POLAND: An Introduction to Private Wealth Law
Poland: Private Wealth Law Overview
2020 marks another year of growth of the HNWI market in Poland. According to the Credit Suisse Global Wealth Report 2019, around 116,000 Poles hold liquid assets of more than USD1 million. The development of this market sector appears to be dynamic, but there are numerous constraints stemming from several inconsistencies in public policies and tax legislation that may have adversely impact the HNWI market as well as the Polish economy.
Recent experience shows the Polish banks offering private banking services as well as corporate services providers taking a more conservative approach as to accepting new clients with offshore structures and foreign assets. At the same time the typical asset protection and succession planning vehicles like private foundations or trusts are still not available under Polish law. The government’s entities that were supposed to complete preliminary works on implementation of private foundations in the Polish legal system have not finalised any publicly available legislative draft.
Polish clients holding non-Polish tax residency in countries like Switzerland, Portugal or the United Kingdom are experiencing tougher compliance and on-boarding procedures as well as higher maintenance costs. In consequence of the above restrictions, Polish HNWIs turn from traditional private banking to asset managers or family offices offering custodian accounts mostly in Swiss banks. Recently this tendency was recognised by the Polish Financial Supervision Authority to issue an official letter confirming that the cross-border activity of non-Polish family offices or asset managers requires an asset management permit to operate in the Polish market.
The recent COVID-19 lockdown has caused substantial financial damage to the economy. The Polish HNWIs – mostly entrepreneurs – have experienced several restrictions as to access to public aid. Most of the COVID-19 related support programmes provided for corporations have been initially designed only for Polish companies controlled by ultimate beneficial owners (UBOs) who are Polish tax residents. Only in its final form have such programmes been redesigned to reflect the fact that some of their controlling persons might have non-Polish tax residency and should still qualify for public aid.
It is very likely that the application of such public aid programmes as well as conditions for controlling persons will be verified by the tax authorities in future, especially considering the fact that, from 13 July 2020, all Polish companies will need to disclose their controlling persons in a publicly available UBO Register.
The COVID-19 crisis will significantly reshape future Polish tax policies. According to some unofficial information, the Polish government may consider some new tax measures to increase tax income from gift and inheritance taxes as well as to introduce a wealth tax for high net worth individuals.
In recent years the Polish government enacted several tax measures aiming at counteracting tax avoidance and shifting profits outside of Poland and to implement the OECD BEPS programme and EU Anti-Tax Avoidance Directive (ATAD). Most such measures such as exit tax, mandatory disclosure reporting of tax schemes as well as new rules on withholding tax collection turned out to be inefficient and of poor legislative quality.
Under Polish tax law, the exit tax is a tax on a taxpayer’s securities following change of tax residency of a taxpayer that might result in Poland losing its taxing right over disposal of such assets in future. The tax is 19% of the fair market value of securities exceeding PLN4,000,000 and is applicable to individual and corporate taxpayers. Considering that wealth planning often requires transfer of securities to foreign legal entities or change of tax residency of individuals, this levy must be taken into consideration by high net worth Polish taxpayers and their advisers, especially if there are plans to move away from the country. Soon after its incorporation, the new legislation was challenged by practitioners claiming infringement of EU basic freedoms confirmed in the past in similar cases in judgments of the European Court of Justice. In June 2019 the Polish Ministry of Finance postponed collection of exit tax until the end of 2021.
Also, the legislation introducing the obligation to report all tax schemes to the tax authorities appears to be quite problematic, as the definition of a tax scheme is rather vague, which causes a great deal of legal uncertainty and has resulted in a second legislative attempt to fully reflect the EU ATAD directive and to force taxpayers to report again all cross-border tax schemes. A tax scheme may be considered as an arrangement that leads mainly to obtaining tax benefits. The arrangement might also be considered a tax scheme when it meets some of the conditions stipulated in the relevant tax code and, according to the Polish Ministry of Finance, meeting only one condition is enough to be considered a tax scheme. The conditions vary, from the fact that the arrangement is artificial or complicated to the fact that it leads to avoidance of some tax obligations or infringes the rules of exchange of tax information between countries. Every reported scheme was declared to be thoroughly analysed by the tax authorities. However, the application of MDR obligations is not free from doubts and controversies. Such regulation may violate attorney-client privilege, since it may require professional advisers or bankers to disclose privileged information to the authorities. Furthermore, considering that the authorities may challenge the tax scheme at all times as well as impose severe fines, it results in substantial legal uncertainty.
Any cross-border payments should not be affected by unproportionable withholdings. The well-established Polish laws on collection of withholding tax have been amended in 2019. Under the new rules that were to implement EU ATAD directive, a domestic entity that makes cross-border payments exceeding PLN2 million to a foreign entity in a given tax year is required to withhold tax at the time of payment at the standard domestic rate (i.e. 20%, or 19% in case of dividends). A Polish payer company may apply a reduced rate or withholding tax exemption under an applicable double tax treaty or an EU directive only if (i) the company’s management board provides a signed statement to the tax authorities confirming, under criminal penalty, that the recipient of the payment qualifies for the tax relief; or (ii) a withholding tax clearance opinion is obtained from the tax authorities. Poland has made the requirements to qualify as the beneficial owner of a payment under a double tax treaty wider than in the EU ATAD directive. As from 1 January 2019, beneficial owners must (i) receive payments for their own benefit and bear the economic risk of loss for the payments, (ii) not be obligated to transfer any part of the payment to another person, and (iii) carry out actual economic activities in their country of residence if the payments received are related to these economic activities. The new legislation has proven to be so difficult to implement in practice that its application has been suspended several times by the Ministry of Finance, with a final application deadline rescheduled recently for 31 December 2020.
Contributed by Tomasz Hatylak– Partner at PATH Augustyniak, Hatylak i Wspólnicy. The scope of his activities includes legal and tax advisory in the fields of wealth management, relationships with banks, succession regulation, investment transactions, managing the family matters of clients and organizing their private lives. He specializes in developing complex investment scenarios for individuals, family businesses and corporations, tax planning and taxation of financial services. His experience includes running his own law firm, as well as many years’ experience in international legal offices. He is a member of the International Fiscal Association and a member of the Society of Trust and Estate Practitioners.