Changes to the rules resulting from the introduction of the ATAD Directive into the Polish legal system have a major impact on the functioning of the internal market. Unfortunately, they have been introduced to growth and prematurely, making business difficult.
ATAD Directive 2016/1164 to 12 July 2016 laying down rules to prevent tax avoidance practices, involves several controversial solutions that legislators do not necessarily help to combat tax fraud and make work significantly more difficult for taxpayers.
Exit tax obstruction
one from the disputed issues which emerged after the implementation of the abovementioned directive into Polish law, there is a tax on capital gains not yet realised, i.e. exit tax.
The uncertainty that accompanied us before the introduction of the rules on the so-called exit tax was due to the fact that the scope of the proposed regulations was unknown. It was clear from the wording of the ATAD Directive that, as a general rule, it lays down rules on taxation only for taxable persons subject to corporation tax.
On the other hand, the Polish legislator cited that the ATAD Directive does not prohibit the introduction by a Member State of regulations at a higher level of protection, and therefore considered that the exit tax should also include taxpayers of income tax on individuals.
Whether this solution is in accordance with the principles of the Basic Act we wrote 14 March 2019 in the article: ‘Is the exit tax from individuals compatible with the Constitution of the Republic of Poland?’ The author, Rafał Nawrot, pointed out that with the implementation of ATAD: ‘tax collectors changing their residence outside the territory of the Republic of Poland would bear a tax burden which would not be borne by persons changing their residence in Poland.
Such a different legal tax treatment of taxable persons on grounds of their place of residence or place of business undermines the principle of universal taxation (Article 84 Constitution of the Republic of Poland), principle of equality (Article 32(1) Constitution of the Republic of Poland), including a constitutional prohibition of discrimination for any reason (Article 32(2) Constitution of the Republic of Poland), and the principle of freedom to leave Poland (Article 52(2) Constitution of the Republic of Poland).’
The exit tax system in Polish form can cause a worsening of the friendly climate around investment in our country
It is worth mentioning the situation in which a Member of the Citizens' Platform, in a parliamentary interpelation (No. 28029) asked the Ministry of Finance whether the departure of the Polish engineer or director to work abroad over 183 days, may give rise to the obligation to pay tax on shares held and equity participation titles.
The reply she received from the Ministry of Finance was: "There is no concern that the Polish engineer or director's departure to work abroad may give him the obligation to pay tax on, for example, shares held or capital funds, if their total value does not exceed 4,000,000 PLN".
This interpretation shows that we are sentenced to exit tax also at the time of actions not necessarily aimed at tax avoidance in Poland.
The issue that should also be mentioned is that the new rules, which contain rules to prevent double taxation of capital gains from assets transferred to Poland from a country where exit tax regulations apply, are protected by the Directive.
However, these regulations do not protect Polish taxpayers who transfer their assets to a country where jurisdiction does not provide for a single model of the applicable double taxation avoidance rules.
Therefore, it would be right to say that the exit tax system in Polish form can cause a deterioration of the friendly climate around investment in our country. It should be mentioned that the exit tax order is based solely on the valuation of assets, i.e. tax is subject to theoretical and potential profit.
This leads to a situation where the taxpayer will have to pay a tax on profit, even if the assets eventually generate a loss.
Exit tax settlement
The legislator provided for a very short deadline for payment of tax on unrealised profits. Well, exit tax is subject to payment to 7 the day of the month following that in which the assets were transferred. Furthermore, an appropriate tax return should be made within the same period.
The taxpayer may seek reimbursement of the tax paid on unrealised gains if within the time limit 5 years will carry the asset back to Poland or return permanently to Poland and establish its tax residence in Poland. The rate of tax on unrealised gains shall be as follows:
- - 19% is valid for fixed-tax assets, or
- - 3%, which will be used for those components whose value is not to be determined.
Limit in tax costs
Another important tool to prevent tax avoidance is the possibility of including debt financing costs in tax costs only up to a certain amount.
It is worth mentioning here that the Polish Act of 15 February 1992 on corporate income tax (Journal of Laws of 1992, item 86) it already had regulations that limited the possibility of charging interest to the cost of obtaining revenue, but they only referred to loans granted to the taxpayer by the entity that was associated with it.
These provisions provided that interest on loans granted to the company by the entity holding at least the latter should be excluded from the cost of obtaining revenue 25% shares. Later, these links were no longer relevant as the legislator limited all interest, including those resulting from loans and loans drawn from banks, i.e.
entities not related to the company. In 2015 The provisions of the abovementioned Act also introduced a variant method of calculating the undercapitalisation, which required the notification of the willingness to apply it by at least 3 years. This calculation had to be reported to the proper head of the tax office.
In addition, the Act provided that the other applicable limit based on the NBP reference rates and profit of the company was limited not only by interest paid to related parties but also to unrelated parties.
After a brief analysis, we can conclude that these provisions were very similar to the newly implemented regulations. On the other hand, for loans from 2018 only provisions based on the ATAD have already been applied.
According to the new regulations, the possibility of deducting debt financing costs from revenue has been limited to the limit 3,000,000 PLN.
If this threshold is exceeded the limit shall apply 30% Although the ATAD directive allows a Member State to introduce much higher amounts of surplus that can be deducted, the Polish legislature has significantly understated it. Initially, this limit was to be 120,000 PLN, But it was eventually changed.
Businesses will not be happy to know that the upper limit of deduction has been set by the Directive at the level 3,000,000 EUR.
The initiatives taken undoubtedly aim to reduce tax avoidance in our country. It is also clear that these activities will aim to reduce the allocation of profits to tax jurisdictions where these gains are not subject to taxation. On the other hand, the question is whether the implementation of the provisions introduced for growth will have a positive impact on the climate around investment in our country.
Author: Paweł Boś, law student at the Kozminski Academy in Warsaw, employee of Russell Bedford