 2002 and the Protocol signed on 13 February 2002 in Warsaw, was published in the Polish Journal of Laws. A government declaration of 31 March 2022 on the binding force of this protocol was also published. One of the key changes brought about by the Protocol consists in extending the Convention with a real estate clause and the principal purpose test. Importantly, the Protocol amends the definition of a permanent establishment, brings the notion of recognized pension fund, and introduces the rule that the income obtained in connection with the liquidation of the company or the acquisition of own shares by the company is treated as income from shares.