At the end of June, an amendment to the Corporate Income Tax Act was announced. one of the main assumptions to be further modified by the regulations introduced by Polish Deal. The provisions on minimum tax, hidden dividend, foreign controlled company, withholding tax, holding company, debt financing costs or Estonian CIT, flat-rate corporation income tax are to be amended. This article will present basic changes to the regulation of the lump sum on company income.
Payment of the tax from the so-called preliminary correction
one the main changes are to concern the payment of the tax resulting from the so-called preliminary adjustment. The previous wording of the rules raised doubts as to the tax settlement for the application of a lump sum on company income by one full period, i.e. exactly 4 years.
The current wording shows that the obligation to pay the tax resulting from the initial correction arises at the end of the first in the month following the last year of flat-rate taxation where the taxable person benefits from flat-rate taxation on company income for a period less than 4 tax years, while the use of lump sum for more than one the full period leads to the termination of the tax obligation for this purpose.
The new wording of the provisions leads to the harmonisation of the interpretation of the regulation in question by stating that the application of the lump sum by at least one full period (4 years and more) will lead to the termination of the tax obligation resulting from the initial correction.
Time limit for the selection of the lump sum settlement of CIT
Another of the proposed changes is to clarify the deadline for selecting a lump sum settlement of CIT. The current wording of the rules raised doubts on the basis of the possibility of choosing a flat-rate tax settlement in the course of the tax year.
The new content of the rules is intended to remove these doubts, which will undoubtedly give taxpayers the right to choose an Estonian CIT before the end of their tax year.
To this end, tax books should be closed by the last day of the month preceding the month of transition to lump sum and reopened with first the date of the month of lump sum taxation. Notification to the head of the tax office of the choice made should be made to the end first the tax year of application of the lump sum.
Changes in settlement of so-called hidden profits
Equally fundamental modification of the amendment in question is intended to align the consequences of spending on activities not related to economic activity with the effects foreseen for so-called hidden profits.
These include depreciation expenses and write-offs and write-downs for permanent impairment, including the use of passenger cars and other assets.
By virtue of the draft law in question, as in the case of hidden profits, half of the amount of expenditure, depreciation and write-downs for the permanent impairment of the assets of the taxpayer taxed on the profits of the companies will be considered as non-economic expenditure provided that they are not used exclusively for business purposes.
Time limit for payment of conversion tax
The amendment also clarifies the deadline for the payment of the conversion tax. This is a contribution due from the Estonian taxpayers to CIT arising from the transformation of a single-person business activity or a company which is not a legal person within the meaning of the CIT Act.
The provisions so far have led to doubts as to whether the legislator intended to oblige taxpayers to pay the tax from the conversion within the following time limit. first the year of flat-rate taxation.
The proposal explicitly states that the deadline for payment of the conversion tax and the associated tax return expires at the end of three months first the year of taxation on the income of companies.
Deadline for payment of income tax on shared profit and income on loss-covering profit
The changes are also to be made to the rules on the time-limit for the payment of income tax on shared profits and income on loss-covering profits.
The provisions so far have led to a situation where, in the event of a resolution on the distribution of profits in second half of the tax year, there was a presumption that the income from these titles arose on the last day sixth month of tax year.
For example, if the tax year in a given taxpayer coincided with the calendar year and the resolution on the distribution of profits or the payment of the start was taken in August, the tax liability in the form of a lump sum on the abovementioned claims was created on the last day of June, which gave rise to far-reaching consequences, including in particular the retroactive calculation of interest already from the date of the tax due.
The proposed solution boils down to an extension of the deadline for tax payment. In the new state of the law, the deadline for paying the tax will be at the end 3 the month of the tax year following the year in which the distribution or coverage of the net financial result was made.
As mentioned at the outset, this package of amendments aims to further clarify the rules, which is intended to encourage a larger group of entrepreneurs to settle corporate income tax on a lump sum basis. The next few months will show whether the objectives underlying the changes discussed will lead to increased popularity of Estonian CIT.
Author: Jan Markowicz Lawyer, graduate of the Faculty of Law and Administration of the University of Silesia in Katowice in the direction of Law. In professional practice, it focuses on the legal and tax service of economic operators and individuals. Author of publications and articles on tax law.