The Ministry of Finance posted explanations on its website containing practical tips on the new principles for restricting interest which could be classified as tax- deductible costs.
The relevant amendments, which have essentially been in effect since January 1, 2015, consist in:
- modifying thin capitalization regulations by extending restrictions also to loans granted by entities which are indirectly affiliated with the borrower and by changing the proportion of a permitted debt;
- introducing an alternative regulation determining the method for deducting loan interest as tax expenses.
The Ministry’s explanations contain a commentary on, among others, (i) the thin capitalization regulations which remained in effect until December 31, 2014; (ii) the thin capitalization regulations which have been in effect since January 1, 2015; (iii) the interim regulations; (iv) an alternative regulation determining restrictions concerning instances in which loan interest can be claimed as tax expenses.
Particularly noteworthy are the Finance Ministry’s explanations about how to interpret interim regulations concerning interest on loan which was de facto provided to borrower before the effective date of the amended provisions, in particular in relation to borrowers whose tax year is not identical to the calendar year. The examples shown by the Ministry indicate how these regulations are likely to be interpreted by the tax authorities.
The amendments to the principles for restricting interest reported as tax-deductible costs may have a big impact on the effective tax rate of Polish companies financed by loans. The regulations which have been in effect since January 1, 2015 are essentially quite stringent. Nevertheless, an appropriate financing structure or alternative fund-raising methods might considerably mitigate the negative impact of the amended provisions.
The explanations of the Minister of Finance can be downloaded at: http://www.finanse.mf.gov.pl/ documents/766655/6725129/Niedostateczna_ kapitalizacja_2015.pdf