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September 10, 2021
2021-1639

Poland proposes new revenue-based minimum tax for corporate taxpayers

Executive summary

On 8 September 2021, representatives of the Polish Government submitted draft legislation to the Polish Parliament on the major tax reform of 2021 (referred to as the “Polish Order”).

In the latest draft, a new proposal was added to impose a minimum tax on corporate taxpayers, which will be calculated based on their revenue as a top-up over regular corporate income tax (CIT) based on income. The tax would be levied on Polish taxpayers and nonresident companies with a taxable presence (permanent establishment) in Poland.

The draft legislation will now be discussed in the Polish Parliament. These regulations, together with a broader package of tax changes proposed under the “Polish Order” are expected to come into force as of 1 January 2022.

Detailed discussion

The minimum revenue-based CIT would be levied on taxpayers who in a given tax year:

  • Incurred tax losses within an operating income basket
  • Reported a tax profitability ratio (in an operating income basket) below 1%

However, for the purpose of calculating the above, costs incurred for an acquisition or improvement of fixed assets (also depreciation write offs) would not be taken into account.

The tax would be calculated as 10% of the sum of the following (subject to some deductions):

  • 4% of operating revenues (i.e., tax revenue other than from capital transactions)
  • Part of the related-party debt financing costs exceeding a specific threshold
  • Deferred tax asset resulting from revealing for tax purposes an intangible asset resulting in an increase of gross profits or a decrease of gross losses
  • Part of the costs of services (i.e., advisory, marketing, management and control, insurance and guarantees), royalty payments incurred (also indirectly) for the benefit of related parties exceeding a specific threshold

The new rules provide for certain exceptions from this new tax for:

  • New taxpayers (in their first, second and third tax year of operations)
  • Financial institutions
  • Taxpayers with revenues lower than at least 30% of revenues earned in the previous tax year
  • Taxpayers with no subsidiaries of any kind and whose only shareholders (stockholders) are natural persons

It is important to note that the revenue-based minimum CIT would be deductible from the regular annual CIT due in Poland.

Based on the justification to the draft legislation, the revenue-based minimum CIT is focused on multinational corporations who might pay CIT in an amount disproportionate, according to the lawmaker, to the actual revenues generated.

With respect to other areas addressed by the proposed tax reform, see EY Global Tax Alert, Poland’s proposed tax reform include significant changes to tax system, dated 3 August 2021.

Next steps

The proposed changes impact a broad range of tax areas. Future Global Tax Alerts will report on additional details regarding the most significant changes for multinational groups and the progress in the legislative process.

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

EY Doradztwo Podatkowe Krupa sp.k., Warsaw

EY Doradztwo Podatkowe Krupa sp.k., Wroclaw

Ernst & Young LLP (United States), Polish Tax Desk, New York

 

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