31st January 2018
Warsaw-based Modzelewski & Partners sp. z o.o., a member of the global accounting alliance in the European region, has released a detailed outline of the changes to Polish tax law that came into force on January 1st 2018.
The details have been sent out to fellow members of the MGI Worldwide and Mint Alliance international accounting association and also touch on further changes to Poland's tax system that are set to come in throughout the rest of the year:
1. Limiting the tax deductibility of debt financing costs
The restriction concerns the costs of indebtedness towards both affiliates as well as unrelated entities, to the extent that the debt exceeds the amount of PLN 3 million. Costs exceeding this limit can be considered tax costs only up to 30% of the financial result before deducting interest from interest-bearing liabilities and taxes and depreciation, hereinafter abbreviated EBITDA (earnings before interest, taxes, depreciation and amortisation).
The concept of debt financing was defined very broadly. It covers all kinds of costs related to obtaining funds and using such funds, in particular: interest, fees, commissions, bonuses, interest portion of the leasing installment, penalties and fees for delay in payment of liabilities and costs of securing liabilities, etc.
At the same time, the provisions on the so-called insufficient capitalisation, which until the end of 2017 limited the deductibility of debt financing costs by related entities, were suspended.
2. Limiting the tax deductibility of expenditure on the purchase of intangible services
The restriction covers expenses for intangible services acquired from related and unrelated entities with headquarters in so-called tax havens. Expenses for these types of services exceeding PLN 3 million may be considered tax costs up to 5% of EBITDA.
The restriction covers expenditure on a wide range of services, including advisory services, market research, advertising, management and control, data processing, insurance, guarantees and benefits, and similar services (insurance and guarantee services provided by professional entities are excluded from the limitation). The limit also covers all kinds of fees and charges for the use or right to use the rights or values, and for transferring the risk of insolvency for loans granted by entities other than banks and similar benefits.
3. Capital income as a separate source of revenues
This is a very unfavourable change, because, after its introduction, the tax result (income or loss) in terms of capital income cannot be compensated with the loss or income from the core business. A very wide catalogue of capital revenues was introduced. For most types of revenue, the tax obligation will be based on the accrual basis (receivables due), and only in the case of dividend payments, etc. on a cash basis (revenues actually received).
4. Tax on commercial real estate
Although the new levy is referred to as income tax on the income from the ownership of a fixed asset, its size does not depend on the amount of revenue, but on the value of the property.
The new tax covers utility properties, other than those used exclusively or mainly for the taxpayer's own needs, whose initial value exceeds PLN 10 million. The monthly tax rate is 0.035%.
However, the tax paid on this account may be offset against the income tax liability, so in practice it will not apply to those taxpayers who still pay a high income tax in Poland.
5. Increasing the value of "low-value" fixed assets
The amount of net expenditures for the acquisition of a fixed asset, which can be directly recognised as tax deductible costs, without the need for depreciation write-offs, was increased from PLN 3,500 to PLN 10,000. This is one of the few changes in favour of taxpayers.
6. The obligation to prepare documentation for transfer pricing needs
Starting from the accounts for 2017, taxpayers subject to the obligation to prepare documentation should have it ready by the end of the third month of the following year.
What’s important, in the annual CIT-8 declaration, under the sanction of criminal responsibility, is that it is necessary to state whether the documentation has actually been prepared or not.
7. Other changes in the scope of CIT concern in particular the following issues:
1) benefits for research and development,
2) creation and functioning of tax capital groups,
3) taxation of controlled foreign companies (CFC),
4) using some intangible assets as a source of tax costs,
5) publishing data from tax returns,
6) tax deductible costs in the case of mergers or divisions of companies,
7) interest on participative loans and tax costs,
8) taxation of transactions involving the merger of subsidiaries on a debt push down basis.
