Minimum tax

From 1 January 2024 again the subject of the so-called "minimum tax". After a two-year suspension period, the provisions of the Corporate Income Tax Act will apply to it.[1]. This means that In 2025 Once first taxpayers will face the obligation to pay it. Despite a two-year grace, the provisions on the new tribute have not become simpler.

The complex design of the tax will likely cause many practical problems, starting with who will actually be obliged to pay it, and who will be able to use a comprehensive catalogue of exemptions. Equally problematic is the use of multi-level formulae for calculating the tax due.

Minimum tax provisions were introduced by amending law dated 29 October 2021, ‘Polish Deal”. Initially, they were to apply from 2022 However, they were not only deferred to 2024, but also some changes were made to the rules governing the operation of the tax.

What is worth paying attention to, taxpayers whose tax year is different from the calendar year and starts before 1 January 2024, and will end after 31 December 2023, will not be subject to a minimum tax until the end of the tax year. For example, if the tax year in a given company is from 1 September from 31 August the following year, the company will be subject to a minimum tax only from 1 September 2024

Subject matter of the minimum tax

The minimum tax includes Polish resident companies and tax groups, which in the tax year[2]:

• incurred a loss from a source of revenue other than capital gains, or
• have achieved a share of revenue from a source of revenue other than capital gains, in revenue other than capital gains of not more than 2%.

The minimum income tax also applies to non-resident taxpayers operating through a foreign establishment located in the territory of the Republic of Poland.

Subject-matter exemptions

Minimum tax provisions shall not apply to taxable persons[3]:

in the tax year in which they started operations and successively consecutive two the tax years immediately following that tax year,

At this point it is worth stopping for a while. It does not apply to all taxable persons starting business.

According to Article 61 Amending Act dated 29 October 2021, so-called Polish Deal, corporate tax payers who have been created in a specific way under Article 19(1a) Amended Act under Article 2, from the date of entry into force of this provision until the day preceding the entry into force of this Act, for the purposes of application Article 24ca(14)(1) Amended Act under Article 2 are not treated as starting taxpayers.

This applies to taxable persons established:

• - as a result of the transformation, merger or division of taxable persons, except for the transformation of the company into another company, or
• - as a result of the transformation of an entrepreneur who is a natural person carrying out an economic activity in his own name or a company which is not a legal person, or

• by legal persons, natural persons or entities not having legal personality which have contributed to the capital of the taxpayer previously held by them, an organised part of the undertaking or assets of that undertaking with a value which exceeds, in total, the equivalent in the amount of gold at least 10,000 EUR converted by the average euro rate announced by the National Bank of Poland to first the working day of October of the year preceding the tax year in which those assets were transferred, rounded to 1,000 PLN, the value of these components shall be calculated by applying the provisions accordingly. Article 14 the CIT Act, or
• by legal persons, natural persons or entities not having a legal personality, as contributions in kind to the capital of the taxpayer, assets acquired by those persons or entities as a result of the liquidation of other taxable persons if those persons or entities held shares (shares) of those other liquidated taxable persons, or
• by legal persons, natural persons or entities not having legal personality, if, in the tax year in which the taxable person was established and in the tax year immediately after that, the undertaking previously held, the organised part of the undertaking or the assets of that undertaking with a value exceeding the total equivalent in the amount of 10,000 EUR converted by the average euro rate announced by the National Bank of Poland to first the working day of October of the year preceding the tax year in which those assets were transferred, rounded to 1,000 PLN, the value of these components shall be calculated by applying the provisions accordingly. Article 14 CIT Act.

Tax payers whose tax year is different from the calendar year and starts before 1 January 2024, and will end after 31 December 2023, will not be subject to a minimum tax until the end of the tax year.

To give the above context, it is also worth to cite Article 14 CIT Act:

1. The income from the sale of goods, property rights or the provision of services shall be their value expressed in the price specified in the contract. However, if a price without legitimate economic reasons deviates significantly from the market value of those goods, rights or services, the tax authority shall determine that income at the level of the market value.
2. Market value in question Under section 1, goods, property rights or services shall be determined on the basis of the market prices applied to goods, rights or services of the same type and species, taking into account in particular their state and degree of consumption and the time and place of disposal or provision.
3. If the value expressed in the price specified in the contract deviates significantly from the market value of those goods, rights or services, the tax authority shall invite the parties to the contract to change that value or indicate the reasons justifying the provision of a price significantly different from the market value. The tax authority shall determine the value in the light of the expert’s opinion if the answer is not granted, if the change in value is not made or the reasons justify a price significantly different from market value. If the value thus determined deviates at least by 33% the costs of the expert’s opinion shall be borne by the seller or the provider of the service.
4. Provisions Article 12(4)(7)(9)(10) shall be applied mutatis mutandis.

5-6.(Repealed).

