Tax avoidance clauses – proposed changes, latest views of the case law

Year 2019 abounded in regulations intended to lead to so-called tax system sealing. one of more crucial changes were modifications to the general rule against tax avoidance, which led to a significant tightening of the rules on the application of this institution.

Due to the inaccuracy of the new rules, their application may raise serious doubts in practice. The problems of taxpayers can also be compounded by the plans of the Polish legislator, who intends to introduce into the tax system a "special" clause to prevent tax avoidance.

1. Amendments to the general anti-tax avoidance clause

Speaking of a general clause against tax avoidance, regulated on the ground Article 119a-119f Act on 29 August 1997 - Tax Ordinance 1 (further, there is no way to address, for example, the most important changes that have taken place within this institution. In 2019 First, The definition of tax avoidance itself should be strengthened.

Until recently, tax avoidance was considered to be an artificial activity (or a combination of activities) contrary to the objective and subject matter of the tax law, primarily in order to achieve a tax advantage (according to Article 119d in the former wording, the action was considered to have been undertaken primarily in order to achieve a tax advantage when other economic or economic objectives had to be considered insignificant).

Under the current rules, tax avoidance should be considered to be the principal action of which or one of the main objectives was to achieve the tax advantage and the way in which it acted was artificial.

The risk of the application of the clause will therefore arise on the part of the taxable person carrying out a particular activity primarily for economic purposes, if the tax objective should also be considered relevant in the circumstances of a particular case.

According to the former wording of the clause, their application was linked to an activity whose main objective was the tax advantage.

At present, the legislator has essentially ‘turned back’ the direction of the argument — the clause will not apply if the dominant objective of the activity (or set of activities) is an economic objective, resulting from the new definition of the concept of ‘artificial activity’.

Formerly, according to Article 119c(1) If, on the basis of the existing circumstances, it had to be assumed that it would not have been applied by an entity acting sensibly and guided by legitimate objectives other than the attainment of a tax advantage contrary to the subject matter and purpose of the tax law.

But now, according to Article 119c(1) o.p., the method of action is not artificial if, on the basis of the existing circumstances, it must be assumed that an entity acting sensibly and in accordance with legitimate objectives would apply this method to the greatest extent for legitimate economic reasons (although such a reason cannot be obtained a tax advantage contrary to the objective of the law or provision).

How it is in turn Article 119d in the current wording, when assessing whether the tax advantage was the principal or one The economic objectives of the activities indicated by the party shall be taken into account from the main objectives of the activities.

Another significant change in the clause provisions was the fundamental limitation of the conditions to exclude their application. From folder included under Article 119b o.p.

the condition of the value of the tax benefits obtained from the contested activity has been removed (up to now, the benefit or the sum of the tax benefit resulting from the ‘artificial’ activity was needed to apply the clause, exceeding 100,000 PLN), the condition of failure within the time limit for the request for a safety opinion and the condition for the application of specific provisions to prevent tax avoidance.

In the present legal state, the General Clause can be applied to any case qualifying as tax avoidance, regardless of the value of the tax advantage achieved, as well as entirely independently of the possibility of referring to the so-called small anti-tax avoidance clauses contained in specific provisions.

The legislator left only two the conditions to exclude the possibility of a clause, i.e.:

• 1) where the entity obtains a safety opinion,
• 2) the case where ‘avoidance of taxation’ concerns VAT and fees and non-tax budgetary charges.

A significant change is also the introduction of a tax penalty for entities subject to a decision issued under a clause in the form of an additional tax liability. It is also worth pointing to the transitional provision, to which cases the new restrictive clause provisions will apply.

According to Article 35 Act on 23 October 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Act - Tax Ordinance and some other laws[2] (Further: u.z.p.d.o.f.p.18) The above-mentioned general clause regulations apply to the tax advantage obtained after the entry into force of the amending law (i.e.

rod 1 January 2019), and in the case of taxes which are periodically settled, obtained during the settlement periods beginning on or after the date of entry into force of that Act. A similar intertemporaneous principle is provided for in relation to additional tax obligations (Article 34 U.z.p.d.o.f.p.18).

