Legislation amending various tax laws was signed by the president on 22 June 2020. The legislation addresses the tax treatment of hybrid transactions and hybrid entities, “call-off stock” arrangements, and the automatic exchange of information on cross-border arrangements.
Hybrid transactions and hybrid entities
The key objective of the new provisions is to prevent hybrid mismatches giving rise to a double deduction or to a deduction without taxation in different tax jurisdictions. Under the measures, in certain instances, taxpayers will be denied the right to recognize tax deductible costs on payments subject to double deduction (a deduction from the tax base in more than one tax jurisdiction). Furthermore, the taxpayer will not be allowed to recognize payments that are deductible from the tax base in one jurisdiction as deductible, without corresponding inclusion of this payment in the tax base in another jurisdiction. The taxpayer will also be required to recognize the receivables obtained as taxable profits, even if these amounts are excluded for tax purposes under other provisions of the corporate income tax law. These restrictions and obligations will apply to specific situations; they will occur only if the deduction without taxation has been made by related entities or under a structural arrangement involving a hybrid mismatch.
The new provisions may have practical implications, among others, for entities using group financing (such as the form of loans), if the relevant funds were to be acquired by the lender as part of a hybrid instrument.
Additionally, the new measures concern the issue of dual residency mismatches. A taxpayer recognized under the Polish tax law as a Polish tax resident will not be entitled to deduct expenses or to reduce their income by the amount of tax losses, if such expenses or tax losses:
Moreover, in a situation when a foreign establishment of a Polish tax resident is not treated as a foreign permanent establishment by the country of its location (the so-called "disregarded permanent establishment"), the taxpayer's taxable revenues will be increased by the revenues that would otherwise be attributed to the disregarded permanent establishment. However, this rule will not apply if the obligation to apply exemption on the income of the disregarded foreign establishment will result from an income tax treaty in force between Poland and another non-EU country.
Call-off stock arrangements
“Call-off stock” refers to the situation when at the time of the transport (shipment) of goods to another EU Member State, the supplier already knows the identity of the person acquiring the goods, to whom these goods will be supplied at a later stage and after they have arrived in the EU Member State of destination.
The aim of the amendment is to align the related Polish rules with EU law. As a result, such transactions will under certain conditions be considered to give rise to one exempt supply in the EU Member State of departure (zero rate) and one intra-Community acquisition (by the purchaser) in the EU Member State of arrival.
Automatic exchange of information on reportable cross-border arrangements
The law also aims at finalizing the rules to incorporate Council Directive (EU) 2018/822 into Poland’s national law, notably by introducing amendments to MDR-1 and MDR-3 forms. The changes are necessary because under the directive, the scope of automatic exchange of information in relation to reportable cross-border arrangements within the European Union must be consistent between the EU Member States (pursuant to the directive, the first amendment is to be introduced by 31 October 2020).
Thus, taxpayers will be required to once again report on cross-border tax arrangements in order to provide the missing information. The deadline for tax scheme promoters has been set as 31 July 2020; the deadline for beneficiaries is set for 16 August 2020; and for supporters, 31 August 2020.
As of 1 July 2020, the tax arrangement numbers issued before that date will become invalid.
Furthermore, the new law provides for a possibility to sign the MDR-3 form in line with the principles of representation of legal persons (currently, MDR-3 must be signed by all the members of the Board of Directors); the possibility of signing it by proxy was excluded.
The law also introduces a possibility of extending the deadlines for reporting tax arrangements by the Minister of Finance. This provision may be linked to the European Commission's attempts at postponing a number of requirements set out in the directive due to the COVID-19 pandemic.
In general, the new law is effective 1 July 2020. However, the provisions on hybrid structures are effective 1 January 2021 and are to apply to income (revenues) obtained in the tax year starting after 31 December 2020.
Read a June 2020 report [PDF 236 KB] prepared by the KPMG member firm in Poland
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