FY18 will bring major changes in corporate tax law in Poland, possibly the biggest in the history of corporate taxation in Poland

1. Webinar: Tax Regulatory
Update
www.pwc.pl
26 October 2017

2. New Transfer Pricing
obligations
2

3. Tax havens/
joint venture
agreements
The scope of the transfer pricing requirements
depends on revenue /costs of the taxpayer
> EUR 20/50 k
Revenue / costs
exceeding EUR 2 M
CbCR
> EUR 750 M
5
Local File
> EUR 2 M
1
CIT-TP
> EUR 103
Transfer pricing
documentation
requirements
2 Taxpayer’s statement
4
Master File
> EUR 20 M
3

4. Personal liability
under the Penal
Fiscal Code
Need to supervise
the preparation of
TP documentation
Need to verify the
completeness of TP
documentation
Need to plan
Taxpayer’s statement
Taxpayers are obliged to submit a statement confirming that the transfer
pricing documentation was prepared. The statement must be filed to the tax
authorities by the date of filing the annual tax return
In practice it means:
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5. Summary of changes
• Extended scope of the
Local File
• Additional requirements
(Taxpayer’s statement,
Master File, CIT TP, CbCR)
• Tight deadlines
Increased workload of the taxpayer as regards the transfer pricing
documentation
Increase in transparency: new TP risk assessment tools available for
the tax authorities (CbCR, CIT-TP), exchange of information
Demand in consistency - significant amount of information to be
revealed – first year for obligatory master file, on local level - financial
data has to be in line with financial statement
The burden of proof transfered onto the taxpayer
• Higher threshold defining
related entities (25%
compared to 5%)
• Higher documentation
thresholds
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6. There are differences between OECD requirements and
Polish regulations
OECD – TPD for material transactions
Polish TPD – domestic definition for relevant transaction – broader scope for transactions and
“other economic events”, (e.g. liquidity management contracts, cost sharing contracts, cash pool) after
exceeding certain value threshold
Scope of documented transactions
• Local File: transaction and othe economic phenomena, cash flow, obligatory benchmark study, restructuring in
2017 and 2016, value-adding chain,
• Master File: should describe not only R&D, intangibles and financial transactions but also other services.
• Benchmarking studies: obligatory BS, preference for local comparables
More detailed descriptions/ information required
Challenge: only 7 days to provide TPD on request to local tax authorities
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7. Our recommendations
Assess what is requiredWhat should I do?
Verify what is available and what is missingWhat have I got?
• Need to aggregate data from various companies
(including foreign entities)
• Time necessary to prepare and verify the
documentation
• Very first documentation is crucial
When should I do it?
Verify the documentation, not less than once a year
(benchmarking studies every 3 years, assuming no
changes of the market conditions)
Should I update it?
Who is responsible? Define who does what (persons/companies)
Transfer pricing documentationTP risk analysis
Analysis of potential risks under the
new TP requirements (CbCR, CIT-
TP)
Possible changes in the case of
identified risks, consistency
7

