On July 2017, the Polish Ministry of Finance published the assumptions of a very significant amendment to Polish CIT Law. At present, the exact bill or the planned date of its entry into force is not known.
The purpose of the proposed bill, as declared by the Ministry, is to seal the corporate income tax system so as to ensure the linkage of the tax paid by large companies, in particular international ones, with the actual place of deriving income in Poland. The proposed amendments are also aimed at a wider implementation of constitutional tax justice and universality of taxation principles with respect to profits from business operations. These constitutional rules are prejudiced in all situations where the income resulting from events which have an economically identical effect is taxed at different levels or under different rules, which is not justified by objective factors.
As such, the proposed amendments partly introduce into Polish legislation the provisions of EU Directive 2016/1164 of 12 July 2016 laying down the rules against tax avoidance practices that directly affect the functioning of the internal market, which translate into the EU grounds the results of the work done in recent years in the international arena, in particular by the Organization for Economic Co-operation and Development within the framework of the anti-base erosion and profit-shifting project.
In particular, the draft amendment targets the specific schemes allowing the income tax bases to be unduly lowered, covering:
- balancing of artificially created losses on financial operations against income derived from operational activity
- excessive debt financing and eroding tax basis by interest deduction
- transfer of taxpayer's income to countries applying preferential taxation regimes
- tax neutral appreciation of asset value including intangible assets such as trademarks
- using a tax grouping as a tool for aggressive tax optimization.
The catalog of planned amendments as presented by the Ministry includes, in particular:
- differentiation of taxation rules applicable to capital gains and business profits and their separation into two baskets that do not interfere with each other
- further tightening of so-called thin capitalization rules, i.e. the provisions counteracting excessive debt financing that results in lowering the CIT tax base
- introduction of a so-called minimum income tax for taxpayers with commercial property of significant value (e.g. shopping malls)
- limitations in tax deduction of costs incurred on certain intangible services, such as trademark licenses or marketing and management services
- tightening provisions regarding controlled foreign companies in tax havens
- modification of regulations regarding tax grouping.
Those amendments may significantly affect many industries, but it seems that the most affected may be taxation of investments in commercial real estate in Poland. This is due to the planned introduction of limits on recognizing interest as deductible costs and the planned introduction of a minimum income tax on commercial real estate.
It is necessary to wait and see if the changes are introduced in a way that gives businesses sufficient time to adjust. Unfortunately, recently this has not been the case, so it is likely I will not be a bad prophet by saying that these changes may come into force in January 2018.