1. CHANGES IN TAX REGULATIONS FOR YEAR 2019
For yet another year the Ministry of Finance has announced important and extensive amendments to its tax regulations. On 24 August 2018, a draft of amendments to the Personal Income Tax Act, the Corporate Income Tax Act, the General Tax Regulations Act, as well as certain other acts, was published. According to the information contained in the draft, the changes in the tax regulations stipulated in the aforementioned amendments will come into effect, as a rule, on 1 January 2019; and the changes are numerous. The draft is 155 pages long, whereas the explanatory statement contains as many as 202 pages.
The objective of the planned changes, as pointed out in the draft is, on the one hand, the simplification of the tax system concerning income tax by way of increased clarity and precision of the existing provisions and, on the other hand, further tightening of the tax collection system.
The planned amendments will comprise of the following legal acts:
- the Act dated 26 July 1991 on personal income tax (Dz. U. of 2018, Item 200, as amended), hereinafter referred to as the “PIT Act”,
- the Act dated 15 February1992 on corporate income tax (Dz. U. of 2018, Item 1036 and 1162), hereinafter referred to as the “CIT Act”,
- the Act dated 29 August 1997 – the General Tax Regulations Act (Dz.U. of 2018 item 800, as amended, hereinafter referred to as the “General Tax Law”,
- the Act dated 17 June 1966 on Enforcement Proceedings in Administration,
- the Act dated 20 November 1998 on the Flat-rate Income Tax on Certain Revenues obtained by Natural Persons (Dz. U. of 2016, Item 2180, as amended),
- the Act dated 10 September 1999 - the Criminal Fiscal Code,
- the Act dated 9 September 2000 on the Tax on Civil Law Transactions (Dz. U. of 2017, Item 1150),
- the Act dated 13 November 2003 on the Revenues of Territorial Local Government Units,
- the Act dated 25 September 2015 on the Amendment of Certain Acts in connection with Promoting Innovation (Dz. U. Item 1767, as amended),
- the Act dated 16 November 2016 on National Revenue Administration (Dz. U. of 2016, Item 1947, as amended, hereinafter referred to as: the NRA Act),
- the Act dated 16 September 2016 - implementing provisions to the Act on the Principles of Managing State-Owned Assets (Dz. U. Item 2260),
- the Act dated 27 October 2017 on the amendment of the PIT Act, the CIT Act, and the Act on Flat-Rate Income Tax on Certain Revenues obtained by Natural Persons (Dz. U. Item 1878).
Please find below information on certain planned amendments in respect of the CIT and PIT.
2. NEW SOLUTIONS
Preferential taxation of the income generated from Intellectual Property Rights
In order to improve the competitiveness of the Polish economy and promote innovation in the field of new technologies, the Government plans to introduce preferential rates of taxation on the income obtained from intellectual property rights. The new tax rate is to be at the level of 5%. One of the conditions for the eligibility to pay a decreased tax rate will be the taxpayer conducting research and development activity, and the maintaining of additional accounting records for the determination of the taxable base. The taxpayer will be entitled, but not obliged, to benefit from the abovementioned tax relief.
Decreased CIT rate to the level of 9%
The decreased tax rate (9%) will be applicable in respect of the revenues (income) from those other than from capital profit. This rate can be applied by those taxpayers whose revenues in a given (current) tax year did not exceed the PLN equivalent of EUR 1,200,000. This tax rate however can be applied by those taxpayers who have the status of a so-called small taxpayer (based on the basis of the revenue from the previous tax year) and whose profitability is not higher than 33%, unless it is their first tax year.
Treating the hypothetical costs of acquisition of equity capital as revenue generating costs
The draft provides for the possibility of treating the hypothetical costs of the acquisition of external financing as tax deductible costs where this financing is derived from additional payments contributed by shareholders, or from so-called retained profit. The proposed provisions, in this respect, aim at promoting actions which purpose is the creation of equity capitals in companies as derived from retained profit or from additional payments made by shareholders. The proposed solution leads to the equalisation of tax-related entitlements connected with external financing in the form of loans, and the creation of self-financed capitals. This equalisation will be full - up to the amount of the profit retained (additional payments made) where the interest, calculated as per the referential rate of the National Bank of Poland, increased by 1%, does not exceed the amount of PLN 250,000.
New principles of taxation for trading in receivables
The new provisions stipulate that the costs of the acquisition of receivables, or a portfolio of receivables, will be recognised directly in the amount reflecting the amount of the revenue obtained therefrom, until the revenue from the repayment of the receivable (or a portfolio of receivables) is equalised with the amount of the expense incurred for its acquisition. Once the new regulation enters into effect, the principle of proportionality during the recognition of the cost will not apply; however, the principle of considering, as a tax deductible cost, the expense incurred for the acquisition of a receivable, up to the actual amount of this cost, is as early as on the date of recovering a part of this receivable. For example, if a taxpayer has spent 200 for the acquisition of receivables which value is 1,000, then in the situation where 300 has been recovered from this receivable, the taxpayer will be able to treat, as a revenue generating cost (as of the date of repayment of a part of the receivable), the entire amount of the expense, i.e. 200.