1. For a controlled transaction within the meaning of Article 11a(1)(6) the value of the property or property rights and other items disposed of shall be determined by law Article 11c and Article 11d.

financial undertakings within the meaning of Article 15c(16) Corporate Income Tax Act[4],

if in the tax year they have obtained revenue lower by at least 30% in relation to revenue generated in the tax year immediately preceding that tax year,

whose shareholders, shareholders or shareholders are exclusively natural persons and where the taxpayer does not have:

directly or indirectly, more than 5%:

• – shares in the capital of another company or
• – the total rights and obligations in a company which is not a legal person,
• other property rights relating to the right to receive a benefit as a founder or beneficiary of a foundation, trust or other entity or a legal relationship of a trust nature,

where in a tax year the majority of their income other than capital gains has been achieved due to:

• operation in international transport of ships or aircraft,
• extraction of minerals listed in the annex to the Act of 9 June 2011 — Geological and Mining Law, whose prices depend directly or indirectly on quotations on world markets,
• the exercise of the medical activity in question under Article 3 Act dated 15 April 2011 of medicinal activities,
• transactions where the price or method of determining the price of the subject-matter of the transaction is derived from the provisions of laws or regulatory acts issued on the basis thereof,

forming part of a group of at least two companies in which one company holds, directly or indirectly, at least 75% of the share capital, joint-stock capital or capital interest of the other companies in that group throughout the tax year, provided that:

• the tax year of the companies covers the same period and
• calculated for the tax year, according to section 1 and 2, the total revenue of companies in their total revenue is greater than 2%
• - when determining the conditions referred to in point (a) and b, all companies in the group that are resident in Poland or are part of the tax group,

Small taxpayers - For the record, a small taxpayer, as defined in under Article 4a(10) The CIT Act is a taxable person whose value of the sales income (including the amount of tax due on goods and services) did not exceed in the preceding tax year the amount of PLN corresponding to the equivalent 2,000,000 EUR; The amounts expressed in EUR shall be converted at the average rate of EUR announced by the National Bank of Poland to first the working day of October of the preceding tax year, rounded to 1,000 PLN;

companies operating the municipal economy referred to in the chapter 3 Act dated 20 December 1996 on the municipal economy[5] - in the above point, companies governed by commercial law which may be formed by local government bodies or to which such entities may accede;

who have achieved a share of income from sources of income other than capital gains In one of three tax years immediately preceding the tax year for which the minimum income tax is due, at least 2%,

bankrupt, liquidated or subject to restructuring proceedings,

party to the cooperation agreement in question under Article 20s(1) Tax Ordinance[6],

as a financial institution within the meaning of Article 4(1)(7) Act dated 29 August 1997 - Banking law[7], the principal business of which is to provide financial services consisting in the payment of claims arising from the conclusion of a contract for the sale of goods or the provision of services between that creditor and the debtor (i.e. the principal business of which is a factoring activity),

which are mining undertakings receiving state aid on the basis of Act dated 7 September 2007 on the operation of coal mining[8].

Exemptions from revenue

According to Article 24ca(2) The CIT Act shall not take into account for the purposes of calculating the loss and revenue share:

This appropriation is intended to cover the following: Under Article 17a(1), where, in accordance with the provisions of Chapter 4a, the beneficiary is credited with depreciation;

revenue and costs to obtain revenue directly or indirectly related to those revenues duly achieved or incurred in connection with the transaction, if:

the price or method of determining the price of the subject-matter of the transaction derives from the provisions of laws or regulatory acts issued on the basis thereof, and

the taxpayer in the tax year incurred a loss from a source of income other than capital gains from the transaction referred to in point (a), or has achieved a share of revenue from a source of revenue other than equity gains in income other than capital gains resulting from such a transaction of not more than 2%, Whereas the calculation of the loss and share of income is made separately for transactions of the same type;

included in the cost of obtaining the revenue of the fees laid down in the contract specified under Article 17a(1);

revenue and revenue costs directly related to these proceeds from the disposal of claims to a financial institution within the meaning of Article 4(1)(7) Banking rights whose business is to provide financial services involving the payment of claims arising from the conclusion of a contract for the sale of goods or the provision of services between that creditor and the debtor;

the increase in the cost of obtaining revenues from the purchase of electricity, heat or wired gas, which represents a positive difference between the costs of obtaining revenue from that revenue in the tax year for which the minimum income tax is due and the costs of obtaining revenue from it in the tax year immediately preceding that year;

the amounts paid by the entity to:

• excise duty,
• retail tax,
• tax on games,
• fuel charge,
• the issue fee;
• the amount of excise duty included in the price of excise goods purchased and sold by the taxable person trading those products, calculated in accordance with the revenue or the cost of obtaining revenue;
• 20% the cost of obtaining the revenue in question under Article 15(4g-4h).

These provisions describe the following types of revenue:

„4g. Claims on titles in question under Article 12(1) and 6 Act dated 26 July 1991 on income tax on individuals and social security benefits paid by the undertaking, subject to section 4ga, are the costs of obtaining revenue in the month for which they are due, provided that they have been paid or made available within the time limit resulting from the provisions of labour law, contract or other legal relationship between the parties. In the event of a failure to comply with that time limit, those amounts shall apply. Article 16(1)(57).

