Day 26 July 2021 The Ministry of Finance has published a long-awaited draft law amending the Personal Income Tax Act, the Corporate Income Tax Act and some other laws in connection with the announced tax changes concerning the so-called scheme "Polish Deal” or rebuilding the economy after the coronavirus epidemic.
On 29 October 2021 There was a new modified bill amending – after a public consultation, an auto-amendment from the government and amendments to the Senate. The project assumes a number of revolutionary tax changes that significantly transform the tax system in Poland.
The content of the bill itself counts 277 the parties and the reasons given to them, 267 pages. In our view, it is worth reading the amendments in order to identify the opportunities and risks that are emerging. To this end, we have prepared a series of articles that will facilitate this task.
In Module No 2 we will continue to address the most important changes both on the PIT and CIT grounds.
Restriction on the use of exemptions in the form of an undertaking or an organised part thereof (PIT and CIT)
The amendment also concerns a restriction on the tax treatment of interest income for non-monetary contributions, if the recipient is an undertaking or an organised part of an undertaking (the change will occur). Under Article 12(4)(25) point (b) CIT Act and under Article 21(1)(109) PIT Act. These revenues are currently exempt from income tax.
The project, on the other hand, assumes an additional condition for tax neutrality. Only if the recipient company adopts for tax purposes the components of that undertaking or its organized part (ZCP) in the value resulting from the tax accounts of the contributor.
The legislator also stated that the provision Article 21(1)(109) will only apply if the acquiring company is taxable in a Member State of the European Union or in another State belonging to the European Economic Area on all its income, irrespective of where it is achieved.
Tax Abolition — Transitional flat-rate income (PIT and CIT)
Proposed As part of the project tax abolition is addressed to taxpayers PIT and CIT. It will apply to income (income) not declared in whole or in part in relation to:
- non-disclosure in whole or in part of these incomes (incomes),
- not disclosing in whole or in part the source of these revenues (revenues),
- transfer or holding in any form of capital outside the territory of the Republic of Poland, including the CFC,
- the application of the provisions of double taxation agreements, in a way incompatible with the context of the use of the provisions of those agreements, with their purpose and with the intentions of the States - parties to those agreements,
- an unreal tax residence,
- other than the above. Under point 1-5 tax advantage defined in Tax Ordinance (Article 3(18)).
Tax abolition will not cover the tax benefits arising from the offence, fiscal criminal offence, fiscal misdemeanour, of which the entity will not notify the competent authorities in due time. Moreover, it will not be acceptable to apply for abolition during tax proceedings, tax checks or customs and tax checks.
According to normal rules, the revenue withheld and detected by the tax is taxed at the rate 75%. In turn, the rate of taxation on revenue subject to tax abolition will be 8% from the tax base.
The use of this solution will be subject to the submission of an application to the competent authority with payment of a fee of 1% income (not less than 1,000 PLN and not higher than 30,000 PLN). Next 50,000 PLN pay the entity who has doubts whether its undisclosed income is eligible for a transitional lump sum and submits a request for a special interpretation for this purpose. It will be issued by a new body – Capital Repatriation Board.
The regulation will be limited in time and the absolute deadline for submitting the application will be for the period from 1 October 2022 to 31 March 2023 (in this respect, there have been changes to the original draft amending law – the legislator initially set time limits from 1 July 2022 to 1 December 2022).
Taxing temporary income tax will be voluntary, which means taxpayers and payers will be voluntarily in the period until March 2023 they will be able to assess their legal and tax situation and voluntarily opt for possible income adjustments that have not been fully objectively and fairly declared for taxation or have not been declared for taxation at all.
In addition, the provisions provide for a tax credit in the event that, after the date on which the income is reported and the return on that income tax, the entity within one year of the application:
- • make capital investments, in Poland or in the territory of another EEA State with a value at least equivalent to the reported income; and
- • maintain this investment for at least a period of time 12 months after its completion (end),
it can then reduce its tax liability in PIT or in CIT due on income from this investment by an amount equal to 30% transitional income tax. The decrease can be achieved for the tax year in which the investment was (completed) and for the subsequent year 2 tax years.