However, still it will not be possible to recognise the loss on account of the acquisition of the receivable. Concerning the acquisition of portfolios of receivables (at least 100), the amount of the expense incurred for the acquisition of the portfolio will be settled with the revenue from any of the acquired receivables.
New principles of taxation on the income from the issue of Eurobonds
The draft stipulates an exemption from the taxation on the interest and discounts obtained by non-residents (both PIT and CIT payers) in respect of the bonds issued, and admitted to trading, on a regulated market, or introduced to an alternative system of trading in the meaning of the provisions of the Act dated 29 July 2005 on Trading in Financial Instruments, which maturity is no shorter than one year. The above exemption will apply to bonds issued after 1 January 2019.
Concerning the issue of bonds made before 1 January 2019, the regulation is planned consisting of the possibility for the issuers of the bonds selecting an alternative manner of taxation of the income from the abovementioned transactions. The proposal is based on the possibility of the taxpayer, who is also a bond issuer, making a choice from either the existing form of taxation connected to this income (i.e. with the withholding tax collected from the bondholder), or from the other form of taxation (as described in the draft) where the taxpayer, who is also the issuer, assumes the tax obligation in this respect, albeit only concerning the income obtained by non-residents.
The right to select a form of taxation in accordance with the abovementioned principles will also apply to the revenues obtained by the taxpayers before the date of entry into effect of the draft Act, assuming that the bonds issued had not been redeemed by the date where the new regulations came into effect.
Taxation of income from virtual currencies (Bitcoin, etc.)
Income from virtual currencies will be treated as income from money capitals (PIT) or capital gains (CIT). It will not be possible to settle a loss from the trading in virtual currencies together with the taxpayer's losses from other sources.
The revenues will comprise of those from the sale of virtual currencies on a stock exchange, in a currency exchange bureau, or on the free market, i.e. the revenues from the exchange of a virtual currency into a legal tender. The payment for services, goods, or property rights not being a virtual currency, using these currencies, as well as regulating any other obligations using these currencies, will be treated in the same manner as the sale of virtual currencies. In this case, the revenues from money capitals will reflect the price of the acquired goods or services.
Tax deductible costs will comprise of documented expenses incurred for the acquisition of virtual currencies in a given tax year, but only those which are directly connected with the acquisition and sale of virtual currencies. Consequently, the costs of financing the purchase of virtual currencies, such as the costs of loans and facilities, etc., will not be regarded as tax deductible costs.
The entrepreneur’s acceptance for the payment for goods/services in the form of a virtual currency, will be considered as two agreements. Each of the parties to the concluded contract will be seen as both a seller, and a purchaser. The price (value) of the goods, for example, will be regarded as the revenue of the entrepreneur from the sale of these goods.
3. CHANGE OF THE CURRENTLY BINDING RULES OF TAXATION
Use of passenger cars
Once the new provisions enter into effect, the limit of the value of a passenger car, up to which it is possible to deduct depreciation write-offs, is to be fixed at the level of PLN 150,000. The new regulation will apply to both combustion and electric cars. The specified limit will also apply to the expenses incurred in connection with leasing or tenancy of passenger cars. Due to different kinds of settlements of the expenses connected with the use of passenger cars in the case of operational lease, and lease and tenancy agreements, the draft Act stipulates that the limitation in the treatment of payments under those agreements as tax deductible costs will be determined in the proportion of the amount of PLN 150,000 to the value of the leased car.
The draft Act also stipulates the limitations concerning the treatment of expenses incurred in connection with the use of cars as tax deductible costs. The proposed regulation aims at including within the income tax Acts the solutions already applied in the VAT Act. As a result of the proposed changes, the expenses connected with a taxpayer’s use of a passenger car, also for purposes not connected with its business activity, will be treated as revenue generating costs at the level of 50% of those expenses. The entirety of these expenses (i.e. 100%) can only be treated as tax-allowed costs in those situations where the passenger car is exclusively used for purposes connected with the business activity conducted. The taxpayer will be obliged to maintain a register proving the use of the car only in connection with the taxpayer’s business activity (the VAT register will be used for this purpose).
Conversion of receivables into capital
The new solutions aim at the elimination of doubts concerning the settlement of tax costs connected with contributing receivables towards the share capital. According to the new proposals, in the case where the object of the contribution in kind is a receivable due to the contributing party on account of a loan previously granted by this entity to a company (cooperative), then the contributing taxpayer will be able to treat, as a revenue generating cost, the value reflecting the amount of the previously granted loan, no greater, however, than the value of this receivable as determined by the parties (i.e. the contributing party and the company) as on the date of the contribution.
On the other hand, in the case where the object of the contribution in kind is an own receivable previously treated, by the contributing party, as revenues due, then the contributing taxpayer will be able to treat the value reflecting the amount of the revenue due, disclosed by the taxpayer on account of the performance of this obligation (disposal of goods), as the taxpayer’s tax deductible costs.