2. Opinions of the case-law on the grounds for applying the General Clause

The jurisprudence of the administrative courts concerning the clause provisions is not yet very rich, given the relative novelty of the legislation in question. The majority of cases dealt with by courts in this area are essentially accidental, linked to the auxiliary institutions provided for by the clause.

Security opinions are such an institution. The entity concerned, which is not sure that a specific act constitutes tax avoidance, may request an opinion from the Head of the KAS in this respect.

Where the clause is not applicable in a specific case, the Authority shall deliver an opinion, if otherwise – the Head of the KAS shall refuse to deliver an opinion. Such refusal shall be subject to appeal to the administrative court.

The courts shall also comment on cases brought by actions against orders to refuse to initiate proceedings for written interpretation of the provisions of tax law. According to Article 14b(5b)(1) The competent tax authority must refuse to give an individual interpretation of those elements of the facts or future event on which it is reasonable to believe that they may constitute an act or part of an act constituting avoidance within the meaning of the general clause.

The courts, when examining the clause cases, usually pay the most attention to the underlying artificialities of the acts, referring to the guidelines which the legislator has made which may indicate such a course of action. Their directory is included under Article 119c(2) o.p., with the amendment made by u.z.d.o.f.p.18 to 2019 She's expanded it a lot. Among these factors are:

• 1) unjustified sharing of operations,
• 2) involving intermediaries in the absence of economic or economic justification,
• 3) components leading to an identical or similar condition to that existing before the operation,
• 4) mutually reinforcing or compensating elements,
• 5) an economic risk that outweighs the expected non-tax benefits to such an extent that it should be considered that a reasonable operator would not have chosen to do so,
• 6) where the tax advantage achieved is not reflected in the economic risk or cash flow of the entity,
• 7) the pre-tax profit which is negligible compared to the tax advantage which is not directly due to the economic loss actually incurred,

1. the involvement of an entity that does not have an actual economic activity or does not have a significant economic function, or that is established or resident in a country or territory as defined in the legislation issued on the basis of Article 23v(2) Act on 26 July 1991 on income tax on individuals (hereinafter: u.p.d.o.f.) or Article 11j(2) Act on 15 February 1992 on corporate income tax 3 (Next: the Corporate Income Tax Act).

Among the representatives of the administrative courts, there is the view that it is not an artificial act of restructuring a particular entity itself. If a tax authority is found to be abusive, it must explain exactly what was involved. This position was presented by the NSA in its judgment of 31 January 2019 4 .

Judgment

„When examining the scheme presented by the complainants of the restructuring model with the appropriate model presented by the authority, the court first the Court of First Instance correctly held that the difference between the activities undertaken by the complainants and the activities designated by the Authority is limited to the transfer of other assets and the transformation into a company separated from a company divided. Such a discrepancy cannot be considered sufficient to conclude that the applicants acted artificially. As is well explained in the statement of reasons for the judgment under appeal, the taxpayer is not obliged to maximise the tax liability. The lack of legal basis to challenge the restructuring of the company (division by separation) adopted by the complainants means that the disposal of the property falls within the scope of the freedom of economic activity. Moreover, each division by division assumes the continued functioning of the split company, since part of its assets are transferred (Article 529(1)(4) and Article 528(1) Act on 15 September 2000 Commercial Companies Code 5 – Next k.s.h.)’.

However, a case where the entrepreneur withdraws the property from his business may be considered as a set of activities giving rise to the presumption of tax avoidance, transforming the company into a company with an o.o. to then rent the property for it. This position was expressed by the NSA in its judgment of 19 December 2019 6 .

