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Tax on shifted profits – key information

by Katarzyna Niedabylska

29 November 2023

The Polish Deal legislation package introduced tax on shifted profits in January 2022. The first tax returns had to be filed and the tax paid for 2022. The law changed on 1 January 2023.

What is tax on shifted profit?

Tax on shifted profits is levied on Polish CIT payers who:

have their registered office or management in Poland,
conduct business through a permanent establishment located in Poland.

The tax is payable on certain payments made to foreign associated enterprises for:

advisory services, market research, advertising, management and control, data processing, insurance, guarantee and surety services and similar,
licences, copyrights,
know-how,
rights referred to in the Industrial Property Act,
fees for the transfer of the risk of debtor's insolvency,
debt financing,
charges and fees for the transfer of functions, assets or risks.

What are shifted profits?

Shifted profits include only payments which meet all of the following conditions:

the payments have been made to foreign associated enterprises,
the taxpayer has recognised those payments as tax-deductible expenses in the tax year,
the payments made to the associated enterprises in the tax year have been included in tax-deductible expenses of that year and exceeded 3% of total tax-deductible expenses of that year,
the associated enterprise's income (revenue) from the above-mentioned payments is subject to income tax at a rate lower than 14.25% or a tax exemption or is not subject to such a tax at all,
the payments which the associated enterprise receives from the taxpayer or its associated Polish CIT payers account for at least 50% of its total revenues,
the associated enterprise transfers, in any way, at least 10% of the above-mentioned payments to another entity:
and includes the payments in expenses accounted for for income tax purposes or deducts those payments or revenues from net income, the taxable base or tax in any way, or
if that revenue is a part of the profit distributable, regardless of the date, in the form of dividends or other income from share in profits of legal persons.

All of these conditions are considered automatically fulfilled if the above-mentioned payments included in tax-deductible expenses have been made to the taxpayer's associated enterprise which is established, managed from, registered or located in a territory or country that applies harmful tax competition or a non-cooperative jurisdiction for tax purposes, or established, managed from, registered or located in a country with which:

Poland has not ratified an international agreement, especially a tax treaty, on the basis of which tax information may be obtained from that country, or
the European Union has not ratified an international agreement on the basis of which tax information may be obtained from that country.

If certain conditions concerning the payee's status are met (i.e. checking if it is subject to income tax on all of its income in a member state of the EU or the European Economic Area, and if it conducts a genuine business activity), the taxpayer may be exempt from taxation.

Businesses must be careful because the rules of tax on shifted profits are different in 2022 and 2023.

That is why, in order to check the obligations arising from the legislation on tax on shifted profits, and to make the calculations, it is important to act well in advance.

How can we help you?

Our experts will analyse your company's situation in terms of the obligation to pay tax on shifted profits.

We will describe the conditions that must be met to avoid or reduce tax on shifted profits, as well as prepare internal procedures to support the fulfilment of the obligation to correctly calculate the tax.

If you have any questions about the tax on shifted profits, please contact us.

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Katarzyna Niedabylska

Tax adviser (Poland), Attorney at law (Poland)

Senior Associate

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