1. Submission of data from VAT invoices in the form of JPK_VAT
At the beginning of 2018, strictly all VAT taxpayers are obliged to submit to the JPK system monthly (the 25th day of the following month is when each month ends) their VAT registers (records of sales and purchases) in a strictly prescribed XML format, containing full details of issued and received VAT invoices. This is to enable full confrontation and control of data from invoices included in VAT registers by sellers and buyers.
2. Split payment mechanism
Although the regulations regarding this mechanism will come into force only on July 1st 2018, we are already signalling them due to the specific form of this mechanism. According to this mechanism, the buyer of goods or services with payments in PLN, in B2B transactions, will be able to decide on its choice by transferring the VAT amount to a special bank account of the seller, used only for VAT settlements (VAT account), and the remaining net amount to any another bank account. The seller will not have the right to challenge such proceedings.
In the intention of the legislator, split payment is to curb fraud in the field of VAT. The buyer - choosing the split payment mechanism - will be released from the responsibility for not paying the tax by the seller.
In addition, the buyer is encouraged to choose the split payment mechanism, by being released of the risk of i.a.:
a) being accused of participating in a fraud or extortion of tax,
b) being imposed - in the case of irregularities by the tax office - additional tax (20%, 30% or 100%),
c) being subject to the use of the increased (currently: 12% p.a.) interest on arrears in VAT,
d) joint and several liability in the case of acquiring so-called sensitive goods (Annex No. 13 to the VAT Act).
The seller will not be able to freely use the funds accumulated on his "VAT account". He may use them only to pay its own VAT to the tax office or to pay VAT to suppliers of goods and services on their VAT accounts (i.e. from own VAT account to someone else's VAT account).
The taxpayers who pay their own VAT commitment before the statutory deadline from the funds on their VAT account will be able to take advantage of a specific discount. The use of funds accumulated on your own VAT account for another purpose will require the consent of the tax office on which the issuance of the tax office will have 60 days.
VAT accounts are to be established by the banks automatically (without concluding a separate agreement), free of charge for each VAT taxpayer. Currently, the prevailing view is that split payment, despite its voluntary nature, can quickly become widespread, as it will also force the seller to use it since he will receive payment with its use.
In the next stage, it is planned to introduce a mandatory split payment mechanism for all B2B transactions in Poland, if the European Commission agrees.
3. Other changes in VAT are:
1) publication by the Ministry of Finance of detailed information on entities that have been refused registration or which have been removed from the VAT taxpayers' register,
2) the right to erase VAT taxpayers from the register without the need to notify the interested parties.
III. Tax ordinance
The tax authority is obliged to issue, at the request of the taxpayer, a certificate regarding the following information concerning his contractor:
1) submission or failure to submit a declaration or other document to which the contractor was required to submit,
2) declaration or the failure to declare by the contractor in a submitted declaration or other document of events to which he was required to declare,
3) defaulting or non-default by the contractor in taxes resulting from a submitted declaration or other document.
IV. Ongoing monitoring by the tax office of all banking operations
Pursuant to the Act of November 24, 2017 tax administration has the ability to monitor and analyze on a regular basis - within the so-called STIR system - all banking operations in Poland. If the conclusions resulting from this analysis justify the assumption that the taxpayer participates in tax fraud, then, along with other consequences, the tax office may - at its own discretion - demand the bank to block the taxpayer's bank account for 72 hours and erase him from the VAT taxpayer's records, if he will be indirectly involved in tax fraud.
There is no mechanism to verify the legitimacy of the tax office's actions or the possibility of appeal against its decisions. The taxpayer will also be defenseless in the event of possible errors by the tax authorities.
If you would like any more information about the changes to the Polish tax law, Grzegorz Modzelewski, Key Contact at Modzelewski & Partners sp. z o.o., will be happy to take your questions.
His firm is based in Warsaw, the capital of Poland, so is at the centre of the changes and ideally positioned to advise both local and international clients on conducting business in the country following their introduction.
You can view the member profile page for Modzelewski & Partners sp. z o.o. here.