In the case of natural persons, these regulations will only concern those cases where the receivables being contributed are related to non-agricultural business activity conducted by these entities, as well as special types of agricultural activity, and the revenue from this contribution is determined on the basis of Art. 14 Sec. 2 Item 7ca of the PIT Act.
Change concerning withholding tax
The planned amendment contains new regulations concerning the principles governing withholding tax, in the situation where the total amount of dues paid to the same taxpayer in a tax year exceeds PLN 2,000,000.
If this threshold is exceeded, the tax remitter will be obliged to collect withholding tax, applying the rates specified in the national regulations (CIT or PIT). In this situation the tax remitter will not apply any exemptions as specified in the tax Acts, or in any double taxation treaties.
In the case where the tax remitter has collected a given tax, the taxpayer (or remitter, if it has paid the tax using its own resources) will be able to apply to the tax office for a tax refund. This refund should take place within six months, unless the tax authority decides that explanatory proceedings must be initiated.
The proposed provisions stipulate, despite exceeding the threshold of PLN 2,000,000, two situations where the remitter will be authorised to collect withholding tax, taking into account the decreased tax rates or to apply a tax exemption.
The first situation will apply, both in the case of the PIT and CIT Acts, to those cases where the taxpayer files representations to a tax authority that it holds, as a remitter, the documents required by tax law entitling it to apply the preferential principles of taxation.
The statement should also comprise of the confirmation of its lack of any knowledge about the existence of any circumstances excluding their eligibility for the non-collection of taxes under the provisions of tax law. The statement should be filed by the head of the entity (tax remitter) in the meaning of the Accounting Act, no later than on the date of making the payment (e.g. dividend or interest). The statement should be made through electronic means of communication, in accordance with the provisions of the General Tax Regulations Act. If the statement made transpires to be untrue, then the person filing this untrue statement will be subject to criminal liability. The relevant amendments are stipulated in the Criminal Fiscal Code. Moreover, if an untrue representation is made, or if the circumstances excluding the eligibility for the non-collection of tax under a relevant double taxation treaty are not verified, the taxpayer will be obliged to pay an additional due amounting to 10% of the dues paid.
Another situation where it is possible to collect withholding tax in a lower amount or to apply the exemption, will only occur under the relevant provisions of the CIT Act, and will be applicable to the cases of exemptions as stipulated in Art. 21 Sec. 3 and Art. 22 sec. 4 of this Act, i.e. the exemptions constituting the implementation of the provisions of EU directives. This simplification is to consist in the application of preferential conditions on the basis of an opinion in respect of the application of the exemption, as issued by the tax authority. The tax authority will issue these opinions if requested by taxpayers, or remitters. A specimen application for the issuance of an opinion will be specified by the Minister of Finance. The authority will be able to refuse to issue an opinion if the conditions for its issuance, as specified in the CIT Act, have not been met. The time limit for the issuance of an opinion by the tax authority is six months.
Additionally, according to the new regulation, the Minister of Finance will be authorised, by way of an ordinance, to specify a catalogue of taxpayers, remitters, or activities, where it is possible to apply the tax exemption, or decreased rates arising from special regulations and double taxation treaties, irrespective of the amount of the dues paid.
New definition of the term “beneficial owner”
For the purpose of the limitation of the application of tax reliefs and tax exemptions only in respect of the beneficial owners of the income, the legislator has decided to introduce an amended definition of the term "beneficial owner". The beneficial owner is a person which meets the following conditions jointly:
- it receives a given payment for its own benefit, which means that it can individually decide on the designation of this amount, and it bears an economic risk connected with the loss of this amount, or its part,
- it is not an intermediary, representative, trustee, or any other entity obliged legally or actually to transfer the whole or a part of the funds to another entity,
- it conducts actual business activity in the country of its registered office, if the payments are obtained in connection with the business activity conducted; in order to assess whether the entity conducts actual business activity, the provision of Art. 24a sec. 18 will accordingly apply.
Tax avoidance clause in the case of payments of amounts due - Art. 22c of the CIT Act
The new regulations stipulate the extension of the scope of the application of tax avoidance clauses to situations of abuse concerning exemptions from withholding tax specified in Art. 21 Sec. 3 (interest and license fees). Moreover, the wording of the new clause introduces a wider catalogue of events facilitating the assessment of the context of a given structure, implements the condition of artificiality in a more clear-cut manner which translates into a situation where the wording of the clause refers, to a larger extent, to the content of the general tax avoidance clause as contained in the General Tax Regulations Act.
The information provided here does not examine all of the changes stipulated in the planned
amendments. The remaining changes, including those concerning the new wording of the tax avoidance clause contained in the General Tax Regulations Act, will be dealt with in successive Bulletins. We will continue to monitor the legislative process and will inform you about its progress in the context of the amendments being implemented. At this time we can only remark that the new regulations aim, without doubt, at the tightening of the tax system (we still need to see their effectiveness), although we can say with great certainty that they clearly do not simplify the system.