Judgment

„The Supreme Administrative Court agrees with the author of the cassation complaint that the court first the court did not have sufficient grounds to conclude that the authority in its refusal to initiate the procedure did not make a convincing argument that the elements of the future event presented in the application could be the subject of a decision based on Article 119a On the contrary, it had to be considered that the body in the contested decision had sufficiently explained that the withdrawal of the property from the economic activity carried out by the Applicant and its subsequent hiring out to a limited liability company resulting from the transformation of the entrepreneur could only or primarily be undertaken in order to obtain the tax advantage in question. Under Article 119a(1) It is worth noting that the applicant, who intends to transform into a capital company, plans to continue to use the production hall in the business activity of the newly created capital company, which will be able to include in the cost of obtaining revenue the value of the rent paid to the Applicant. It follows from the order under appeal that the authority considers the tax advantage and that the authority’s view in that regard is objectively justified. The order also states that the tax advantage thus obtained may be contrary to the objective and object Articles 16a(1) and 16i(1) the Corporate Income Tax Act, the legislation in question lays down maximum depreciation rates for fixed assets.’

A set of activities consisting in the transformation of the company from the O.o. into an open company was also considered to be an act which could be considered artificial in order to remove and take over its assets. This position was approved by the NSA in its judgment of 12 December 2019 7 .

Judgment

„According to the Supreme Administrative Court, the position of the WSA in Poznań is correct, which approved the assessment of the body as to the existence of reasonable grounds for supposing that the undertaking described by the complainant may aim to avoid taxation. The circumstances described in the request for an interpretation indicate that the transformation of the company from an o.o. into a public company and then the liquidation of the created entity (a public company) and the transfer of the assets of that public company may have had no other purpose than to obtain a tax advantage contrary to the object and purpose of the tax law. The conclusions in this regard were justified by the fact that, in the event that the company was not converted, but merely liquidation with the division of the assets of a legal person who is a corporation tax taxable person, the applicant would have received part of the assets of the liquidated capital company, the applicant would have generated revenue from a share of the profits of the legal persons. [...] In the meantime, as described in the request for interpretation, the activities are based on the consequences of the transformation of the Polish limited liability company. into a public company, and consequently the public company, as a successor sp. z o.o., would be able to recognise as the tax cost of expenses incurred by sp. z o.o. on the acquisition of the property which the company received following the division from another capital company. The Court cannot therefore give rise to reasonable doubt first the fact that, in carrying out the analysis submitted, the crop body has been based on the identified future event that the main objective of the actions submitted by the applicant may be to obtain a tax advantage within the meaning of Article 119e s.p. and at the same time other conditions specified under Article 119a(1) o.p., i.e. the contradiction of the action identified in the proposal with the object and purpose of the provision of the tax law, the artificiality of the way in which it operates’.

Doubts regarding the avoidance of the taxation of cash capital in respect of another type of conversion of a capital company into a passenger company and subsequent liquidation, also expressed the Chief Administrative Court in another judgment of 12 December 2019 8 .

Judgment

„The complainant acquired shares in that company by means of a sale agreement and in exchange for a non-monetary contribution (port) in the form of a share in a capital company mentioned In Annex 3 to u.p.d.o.f. [...] The applicant intends to convert the holding company into a passenger company (public or limited partnership) and to liquidate it in the future. As a result of the dissolution/ liquidation of a personal company, the person concerned may receive various assets, e.g. shares of capital companies, bonds, bills (hereinafter jointly: debt papers). Assets will be acquired by a holding company or a passenger company through a sales agreement. By the date of the dissolution/ liquidation of the passenger company, the cost of the acquisition of the assets will not be recognised as the cost of obtaining the income (as a cost directly linked to the income obtained, the cost of acquiring the assets should only be recognised as the tax cost at the time of the sale. After receiving the assets as a result of the dissolution/ liquidation of the personal company, the person concerned does not exclude their disposal (including their disposal for redemption). The disposal (including disposal for redemption) of assets will take place before the expiry of the 6 years first on the day of the month following that in which the company was dissolved/disposed. In such a situation, the position of the WSA in Poznań is correct, which approved the assessment of the body as to the existence of reasonable grounds for supposing that the undertaking described by the complainant may aim to avoid taxation.’

As concerns the avoidance of taxation, the activities of forming a partnership relationship on the basis of the establishment of a so-called silent partnership, if such a model is linked to a silent partnership, can also be assessed. Here you can refer to the case referred to in the final judgment of the WSA in Poznań with 20 November 2019 9 , where a silent partner, not engaged in business activities or without employment, was to contribute to the company in the form of the provision of certain activities.

