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Poland: Hybrid entity measures in corporate tax changes for 2020

Poland: Hybrid entity measures in corporate tax changes

Changes to Poland’s corporate income tax intended to counteract tax optimization using hybrid structures will be effective beginning 1 January 2020.

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Legislation published in late August 2019 concerns implementation of the EU anti-tax avoidance directive (ATAD Directive) by putting forth rules in Poland to address tax avoidance practices, as well as the ATAD 2 Directive regarding discrepancies in the qualifications of hybrid structures (in particular, by expanding the scope to third countries that are outside the EU). 


New Chapter 3a added to the corporate tax law

There is a new Chapter 3a added to the corporate income tax law. This chapter includes new rules concerning discrepancies in the classification of economic entities by various tax jurisdictions—that is, “hybrid entities” that are treated for tax purposes as transparent in one jurisdiction and at the same time as non-transparent in another—as well as payments (including hybrid instruments that in one jurisdiction may be considered as an equity instrument and in another as a debt instrument, e.g., participatory loans or convertible bonds) that may lead to different treatment of revenues and costs recognized by the taxpayers for tax purposes.

In addition, new Chapter 3a contains a separate glossary that defines specific terms used in the introduced regulations (e.g., definitions of a hybrid financial instrument, hybrid entity or structural arrangement).

Among the changes are those that relate to the following issues:

  • Double deduction of costs or deduction of costs without recognition of taxable revenues on the other side of the transaction
  • Dual-resident mismatches
  • Disregarded permanent establishment

In addition, there is a new specific anti-avoidance clause that restricts a taxpayer's right to increase tax deductible costs by the notional external financing costs in connection with additional shareholder payments or profit transferred to reserve or supplementary capital (i.e., a notional interest deduction). This addresses situations when the identified activities would be carried out without economically justified reasons, but for the purpose of obtaining a tax benefit (e.g., by making an additional shareholder payment to a company that will then transfer funds from this first payment to another or subsequent company as part of the second or subsequent payment).

Read a September 2019 report [PDF 139 KB] prepared by the KPMG member firm in Poland

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