New obligations for non-cash payments in B2C (PIT and CIT)
The draft amending act includes the revised provisions of the Consumer Rights Act, where the upper threshold for cash settlements was adopted in the amount 20,000 PLN, after which the consumer will be obliged to use non-cash forms of payment when entering into a transaction with the trader.
In order to ensure that the most convenient method of payment for a product or service can be chosen, the trader will be obliged to ensure that payments can be made through non-cash payment instruments. This obligation does not apply to traders who are not obliged to keep records of sales using register offices.
Negative tax consequences will be met by an entrepreneur who will accept cash from the consumer above 20,000 PLN, while the consumer is obliged to make payments through a payment account. In this situation, the trader will generate income of the amount of payment made without intermediation of the payment account.
Interestingly, the legislation adopted does not provide for any sanctions to be imposed on the client if the transaction with a value above 20,000 PLN He will pay even partially in cash. As mentioned, however, the consequences will affect the recipient of such payments.
From next year in the CIT Act (designed point 16, added to Article 12(1)) and PIT (designed point 22, added to Article 14(2)) there will be provisions providing that taxation will be subject to both sales revenue and a separate amount collected from the customer in the form of cash.
Importantly, the provisions of the Consumer Rights Act also refer to the value of the transaction rather than a single payment. This means, for example, that by concluding a contract with the customer to sell a car of the value above 20,000 PLN, the seller – in order to avoid even partial double taxation of income – will not be able to accept cash at all in such a transaction.
There is currently no payment limit in cash for consumers also in relation to the entrepreneur. The Law provides for a cash payment limit of the amount of 15,000 PLN, which will be reduced to an amount 8,000 PLN.
Positive changes in research and development, the possibility of simultaneous use of R & D relief and IP Box relief (in PIT and CIT)
Currently, taxpayers are entitled to deduct from the tax base under the R & D relief 100%, and for research and development centres – 150% so-called eligible costs incurred for R & D activities in the tax year.
The proposed changes will give the possibility of deducting eligible expenditure under the R & D relief 200% the costs incurred by research and development centres having the status of micro, small or medium-sized entrepreneurs (within the meaning of the Business Law Act) for so-called eligible expenditure. For other Research and Development Centres, the costs incurred in order to obtain and maintain a patent, a design protection right and the registration of an industrial design are excluded from the above preferences (no change in this respect – deductibility 100% eligible costs).
For other taxpayers increase the amount of the deducted costs from 100% to 200% will be carried out only within:
the cost categories for employees who obtain income from business relationship, employment relationship, overlay work and cooperative employment relationship;
the category of costs for employees who obtain revenue from activities performed in person on the basis of a contract of order or a contract of work, obtained exclusively from a natural person conducting an economic activity, a legal person and its organisational unit and an organisational unit not having legal personality.
It is currently not possible to apply the R & D and IP Box relief to the same category of income. In accordance with published regulations i.e. added section 9a to Article 24d CIT Act and added section 9a to Article 30ca The PIT Act, a taxpayer commercialising R & D results under the IP Box will no longer have to make a choice between two „excluding’ preferences.
The taxpayer will be able to deduct the costs of R & D relief from income from the so-called qualified intellectual property rights under the IP Box.
In the current state of the law, the taxpayer has the right to benefit from both solutions in the same tax year, while against different categories of income (i.e. R & D reduction for general income, while taxation 5% the rate of tax on income from qualified intellectual property rights - qualified IP – respectively Article 30ca(2) the PIT Act, Article 24d(2) CIT Act).
This results explicitly from the fact that the costs of obtaining revenue taken into account by the taxpayer in the calculation of income taxed on a general basis (e.g. R & D relief) cannot be deducted for a time second taken into account for the purpose of calculating income taxed on a specific basis (e.g. qualified IP).
Only eligible costs which have led to the creation, development or improvement by the taxable person of a qualified IP, from which the taxable person gains preferential income as a result of commercialisation 5%. This means that the deduction of R & D eligible costs will be possible in relation to those costs which are related to the eligible IP.