Judgment

„The Court of First Instance also agrees with the body’s argument that the tax advantages obtained by the silent partner in connection with its participation in such a company. The Director pointed out that the revenue from the silent partnership contribution would be taxed as revenue from other sources (Article 20(1) u.p.d.o.f.) due to the lack of silent business activity by the partner. The imprest tax collection mechanism does not apply to income from other sources. In turn, due to the date of the distribution of the profit, there is a transfer of tax at least by a tax year, and taking into account advances to income tax (with sources from Article 12-14 U.p.d.o.f.) tax payment (advances) is shifted by two years. The lack of regulation limiting the postponement of the payment of the silent partnership profit was also rightly highlighted. In addition, the costs of obtaining revenue from other sources are recognised on a general basis, whereas the costs of obtaining income from the employment relationship are flat-rate. In view of the above, the Authority has concluded that a tax advantage may arise in the present factual situation (in the sense of Article 3(18) (p) in the form of a reduction in the amount of the tax liability and a waiver at the time of its formation. The complainant, in presenting his own position on the case, presented a favourable tax model for the partner, which allows the costs of obtaining revenue on a general basis, despite his lack of economic activity, which also does not result in the obligation to regulate the advance payments on a day-to-day basis. However, in the case of economic activity, there is an advance tax collection model, and in the case of employment relations, the cost of obtaining revenue is fixed in a flat-rate manner, not on general terms.’

3. Resolutions of the Anti-Tax Avoidance Board

According to Article 119m(1) o.p., the Anti-Tax Avoidance Council (hereinafter: the PUO Board) is an independent body whose task is to give an opinion on the validity of the anti-tax avoidance clause or restrictive measures on individual cases. The positions presented by the Council on the application of the so-called "general clause" may therefore be of significant importance to law practices. I'm afraid it's hers. 18 December 2019 resolutions No. 3, 4 and 5 They're not optimistic.

In the explanatory memorandum of the resolutions in question, the Council has taken considerations relevant to taxpayers relating to the practical application of the clause provisions, i.e. the methods of interpretation of the grounds for the application of the general clause, the principle of determining the time when the tax benefit will be achieved, within the meaning of the clause provisions, within the framework of personal income tax and constitutional doubts as to the possibility of applying the clause rules to the benefits obtained as a result of actions already undertaken before the regulation was implemented.

The Council's case concerned a team of actions undertaken by the taxpayer and his family members over the course of the years 2015-2016 (But before July 2016), aimed at divesting shares of the public limited liability company, through special purpose vehicles, to an external investor[10]. In assessing the case presented, the Council therefore referred to the initial wording of the clause, before the amendment of 2019, Having regard also to the transitional provision of the Law of 13 May 2016 on amending the Act - Tax Ordinance and some other laws 11 (Next: u.z.o.p.16) introducing clause regulations, according to which they apply to the tax advantage obtained after 15 July 2016 (Article 7 U.z.o.p.16).

Remember that to 31 December 2018 The legislator considered anti-tax avoidance to be an act of an artificial nature primarily in order to achieve a tax advantage contrary to the object and purpose of the provision of the tax law in the circumstances in question.

A specific mode of action was qualified as artificial if it was not applied by an entity acting wisely and legitimately, rather than achieving a tax advantage contrary to the object and purpose of the provision of the tax law.

On the other hand, the activity was considered to have been undertaken primarily in order to obtain a tax advantage, where the other economic or economic objectives of the activities indicated by the taxpayer had to be considered insignificant (Article 119d in the former version).

Based on clause regulations, the Council indicated four conditions governing the application of the general clause, i.e.:

• 1) the rationale for achieving the tax advantage,
• 2) a condition for action to achieve a tax advantage,
• 3) an indication of the artificiality of the operation,
• 4) the condition that the tax advantage is incompatible with the objective and subject matter of the law.

The Council's deliberations on second and third premises.

