Global Tax Alert | 13 July 2017

Polish Ministry of Finance publishes draft bill significantly revising Polish Corporate Income Tax Act

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On 12 July 2017, the Polish Ministry of Finance published a draft bill that proposes significant changes, setting a new stage in the foundations of taxation rules for companies in Poland.

Key proposed changes include:

  • Introduction of a separate income basket for capital gains and disallowing the offsetting of capital gains or losses against other sources of income.
  • New thin capitalization rules limiting the deduction of financing costs to 30% of an adjusted tax basis. The limitation also applies to financing provided by non-related entities. A safe harbor for financing costs up to PLN120k (US$32k) annually is proposed. Non-deductible costs can be carried forward. Loans granted before the new law comes into force are proposed to be grandfathered under the current rules but only through the end of 2018. New rules do not apply to financing institutions.
  • Implementation of a so-called “minimum levy” on the owners of shopping malls, large shops, office buildings (worth more than PLN10m (US$2.7m)), at the level of 0.042% per month (ca. 0.5% per year) of the initial tax value of the building.
  • Changes to the controlled foreign company (CFC) legislation, which may broaden the scope of foreign subsidiaries that meet CFC criteria.
  • Significant limitation on the deductibility of:
    • Fees for intangible services such as: advisory, accounting, market research, legal, advertising, management, data processing, recruitment, insurance, providing guarantees and other similar services
    • Payments for the use of licenses, trademarks and certain other rights (there are exceptions for payments being direct costs of goods/services sold)

Payments under (i) and (ii) exceeding in total 5% of the adjusted tax base will not be deductible. There will be a safe harbor for costs up to PLN1.2m/US$324k p.a. There is no carryforward of not deducted expenses.

Some of the proposed changes are new and have no precedence in Poland’s taxation regime. If introduced as proposed, they will have a very substantial impact on the tax position of many companies doing business in Poland.

According to the bill, the new rules should be in force as of 1 January 2018 (with certain exceptions). The legislative process can still be completed by the end of November 2017, which is required for the law to be in force as of 1 January 2018.

Future Alerts will report on developments during the legislative process.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Doradztwo Podatkowe sp. z o.o., Warsaw
  • Andrzej Broda
    +48 22 557 72 90
    andrzej.broda@pl.ey.com
  • Marcin Opilowski
    +48 22 557 73 56
    marcin.opilowski@pl.ey.com
  • Michał Koper
    +48 22 557 70 24
    michal.koper@pl.ey.com
Ernst & Young Doradztwo Podatkowe sp. z o.o., Wroclaw
  • Sebastian Ickiewicz
    +48 71 711 88 46
    sebastian.ickiewicz@pl.ey.com
Ernst & Young LLP, Polish Tax Desk, New York
  • Sylwia Migdal
    +1 212 773 0095
    sylwia.migdal1@ey.com

EYG no. 04273-171Gbl