On 15 July 2016, the general anti-avoidance rule came into force in Poland. The GAAR is to be applied by the Minister of Finance to transactions where the main or only goal is to achieve a tax benefit that is inconsistent with the purpose and the substance of the tax regulations. The meaning of “tax benefit” is understood to include reducing, avoiding or deferring a tax liability, creating or overstating a tax loss, creating a tax payment surplus or an entitlement to a tax refund or increasing the amount of a tax payment surplus or tax refund.
If it is proved that the transaction is artificial, the tax consequences of such a transaction will be assessed as if the taxpayer had concluded an “appropriate” transaction. If the transaction has no real economic or business justification (other than the tax benefit), the Minister of Finance may completely disregard the transaction.
A special remedy is available to taxpayers to secure against the application of the GAAR. To benefit from such remedy, a taxpayer may apply to the Minister of Finance for an opinion confirming that the GAAR will not apply to the taxpayer’s transaction.
The GAAR is applicable to tax benefits arising on or after it came into force. In essence, this means that the GAAR can apply to transactions completed before 15 July 2016, if the tax benefit resulting from such transactions is obtained after that date. Transactions that may be examined under this provision include corporate group restructurings and sales of fixed assets or trademarks.
However, if the aggregate “tax benefit” in a given settlement period does not exceed PLN 100,000, the GAAR will not be applicable.
Polish tax advice should be sought before any group restructuring or transaction is undertaken to assess whether a tax benefit that is inconsistent with the purpose and the substance of the tax regulation will be realised.
Exemplification of income derived from sources in Poland
On 5 September 2016, Poland enacted a new rule setting out the items of income that are deemed to have their source in Poland and are, therefore, subject to income tax in Poland. Other, unspecified, income is also subject to Polish income tax if it is derived from sources located in Poland. The new rule comes into force on 1 January 2017.
Under the new rule, the following income is deemed to have its source in Poland:
- dividends, interest and royalties paid by Polish entities;
- income from operations of a foreign entity’s branch in Poland;
- income from securities quoted on Polish regulated stock markets;
- income from the sale of shares or interests in a “real estate rich” vehicle, where the shares or interests derive more than 50% of their value directly or indirectly from real estate situated in Poland; and
- income from the provision of some intangible services (legal, accounting, marketing, advisory, management, data processing and similar services) to Polish business entities – the place in which the contract is concluded and the place of actual performance are both ignored.
There has never been any doubt that dividends, interest and royalties paid by Polish entities are subject to withholding tax (“WHT”) or that income from operations of a branch situated in Poland is subject to Polish tax.
However, there has been a dispute regarding income from the provision of intangible services. Some courts have taken the approach that such services are subject to WHT only if the services are actually performed in Poland. Other courts have found that, for the purposes of establishing whether there is an obligation to collect and remit WHT, regard should be had only to whether a Polish taxpayer makes the payment.
A new development is the rule concerning income derived from the sale of shares or interests in “real estate rich” vehicles and from securities quoted on Polish stock markets. It is important to note that WHT shall not be collected if a tax treaty or other exception (e.g. the Parent-Subsidiary exemption) applies.
Non-Polish taxpayers should consider providing their Polish subsidiaries or clients with a certificate of tax residency or other documents necessary to exempt the payment from Polish WHT or including a gross-up clause in contracts.
Second, reduced 15% corporate income tax (“CIT”) rate will be available from 2017
From 2017, a second, reduced tax rate of 15% CIT will be available to a:
- company commencing business activity in its first tax year; and
- “small taxpayer” – a company with an income (revenue) from sales, including output VAT if applicable, not exceeding an equivalent in PLN of €1.2 million in the preceding year.
However, not every company commencing its business activity will be immediately entitled to a 15% CIT rate. For a two tax year period, the reduced rate will not be available to certain companies, such as those established:
- in the merger or demerger process;
- as a result of the incorporation of an individual’s sole business or a partnership; or
- by a business entity that contributes to that company its business, part of its business or its assets, worth at least €10,000 (equivalent in PLN).
When establishing a subsidiary in Poland, foreign investors should consider the above mentioned exclusions.
Elimination of Polish general CIT exemption for some investment funds
On 29 November 2016, the Polish Parliament passed a bill that amends the exemption from CIT for close-ended investment funds (“CIF”) and some special open-ended investment funds (“SOIF”). The bill is another example of Poland setting an anti-avoidance course.
Under current law, open-ended investment funds (“OIF”), SOIF and CIF – both from Poland and from the EU / EEA (the latter on the condition that they meet certain statutory criteria) – are generally exempt from CIT, irrespective of the source from which their income is derived.
Under the new rules, OIF and SOIF will remain generally exempt from CIT, with the exception of those SOIF that apply the rules and limitations prescribed for CIF. The new rules level up the treatment for CIT purposes of CIFs and SOIFs that operate under similar conditions to CIFs.
The levelled up CIFs and SOIFs will no longer be generally exempt from CIT. Instead, there will be a specific exemption available for them, with the exception of income derived from the following sources:
- participation in Polish or foreign tax transparent entities;
- interest on loans granted by levelled up CIFs and SOIFs to tax transparent entities that they participate in or interest on other liabilities towards those funds;
- interest on capital share in such tax transparent entities;
- free-of-charge (or partially free-of-charge) benefits granted by such entities;
- interest (discount) on securities issued by such entities; and
- the sale of securities issued by such entities.
These items of income will generally be subject to standard 19% or 20% CIT rates.
However, income derived by CIF and SOIF that operate under similar conditions to CIF, from, inter alia, interest, dividends and other income from a share in profits of legal persons, disposal of receivables, currencies, shares, securities – other than those abovementioned – will remain exempt from CIT.
In practice, under current rules, combining a generally exempt CIF with tax transparent entities (mostly the Luxembourg Société en Commandite Spéciale) operating via a Polish partnership allowed such structures to conduct non-taxable business activity. The amendment aims to counter such tax optimisation schemes.
The new provisions will come into force on 1 January 2017.
As of 1 January 2017, schemes using a CIF or SOIF combined with tax transparent entities will lose their advantageous tax treatment. As a result, we recommend considering whether maintaining such a structure is the best approach.