In the Council's view, these conditions are intertwined on a certain level: the condition of action to achieve the benefit relates to the objective of the action identified by the party concerned, the condition of artificiality, to the motives of the taxpayer's action (using the ‘reasonable entity’ standard).

However, the Council's position on the mere rationale for action to achieve a tax advantage may raise doubts. In her opinion, the relevance of this condition Article 119d it cannot be concluded that any taxable person's objective of action other than the attainment of a tax advantage will exclude the application of the clause.

On the other hand, the Council seems to suggest that the economic objectives indicated by the taxpayer should relate strictly to this activity, i.e.

they must not be objectives which "would also be possible if the taxable person had acted from the outset" 12 (an appropriate act is an activity that an entity could, in the circumstances in question, carry out if it acted reasonably and was guided by legitimate objectives other than the attainment of a tax advantage contrary to the object and purpose of the provision of the tax law.

Otherwise, these Head of the KAS will be able to consider it insignificant in the context of a particular case.

The Council’s argument cited above raises doubts. The content of the presumption of the artificiality of the activity subject to the clause seems to be completely disregarded.

In other words, the Council ignores the fact that activities that lead to tax advantages may involve non-tax objectives, or assumes that a ‘reasonable entity’ with several methods of achieving a specific economic objective will always choose this method which does not result in a tax advantage.

This may lead to the conclusion that, in the Council's view, the ‘adequate activity’, which is desirable from the perspective of clause regulation, is in principle an act maximising the State Treasury's profit by minimising the tax advantage of the party.

Such a view should be considered strictly professional, but it may be relevant from the perspective of the interpretation of the clause provisions in the current wording, as tax avoidance is now carried out in an artificial manner or in a combination of activities the purpose of which is or one the main objectives were to achieve a tax advantage contrary to the objective of the Act (the literal wording of the provision therefore shows that the indication of non-tax purposes of the action will not rule out the application of the clause), the absence of artificiality being identified here with the action of a model entity, acting in specific circumstances of the case to a predominant extent for legitimate economic reasons.

In the current state of the law, the ‘right act’ is understood essentially as before 1 January 2019, but the legislator's definition of this concept has enriched by the lack of artificiality (the appropriate action cannot be taken artificially, cf. Article 119a(3) o.p.).

If, therefore, the Council finds that an appropriate act within the meaning of the clause is a measure minimising the tax advantage of the party, it should be consistently assumed that, in the present legal state, an action will be taken solely for economic reasons and will not lead to any tax advantage within the meaning of the Act, provided that the economic objective can in a particular case also be achieved on the basis of another activity which does not lead to a tax advantage (non-artificial activity can therefore be an activity which generates a tax advantage only if the underlying objective of the act cannot be achieved otherwise, i.e.

in a way that does not generate “side” tax benefits).

It should be stressed that, on the basis of this interpretative concept, the general clause does not protect the State Treasury from aggressive optimization, but from any tax optimization, which is important from the point of view of the liquidation of the threshold by the legislator 100,000 PLN excluding the application of the clause and which appears to be contrary to the objective of the institution in question as requested by the draft initial law introducing the general clause. Nor can it be seen that the Council’s way of understanding “the right action” has not been accepted by the administrative courts under the rules as before 1 January 2019 The view expressed by the NSA in the judgment of 31 January 2019 13 , where it is indicated that the taxpayer is not obliged to maximise the tax liability.

It is also worth noting the Council's position on fourth from the above indications, i.e. the conditions for conflicting the tax advantage with the purpose and subject matter of the Act. In the Council's assessment, it is of a ‘self-fulfilling’ nature in the event of other occurrences third conditions (i.e.

Whereas the tax advantage has been obtained as a result of an artificial action taken primarily to achieve that benefit, that advantage is contrary to the subject matter and purpose of the Act; In presenting this position, the Council referred to the wording of the WSA in Warsaw in its judgment of 8 June 2018 14 .

