Introduction in the planned shape of 1 January 2015 The new Controlled Foreign Companies (CFC) will not generate the planned fiscal effect . In a significant part of cases, these provisions will not apply at all. The new regulations assume that Polish taxpayers – capital companies and limited-stock companies – are obliged to add the income generated by the ‘foreign controlled company’ to their income and tax it at the rate of 19%
Amendment of CIT, PIT and some other laws (Journal of Laws of 2014, item 1328 as amended) assumes a new Article 24a on the attribution and taxation of profits transferred to controlled subsidiaries in Poland. According to the intention of the Ministry of Finance, these provisions are aimed at limiting the use of companies registered in countries applying harmful tax competition (in so-called tax havens) to activities aimed at unlawful underselling of the tax base by Polish taxpayers.
Who will be changed
The new regulations assume that Polish taxpayers – capital companies and limited-stock companies – are obliged to add the income generated by the ‘foreign controlled company’ to their income and tax it at the rate of 19%
The definition of ‘foreign controlled company’ has been introduced, which is considered to be three types of companies. first, is a foreign company established or managed in a territory or a country recognised as a tax haven (in accordance with the Regulation of the Minister of Finance on the determination of countries and territories applying harmful tax competition in the field of corporate tax dated 9 April 2013 is theirs 37).
second, it is a foreign company established or managed in the territory of a State other than that indicated above, with which Poland has not concluded an international agreement, in particular a double taxation agreement, or the European Union has not concluded an international agreement, which is the basis for obtaining tax information from the tax authorities of that State.
third the type of companies considered to be controlled subsidiaries are foreign companies which fulfil together the following conditions:
- in that company, the Polish taxpayer has continuously for a period of not less than 30 days, directly or indirectly, at least 25% shares in capital or 25% the voting rights in the control bodies or bodies, or 25% shares related to the right to participate in profit,
- at least 50% the revenues of that company achieved during the tax year come from dividends and other revenues from the participation of legal persons, revenues from the sale of shares, receivables, interest and benefits on all types of loans, guarantees and guarantees, as well as revenues from copyrights, industrial property rights, including the sale of those rights, as well as the sale and implementation of rights from financial instruments,
- at least one type of revenue referred to in point (b), obtained by that company, is subject in its country of establishment or to its tax administration at the rate of income tax in force in that country lower by at least 25% from the rate in force in Poland (i.e. by rates below 14.25%), or tax exemption or exemption from income tax in that country.
On first It could be said that the new legislation will effectively prevent the transfer of income to tax havens or other countries with a more favourable tax regime. Such a view, however, would be super wrong.
With paradise, but not to paradise
There are several absolutely basic examples of the activities of taxpayers to which Polish CFC regulations will not apply.
After first, Polish taxpayers who purchase intangible services and intangible assets (which may result in a reduction of the tax base – income – of the Polish company) do not carry out this transaction directly with the company from the tax paradise.
If they did, the Polish company should collect withholding tax of 20% amounts paid (according to Article 21(1)). Consequently, these transactions are not carried out directly with companies from tax havens, but from other EU countries with more favourable tax regulations than Polish ones.
Only later do these companies pay out funds to tax havens – of course without withholding tax. Thus, income transferred in this way would not be subject to new CFC regulations and would not be taxed at a rate 19%.
Mother instead of daughter
After second, Capital groups (including Polish companies) establish companies in different tax jurisdictions, which, in principle, are not subsidiaries, i.e. Polish entities have no shares in them. The structure of the capital group looks exactly the opposite.
The company established in the selected tax jurisdiction becomes a parent company. This is done, among others, through the transaction of transferring shares or shares in Polish companies to another company.
Consequently, the company will be a "mother company" rather than a "daughter company" in relation to Polish entities, so it will not be able to be regarded as a "controlled subsidiary" in the light of Polish CFC regulations.
Trust structures
After third, Capital groups (including Polish companies) establish companies in jurisdictions where the legal system is based on the Anglo-Saxon system (common law) and not on continental law. In the Anglo-Saxon system, the key form of business activity is this one, based on a trust structure.
The trustee (in the Polish system – proxy) acts in his own name, but in his behalf. Consequently, trust structures aim at demarcation of ownership in legal terms and economic effect.
In the case of capital companies operating under the Anglo-Saxon law system, the entity entered in the register of companies as a shareholder/shareholder is the trustee, whereas the economic owner of these shares is the principal. Consequently, the Polish CFC rules will not apply to such companies.
Unreflected
In conclusion, the legitimate objectives of the financial ministry, unfortunately, are likely to fail. one For this reason, it is quite simple – the non-reflective copying of the rules in force in other countries in the scope of the CFC regulation (in particular in the UK) will not apply to models of activities of capital groups in Poland), and the use of trust structures, which results in them not being fully subject to the planned Polish CFC regulations.
Source: Dziennik Gazeta Prawna