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Polish Deal – changes in tax on shifted profits

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by Katarzyna Niedabylska 

28 July 2022  


Another round of amendments to the Polish Deal is underway. This time, the amendments will be focused on CIT. The proposed legislative changes are very extensive. The most important of them include, among other things, postponed effective date of minimum income tax, repealed provisions on so-called hidden dividends, and changes regarding transactions with tax havens.  

The amendments will also cover tax on shifted profits. The draft regulations include a new definition of shifted profits. 

 

According to the new laws, tax on shifted profits will apply to passive expenses (such as costs of intangible services, debt financing costs, royalties) paid to an associated non-resident for tax purposes in Poland and included in tax-deductible costs.


Associated enterprises

The situation of associated enterprises will change considerably. According to the proposed legislation, an expense will be considered shifted profit if:

  • the income earned by the associated enterprise and triggering passive expenses for the Polish taxpayer is taxable at an effective tax rate lower than 14.25%;
  • at least 50% of the income that the associated enterprise derives from transactions with the taxpayer and its associated enterprises triggers passive expenses;
  • the associated enterprise transfers at least 10% of that income to another entity:
  • and includes the related expenses in tax-deductible costs or deducts them from the net income, taxable base or tax; 
  • or if that income is part of the profit distributable in the form of dividends or other income from share in profits of legal persons.


Other changes

Furthermore, the act regulates the application of provisions on tax on shifted profits to certain reportable arrangements involving flow-through entities or foreign entities shifting profits to other foreign entities taking advantage of low taxation regimes. 

 

The new regulations are expected to come into force on 1 January 2023. Therefore, taxpayers will have to calculate tax on shifted profits for 2022 based on the currently applicable laws. 


If you have any questions about the ongoing amendments to the Polish Deal, please contact Rödl & Partner experts.

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Monika Bartosiewicz

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