Judgment

„According to the Court of First Instance, it is crucial to demonstrate by the Head of KAS issuing a refusal to issue a safety opinion that the behaviour of the taxpayer would not be applied by an entity acting wisely and legitimately, and that the principal objective of the taxable person’s artificial action was to obtain a tax advantage, thereby contrary to the subject matter and purpose of the tax law.’

Such a view should be assessed critically as it provides for an essentially unnecessary passage to be included in the legal text.

Assuming the rationality of the legislature, it would be more appropriate to assume that since a specific condition is included in the clause, its content is relevant to the practical application of the institution in question.

When considering the application of the clause in a specific case, the Authority is required to indicate the specific purpose and subject matter of the regulation and to explain how they have been breached (to what extent the action is contrary to them).

This view seems to be in line with the claims of the NSA, as expressed in the judgment cited above. 19 December 2019

Judgment

„As regards this element indicating a reasonable presumption of applicability Article 119a o.p. – i.e. that the intended tax advantage would be contrary to the subject matter and purpose of the provision of the tax law — the NSA considers that it is required that the authority indicate a specific provision with which the advantage would be contrary. To make it very simple, indicate the provision which the taxable person intended to “go”. Because Article 119a(1) o.p. clearly points to “the subject matter and purpose of the provision of the tax law” — according to the NSA, this is not a general statement, but rather an indication of a specific regulation with which the advantage would conflict. It must not be lost sight of the fact that, since the advantage is intended to infringe the “objective and purpose” of the tax law, it is necessary to consider and possibly point out that “object and purpose” first to indicate a specific provision, because it is the object and purpose of the “prescription” of the tax law and not the object and purpose of the law as such.’

This view of the NSA is partially obsolete in the current state of the law, where under Article 119a(1) The legislator refers to ‘the subject matter or purpose of the act or its provision’ (contrary to the purpose of the law itself may be a condition for the application of the clause).

It is worth pointing out that in Polish legislation tax laws are rarely dealt with in recitals indicating the objectives of the regulation.

However, the legislator's objective cannot be directly identified with the aim of the draft law as described in the explanatory memorandum of the draft law, since such a document does not formally constitute the basis for the interpretation of a specific legal provision placed on the market (it may only be ancillary material).

The interpretation of the condition "controversial to the subject or purpose of the law or its provision" in a particular case may cause many difficulties, but it seems inappropriate to completely disregard the condition under consideration for this reason.

On the basis of the case under consideration, the Council also referred to the fact that the taxable person had carried out all the activities to be analysed before the entry into force of the clause (i.e. before July 2016).

In the view of the Council, this fact was of no relevance to the case, since, in accordance with the provisions of the U.P.D.O.F., the revenue generated in the tax year must be shown for taxation only in the tax return to the competent authority in the following year.

In accordance with the transitional provisions, the clause regulations implemented 15 July 2016, are applicable to tax advantages obtained after that date. Because the taxpayer avoided paying the tax as a result of the actions taken In 2017, According to the Council, this year he received a tax advantage.

However, the Council expressed doubts as to the compatibility with the Constitution of a situation in which those "sanctions" apply to a taxable person carrying out certain activities even before the introduction of tax sanctions.

In this regard, the Council pointed out the need to analyse the implementation of the constitutional principle of the democratic rule of law and the principles of fairness and equality of taxation on the grounds of similar cases, suggesting that a question be put to the CCC in this regard.

It is worth noting that the Council's doubts take on greater importance on the basis of the current state of the law, tightening up the clause by imposing a decision on the body using Article 119a o.p., the obligation to impose an additional tax liability on the parties to the proceedings (Article 58 o.p.).

The interim provisions are essentially in line with the above (Article 34 U.z.p.d.o.f.p.18).

The question therefore arises whether, in the event that the taxable person performs an abusive activity before 1 January 2019, from which the benefit will be achieved after that date, the authority will be required to apply stricter clauses and to charge the taxpayer with an additional tax liability, which actually takes on a purely sanctioning nature?

In this case, there may also be legitimate constitutional doubts on the part of the interpreter.

4. Amendments to the specific clauses - planned actions of the legislator

It is worth paying attention to the changes in the anti-tax avoidance clauses that are currently being developed in the legislative process.