The change will be of major importance to entities that so far have 100% generated revenue from the so-called qualified intellectual property rights under the IP Box. To date, they have not been able to benefit from R & D relief in practice.
Introduction of a reduction for prototypes (in PIT and CIT)
The discount on prototypes is intended to be directed to all companies and to allow deduction 30% costs incurred in producing or preparing the production of a new product, not more than 10% income from non-agricultural business. Regulations in this area are added Article 26ga the PIT Act and Article 18ea CIT Act.
Relief for prototypes is to be granted to taxpayers who will produce a new product as a result of their R & D work. This relief will cover costs incurred at the stage of the so-called sample production as well as the costs of placing the new product on the market.
Test production will be understood as the stage of starting technological production, during which no further design and construction work or engineering work is required. Therefore, this reduction will cover the cost of the sample production until the production of the relevant new product begins.
The costs to be deducted shall include, inter alia, the cost of materials for production, adjustment of production lines and obtaining appropriate certificates.
A very important issue will certainly be the relationship between the discount on prototypes for R & D relief, in which tax interpretations already allow the deduction of certain prototype or pilot series costs, as well as the discount on prototypes for the announced reduction for robotics, which will also allow the deduction of certain costs for investment in production lines.
Introduction of a reduction for robotisation (in PIT and CIT)
New rules – Article 52jb PIT and Article 38eb The CIT Act introduces the concept of the so-called Robotization Relief, allowing to reduce the tax burden as a result of the purchase of new industrial robots and the software and things necessary to operate these robots. The proposed reduction will be temporary and will cover the costs incurred by 5 years after its introduction. This relief complements other pro-investment tax incentives (e.g. R & D or IP Box relief already discussed).
According to the Ministry, the temporary nature of the relief is intended to encourage entrepreneurs to make efficient investment decisions and facilitate the assessment of the effectiveness of this relief by the MF. The expected effect of introducing a reduction for robotization is an increase in the number of robots installed in Polish companies, which is to translate into an increase in their competitiveness. As a result of the reduction in robotization, the entrepreneur will be entitled to deduct from income in addition 50% eligible costs such as:
- the cost of acquiring new industrial robots, machines functionally associated with them,
- the cost of acquiring WNiP necessary for the correct use of industrial robots,
- the cost of training services or financial leasing in this respect.
Introduction of a reduction for innovative workers (IT and CIT)
Amending Act, in accordance with Article 18db CIT Act and Article 26eb The PIT Act introduces a solution that a taxpayer who is a payer who conducts R & D activities will be able to deduct from the advance on income tax (and flat-rate income tax), deducted from incomes (revenues) of natural persons employed by him on the basis of employment contract or civil-law contracts, or copyrights, eligible costs which he did not deduct from his income in the annual statement as a deduction of the R & D relief because he suffered a loss or the amount of income was lower than the amount of deductions due to him.
This deduction shall apply to income (revenue) of those persons whose working time allocated to carrying out research and development activities in general working time in a given month is at least 50%, or whose time allocated to the R & D service on the basis of the contract of order or contract of work in a given month, remaining entirely for the service is at least 50%.
Reduction of the B2B cash payment limit (PIT and CIT)
Changes will occur in the cash payment limit. Under Article 19(2) The law of entrepreneurs states that payments related to the economic activity are made or accepted through the payment account of the entrepreneur, whenever the single value of the transaction, regardless of the number of payments resulting therefrom, exceeds 15,000 PLN.
Under Article 22(1) The amending law reduced this limit to 8,000 PLN. Therefore, if the taxpayer pays the amount above 8,000 PLN in cash, then he will not be able to classify such expenditure as revenue costs. It is worth mentioning that this issue was completely disregarded in the explanatory memorandum to the bill.
Author: Mateusz Krawczyński
Junior tax consultant At Russell Bedford Poland. Graduated from bachelor's degree in Logistics and Master's degree in Finance and Accounting. He is currently studying law at the Łazarski University. Previous professional experience in tax matters In one of Big Four companies. He specializes in tax on goods and services, in particular with regard to VAT settlements in local government units.
A brochure discussing changes In the Polish Deal, you can download for free HERE