Four. Payments made to the occupational capital plans referred to in the Act on occupational capital plans, subject to Article 16(1)(40a), in the part financed by the employer within the meaning of that law, constitute the cost of obtaining revenue in the month for which they are due, provided that they are paid by the date resulting from the provisions of that law. In case of failure to comply with this deadline, the provisions shall apply. Article 16(1)(57aa).

4 hours.

Contributions to claims in question Under section 4g, specified In the Act dated 13 October 1998 on the social security system, in part financed by the payer of contributions, contributions to the Labour Fund, the Solidarity Fund and the Guaranteed Workers' Benefits Fund, subject to Article 16(1)(40), are the costs of obtaining revenue in the month for which they are due, provided that contributions are paid within the time limit resulting from separate provisions.

In the event of failure to comply with that time limit, the provisions shall apply. Article 16(1)(57a) and section 7d.”

Calculation of the tax base

The method of calculating the minimum tax base is indicated under Article 24ca(3) CIT Act. This is the sum of:

amount corresponding to 1.5% the value of revenue from a source of revenue other than capital gains realised by the taxpayer in the tax year; and

incurred for the benefit of related parties, except where the links arise solely from a link with the State Treasury or local government units or their associations, the cost of debt financing in the part where those costs exceed the amount calculated according to the following formula:

[(P - Po) - (K - Am - Kfd)] × 30%

in which each symbol means:

• P - the sum of revenue from all sources of revenue from which income is subject to income tax,
• After - interest income within the meaning of Article 15c(13) CIT (interest income, including capitalised interest, and other income equivalent to economic interest corresponding to the cost of debt financing),
• K - sum of revenue costs without deductions resulting from Article 15c(1) the CIT Act,
• Am - shock absorbers referred to under Article 16a-16m CIT Act (including intangible assets, fixed assets), classified in the tax year as revenue costs,
• Kfd - included in the tax year in the cost of obtaining revenue debt financing costs not included in the initial value of fixed assets and intangible assets, before making any deductions resulting from Article 15c(1) Corporate Income Tax Act,

costs:

advisory services, market research, advertising, management and control services, data processing, insurance, guarantees and similar services,

any charges and charges for the use or right to exercise the rights or values in question under Article 16b(1)(4-7) CIT Act (i.e. copyright or related property rights, licences, specific rights In the Act dated 30 June 2000 - Industrial property law[9], value equivalent to the knowledge gained in the industrial, commercial, scientific or organisational fields of know-how,

the transfer of the debtor's default risk from loans other than those provided by banks and cooperative savings and credit institutions, including liabilities arising from financial derivatives and similar benefits

• directly or indirectly incurred in favour of affiliated entities or entities domiciled, established or managed in the territory or country applying harmful tax competition, in the part in which the total costs in the tax year exceed by 3,000,000 PLN the amount calculated according to the following formula:

[(P - Po) - (K - Am - O) × 5%]

in which each symbol means:

• P - the sum of revenue from all sources of revenue from which income is subject to income tax,
• After - interest income within the meaning of Article 15c(13) CIT Act (interest income, including capitalised interest, and other income equivalent to economic interest corresponding to the cost of debt financing),
• K - sum of revenue costs without deductions resulting from Article 15c(1) the CIT Act,
• Am - shock absorbers referred to under Article 16a-16m the CIT Act, classified in the tax year as revenue costs,

O - included in the tax year in the cost of obtaining income interest, without deductions resulting from Article 15c(1) Corporate Income Tax Act.

The taxpayer may choose a simplified method of determining the tax base corresponding to the amount 3% the value achieved by the taxpayer in the tax year of revenue from a source of income other than capital gains, and the taxable person shall inform the taxpayer of such choice in the statement submitted for the tax year for which he made the choice.

Summary

The introduction of a minimum income tax has not been renewed. Despite the original announcement by the authors of these provisions that the new tax will mainly concern international corporations, it will also include taxpayers in the SME sector. In particular, there are doubts as to the arbitrary establishment of a profitability threshold of 2%, without its distinction between the activities carried out by the taxable person concerned and the fact that they are not entirely consistent entity exemptions.

Despite numerous changes, the minimum tax rules continue to give rise to numerous doubts. In particular, it coincides with the planned global minimum tax, the so-called Pilar II, to cover international and national capital groups with a global annual turnover of a total minimum 750,000,000 EUR.

The regulation is intended to identify jurisdictions with taxation of income below the target threshold 15%. At the same time, there is a risk that the minimum tax currently introduced will not fall within the Pilar II standard, which may entail a burden on entrepreneurs two Daninas.

Among other things, for this reason business organisations are calling on the government to repeal the flawed and, in their view, unfavourable provisions. The Polish Confederation Lewiatan put this forward as one of 24 tax proposals for the new government.