Since February 2020 ongoing work on the government draft law amending the Personal Income Tax Act, the Corporate Income Tax Act, the Flat-rate Income Tax Act on certain revenues achieved by individuals and certain other laws (print no. 207).

This law was adopted by the Polish Parliament 6 May 2020 – currently under development in the Senate (print 111 and next). This law introduces the Corporate Income Tax Act a specific additional special clause relating to the specific tax costs of companies, the so-called hypothetical costs of raising external capital.

It's about regulation. Article 15cb the Corporate Income Tax Act Current wording the Corporate Income Tax Act, according to section 1 This provision shall, in principle, be considered as the cost of obtaining revenue in the company of the amount corresponding to the product of the NBP reference rate applicable on the last working day of the year preceding the tax year, plus 1 percentage point and amount:

• 1) aid paid to the company in accordance with and in accordance with separate rules
• or
• 2) the profit transferred to the company’s reserves or reserves.

This cost is due to the company in the year of payment of the aid or increase of the reserve or reserve capital and in subsequent years two directly after the following tax years, the total amount of such costs deducted in the tax year may not exceed the amount 250,000 PLN.

In the following paragraphs Article 15cb the Corporate Income Tax Act detailed rules are provided for including in the cost of obtaining revenue for the cost of hypothetical interest, including that the regulation in question cannot be applied to payments and profits intended to cover the balance sheet loss.

The value calculated in accordance with the formula will also be at the expense of obtaining the income of the company only if the refund or the distribution and payment of the profit occurs no earlier than after the expiry of the 3 years from the end of the tax year in which this surcharge was paid to the company or a resolution was adopted on the retention of profits in the company.

If the aid is reimbursed before the expiry of the indicated time limit, in the tax year in which the refund was made, the value corresponding to the deduction in accordance with the revenue cost model shall be the revenue for the company (this rule shall apply mutatis mutandis where only part of the aid is recovered).

The Corporate Income Tax Act also provides for a rule that, where a company is acquired as a result of a merger or division or converted into a company which is not a legal person before the expiry of the three-year period referred to above, on the day preceding the date of acquisition or conversion, the income corresponding to the deduction, in accordance with the formula, of the cost of the hypothetical interest shall be fixed to the company.

The bill passed to the Senate implies an addition to the Corporate Income Tax Act Article 15cb(10), according to which the tax treatment of hypothetical costs for the acquisition of external capital does not apply if the attribution of these costs to the cost of obtaining revenue was the main purpose of the legal activity or related legal activities (which lead to the payment of subsidies or retention of profits in the company) carried out by the taxpayer or its affiliates.

However, this exemption will apply only to situations where the activity or set of activities indicated above has been carried out without reasonable economic reasons.

The legitimate economic reasons will not, on the other hand, be the case where the benefit obtained in the tax year or in the following years is attributable to revenue costs.

According to the provisions of the Act, the specific clause would apply to income (income) obtained by taxable persons from 1 January 2021 In the explanatory memorandum to the bill you can read that the introduction to the Corporate Income Tax Act a specific anti-tax avoidance clause, in the field of tax settlement of the so-called hypothetical interest costs, is to be the reply of the Polish legislature to the recommendations of the European Commission, which raised Poland's lack of regulations excluding the application of Article 15cb in the event that the ‘taxable person performs economically unreasonable activities to enable such costs to be deducted in the income tax settlement’. According to the project promoter’s intention, the clause is to limit the possibility of deducting hypothetical interest costs only to cases where the activities involving the application of that institution have been undertaken by the taxpayer for legitimate economic reasons.