8. Planned changes
to Polish CIT Law
8

9. In brief
Latest version of draft amendments to CIT and PIT Act
published in October 2017. New regulations to become
applicable as of 1 January 2018 (with some exceptions)
• Further limitation of base erosion and profit shifting;
• Ensuring that profits are taxed where economic
activities generating them are carried out and where
the actual value is created;
• Partial implementation of the EU Anti-Tax Avoidance
Directive.
Goals of amendments
• „Minimum income tax level” for taxpayers holding
substantial real estate (shopping centers, office
buildings, shops sales and other service buildings),
which initial value exceeds PLN 10m;
• Separation of income / loss sourced from capital
transactions from other income / loss sources of a
taxpayer;
• Thin capitalization restrictions;
• Limitation of deductibility of costs borne on certain
intangible and royalties.
Key areas of amendments
Wide range of changes with significant impact on taxpayers
- in particular, on multinational companies investing in
Poland
The amendments still at an early stage of the legislative
process
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10. Introduction of “revenue baskets” (1/2)
Income in both baskets taxed at 19% CIT.
Currently: capital gains derived effectively mixed for CIT purpose with profits / losses from other business
operations (no separate “revenue baskets”).
Proposed change: introduction of a distinction between “capital gains” and “other operational activity”.
Accordingly:
• Taxpayers obliged to recognize revenues and costs related to each „basket”. Lack of possibility to set-off
income derived from one “basket” with loss borne in the other “basket”;
• Carried forward losses in one “basket” to be utilized over the period of 5 consecutive years solely to set-off
taxable income from the same “basket”. No more than 50% of the loss to be utilized in a single tax year.
Costs allocated to each basket not restricted to costs directly related to revenues from this basket. As an
example, interest on loan financing acquisition of shares likely to be allocated to „capital gains” basket
(alongside with the purchase price for share itself).
In case of banks, financial and credit institutions and brokerage houses all profits to be regarded as profits from
one basket (due to specific nature of operations basket separation should not apply).
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11. Introduction of “revenue baskets” (2/2)
Illustrative example:
Under grandfathering rules, carried forward losses from years preceding entry of amendments into force may be set-
off against any profits, irrespective of the baskets.
• Dividends,
• Sale of shares,
• Sale of receivables other than related to operational
activity,
• Redemption of shares,
• Liquidation of companies and distribution of liquidation
proceeds,
• Mergers and divisions of companies,
• In-kind contributions,
• Revenue from selected intangibles, e.g. licenses, know-
how, copyrights.
Gains from disposal of real property not specifically included
in the „capital gains basket”.
“Capital gains basket” to cover Illustrative example
„Capital
gains
basket”
„Other
activity
basket” Total
Revenue 10 100 110
Costs 20 20 40
Result -10 80 70
Tax payable 0 15,2 15,2
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12. Limitation on tax deductibility of intangible services’ costs
Proposed change: introduction of limits on tax deductibility of costs of:
• intangible services (including advisory, management, data processing, marketing, market research,
insurance, guarantees etc.) and
• license payments for rights to selected intangible assets (including trademarks).
• transfer of risk connected with bad loan receivables (e.g. via insurance, derivatives, guarantees)
Restrictions to affect the excess of the above costs over the threshold of PLN 3 m and would
apply to the extent that: [the value of costs] exceeds 5% * [(taxable revenues – interest
revenues) – (tax deductible costs – depreciation of fixed assets and intangibles – interest cost)]
Restrictions excluded for:
• accounting, legal and recruitment services,
• transactions with unrelated parties and transactions within CIT tax groups,
• transactions covered by advance pricing agreements,
• costs re-invoiced by taxpayer,
• costs of intangible services directly related to production of goods / provision of services,
• insurance and guarantees provided by financial institutions.
According to comments of the Ministry of Finance, restrictions should not apply to services capitalized to initial
value of fixed assets. However, most recent draft bill does not expressly provide for such exemption. This
should be further monitored throughout the legislative process.
Costs exceeding the above limits and – accordingly – excluded from tax deductible costs in a given year may be
carried forward to 5 subsequent years.
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13. Q 1: Will the new rules on tax
deductibility of intangible services/
royalties influence the amount of tax
deductible costs in your organization?
A. Yes - significantly
B. Yes - slightly
C. No
D. It is unknown yet
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14. New rules on thin capitalization
However, the new rules should provide for a „safe harbour” of PLN 3m of tax deductible interest per year.
Currently: the amount of tax-deductible interest on intra-group loans correlated with the level of equity
Proposed change: Proposed change: deductibility restrictions (i) applicable both to internal and external
financing and (ii) correlated with “tax EBITDA”
Tax deductibility of interest disallowed to the extent: [the excess of interest costs over interest
revenue] exceeds 30% * [(taxable revenues – interest revenues) – (tax deductible costs –
depreciation of fixed assets and intangibles – interest cost)]
The amount of interest non-deductible in a given tax year to be carried-forward and deducted in 5 subsequent
years (still subject to general limitations of 30% EBITDA).
Under the grandfathering rules, loans granted and effectively disbursed by the moment of entry of the
amendments into force still subject to currently binding thin capitalization rules, however, no longer than by 31
December 2018.
Restrictions not applicable to financial entities e.g.: to banks, credit institutions, as well as to open-end and
closed-end investment funds.
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15. „Minimum CIT” on commercial properties
• Shopping centres;
• Department stores;
• Standalone shops and boutiques;
• Other sales and service buildings (e.g. exhibition centres, petrol stations, pharmacies, service stations);
• Office buildings (excluding used solely / mainly for own purposes of the taxpayers).
Currently, hotels or logistic centres not explicitly covered by „minimum taxation”.
„Minimum CIT” not applicable if the activities of the taxpayer are suspended.
„Minimum taxation” applicable to the value of buildings classified as
Proposed change: „minimum income tax level” for taxpayers holding selected real estate of initial value
exceeding PLN 10m.
„Minimum tax” payable monthly at 0,035% of excess of the initial value of the building (without taking
into account depreciation write-offs, but including potential improvements) over PLN 10m (0,42 %
annually).
Consequently, tax due regardless of the level of actual income derived by taxpayer.
The amount of „minimum tax” payable in accordance with the above rules deductible from „regular” monthly
advance CIT payments and included in annual CIT liability.
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16. Q 2: Which of the planned changes, in
your opinion, will have the greatest
impact on tax burden of your economic
activity (choose one)?
A. Introduction of “revenue baskets”
B. Limiting tax deductibility of
intangible services’ costs
C. New rules on thin capitalization
D. „Minimum CIT” on commercial
properties
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17. Other changes
• Change of criteria for qualifying a foreign
company as subject to CFC (change of
shareholding levels from 25% to 50%, focus on
effective tax rate as opposed to nominal tax rate).
• Broadening a catalogue of revenue deemed as
„passive” for the purpose of CFC rules as well as
change of the „passive income” ratio from 50% to
33%. goods / property rights to entity, in which
the taxpayer alongside with its related parties
possess at least 95% of shares.
Change of CFC rules
• Deductibility of interest from debt-push-down
structures excluded;
• Deductible costs in sale&lease-back transactions
cannot exceed prior revenues;
• One-off write-down for fixed assets of small value
possible for assets worth up to PLN 10k
(previously PLN 3,5k).
Further changes in CIT deductibility rules
Change of rules regarding CIT tax groups
Adding a possibility to lose the status of taxpayer retroactively
(from the date of registration as a tax group) in case of breach
of certain conditions. Should this be the case, companies
forming tax group obliged to reconcile for CIT purposes as
independent taxpayers retroactively for past 3 years. Under
intra-temporary rules. retroactive settlement should not cover
periods before entry of amendments into force.
Decrease of a minimal revenue to income ratio of the tax group
from 3% to 2%.
Introducing a restrictions for accessing another tax group by an
entity being previously a part of tax group which has lost its
status.
Group members obliged to set intra-group transaction terms at
arm’s lenght. However, no formal obligation to prepare
statutory TP documentation for such transactions.
Merger between companies forming tax group should not
constitute a breach of statutory condition that the number of
group members cannot be reduced over the lifetime of the
group.
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18. Thank you
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You
should not act upon the information contained in this publication without obtaining specific professional advice.
© 2017 PricewaterhouseCoopers Sp. z o.o. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Sp. z o.o.
which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity
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