The minimum income tax provisions were introduced into the legal order by law with 29 October 2022 implementing "Polish Deal”. These regulations are therefore formally included in the CIT Act as of 1 January 2022 and should apply from that date. However, the Ministry of Finance decided to postpone the regulation.
According to the original version of the draft law, the application of the provisions in question was to be postponed retroactively. i.e. they were to start to apply from 1 January 2023 The minimum tax is not paid in the form of advances, but at the end of the tax year – consequently no company has paid it yet.
Deferment of the functioning of the rules
In view of the forthcoming recession, the Ministry of Finance has decided to postpone the above-mentioned regulations for further one one year – therefore the minimum tax will apply from 1 January 2024 (new Article 38hb, which will be added to the CIT Act).
In turn, an increase in the 1% to 2% the profitability index, as this means that more will be subject to a minimum tax. The Ministry of Finance could also consider repealing the rules in question due to economic difficulties or the level of complexity, as was the case with the provisions on "hidden dividend".
In addition, for taxable persons whose tax year is different from the calendar year and started before the day 1 January 2024 and ends after a day 31 December 2023, The minimum tax exemption will apply until the end of this tax year.
In line with the justification for the project: "(...) in the face of the ongoing armed conflict in Ukraine and its related already felt negative consequences for the economy, as well as in view of the continuing economic impact of the pandemic in some areas, as well as the numerous calls by economic operators, the existing justification for the introduction of the regulation has been reconsidered and evaluated."
Reason for regulating
The Ministry of Finance considers that the situation in which taxpayers achieve and show a very low operating income each year or suffer a long-term loss from such activities, where they show significant turnover, is unacceptable from the point of view of the scale of the activity and the reality of the market economy.
According to the tax authorities, the loss-making entity should therefore not operate on the market in the long term. However, in the event that, despite the conditions identified (i.e. a sustained tax loss or a very low income), the taxpayer is still operating, this may mean that he is making use of optimization measures.
From the point of view of the State budget, it was therefore considered necessary to introduce regulations aimed at minimising any such practices, which could result in a reduction of tax obligations by lowering tax revenue.
The tax authorities note that the instruments that often serve corporations to transfer profits between related entities are for example:
- fees for the use of intellectual property rights,
- interest on loans granted or
- payments for management services rendered.
The Ministry of Finance, in order to counter the budgetary gap in the CIT tax, is therefore planning to have a minimum income tax in place.
Complex design of the tax – primary and modified assumptions
Minimum income tax foreseen 10% the tax base is dedicated to Polish resident companies, as well as tax groups, which in particular:
- bear losses from a source of revenue other than capital gains; or
- show a certain low profitability rate in operating activities - i.e. revenue share representing not more than 2% (In first Project version 1% - There has therefore been an increase in the number of taxpayers).
For the purposes of calculating the above-mentioned losses and profitability, the categories of exemptions will be extended by, inter alia:
the cost of obtaining revenue constituting a fee for the lease of fixed assets,
20% This appropriation is intended to cover the following expenditure:
- increase in the cost of obtaining revenues for the purchase of electricity, heat or wired gas,
- revenue and revenue costs representing the value of the commercial receivables disposed of to the factoring industry,
- the value of excise duty, retail tax, game tax, fuel levy and issue levy.
The tax base will, in principle, be the sum of the amounts laid down in the rules to be combined:
- 1.5% value of revenue from sources of income other than capital gains (yet) 4%,
- incurred to related entities debt financing costs exceeding 30% the tax EBITDA calculated according to the statutory formula,
incurred directly or indirectly to related parties (or entities in a State or territory applying harmful tax competition) the cost of acquiring certain services or intangible rights (e.g. copyright, licences, know-how, advisory services, market research, advertising, management) exceeding by 3,000,000 PLN value 5% the tax EBITDA calculated according to the statutory formula.
Initially, the tax base was also to include the deferred income tax resulting from the disclosure in tax settlements not yet amortised by the CIS, in so far as it resulted in an increase in gross profit (or a reduction in gross loss). However, the bill repeals this regulation.
In the current legislation, the Resort excluded a certain category of entities to which the above regulations should not apply. These include in particular:
- taxable persons starting business in first 3 years,
- financial undertakings (catalogue of closed entities specified under Article 15c(16) CIT Act),
- taxpayers who showed 30% decrease in revenue from previous year's revenue,
- entities operating in a simple organisational structure without any links that may result in optimization activities (e.g. where a natural person is the sole shareholder/shareholder/shareholder of the company),
- energy companies, extractive (coal, copper) and engaged in international maritime or air transport (e.g. LOT). Most of these are now companies with the State Treasury.
The list above will include:
- municipal companies,
- Small taxpayers, i.e. annual income not exceeding the previous tax year amounts 2,000,000 EUR,
- taxpayers in bankruptcy, liquidation or restructuring proceedings,
- taxpayers whose tax profitability in one of the last three tax years have exceeded 2%.
The planned changes to the minimum tax should be assessed positively – in particular as regards the postponement of the deadline for the implementation of the tax, the increase of the income exemption catalogue, the increase of the list of exemptions or the reduction from 4% to 1.5% the value of revenue forming part of the tax base.
In turn, an increase in the 1% to 2% the profitability index, as this means that more will be subject to a minimum tax. The Ministry of Finance could also consider repealing the rules in question due to economic difficulties or the level of complexity, as was the case with the provisions on "hidden dividend". So it remains to wait for the final version of the bill.