„The legitimate economic reasons" must be understood as the taxable person's desire, through the actions implemented, to achieve, in particular, "non-taxable" benefits. As examples of permissible incentives for the taxpayer to be able to charge the cost of obtaining income for hypothetical interest costs, the project promoters pointed out, inter alia, the reduction in the operating or administrative costs of the taxpayer and the increase or safeguarding of the source of revenue as a result of access to new outlets, technologies, investors or natural resources. Undoubtedly now functioning in the Corporate Income Tax Act provisions on the so-called hypothetical costs of raising external capital may in practice be subject to abuse. The explanatory memorandum of the bill adopted in May indicates, for example, where a surcharge is paid to Company X, which, once X has obtained the tax advantage, is transferred by it to its related company Y, also in the form of a surcharge. Company Y, after obtaining the tax advantage, will transfer these funds to other related companies for the same purpose. However, when examining the content of this provision, it may be asked whether, in order to combat tax avoidance attempts using the above mechanisms, the general anti-tax avoidance clause is not sufficient? In reply, it cannot be overlooked that the application of the General Clause involves the need for the Head of the KAS to take or take over the procedure in which the Clause can be applied — the tax authorities cannot therefore apply the General Clause themselves in their own proceedings or controls.

The new special clause does not, however, refer in any way to the provisions on separate tax avoidance proceedings, and it should therefore be assumed that under the new rules, each control body will be entitled to challenge the taxpayer’s right to tax settlement of hypothetical interest costs due to the unacceptable objective of taking action to obtain them (action taken primarily to obtain tax benefits).

The systemic question may be raised by the action of the legislator, who, having a general anti-tax avoidance clause tool which can only be used in a separate mode, creates in addition ‘specific’ clauses relating to specific tax arrangements which no longer have special use safeguards.

Such action can be assessed as an attempt to circumvent the general rule in the context of specific tax institutions.

This is particularly important in the current state of the law in which the application of the ‘special’ clause in a specific case does not exclude the power of the Head of the KAS to initiate a general clause procedure within its framework.

It is only to be hoped that the introduction of a specific clause for the cost of hypothetical interest will not turn into a legislative trend, according to which any sphere of tax law, which may entail a risk of fraud, will be enriched by a separate, appropriate anti-tax avoidance clause, as such may lead to a general anti-tax avoidance clause becoming a dead institution.

With reference to the specific clause in the Corporate Income Tax Act It is worth noting that the content of this provision seems to exclude the possibility of including in the cost of obtaining revenue for the cost of hypothetical interest arising not only from activities which constitute aggressive tax optimization but also from ordinary tax planning.

After the entry into force of the Act, a taxable person wishing to include in the cost of obtaining income hypothetical costs of raising external capital should have an economic justification for making a contribution to the company or leaving the profit earned in the company, with the economic objective pursued by such activities being material, otherwise the control body will be entitled to contest the tax consequences of the activities carried out by the taxpayer as being undertaken primarily in order to achieve the tax advantage.

For example, the clearing of the cost of hypothetical interest as a specific bonus from leaving the profits earned in the company in the new state of the law will entail tax risk.

This emphasis on the economic objective of the action taken is highlighted in the content of the regulation proposed by the Senate Committee on Budgets and Public Finance – it should be pointed out that the provision introducing the special clause is still the subject of legislative work.

The Senate Committee on Budgets and Public Finance proposed another wording of the provision under consideration, according to which Article 15cb(1) the Corporate Income Tax Act would not be applicable if the taxable person or an entity associated with him within the meaning of Article 11a(1)(4) has carried out legal acts or related legal acts without legitimate economic reasons, mainly in order to recognise the amount specified under Article 15cb(1) the Corporate Income Tax Act for the cost of obtaining revenue.

According to the reasons for the amendment, it aims mainly to ensure the language correctness of the new regulation and to better reflect the intention of the legislator.

The provision in the proposed wording is undoubtedly simpler, but it is worth noting that it raises, as it were, before the brackets the rationale for the economic cause of the action which is referred to in it In the first row.

It should also be remembered that work on the bill is still ongoing, so we do not know how the provision introducing the special clause will ultimately sound.

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The article comes from the book “Changes in Taxes and Accounting 2020 taking into account the anti-crisis shield" under the ed. prof. adjunct. dr. hab. Artur Hołda, published by C.H. Beck Publishing House: https://www.ksiegarnia.beck.pl/19149-zmiany-w -tax-and-account-2020-with-including-disc-anti-crisis-artur-hold