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September 1, 2022
2022-1327

Poland proposes changes to transfer pricing regulations

  • At the end of August 2022, draft legislation implementing changes to the Corporate Income Tax Law (CIT) was passed to the Sejm in amended form.
  • The Polish Government had announced draft legislation implementing changes to the CIT in June 2022.
  • One of the significant changes is withdrawal of transfer pricing reporting obligations related to indirect transactions with tax havens and modification of reporting obligations related to direct transactions with tax havens.
  • The new regulations are expected to be applied retrospectively for financial years starting on 1 January 2021.
  • As the legislative process is still ongoing, it is expected that the wording of the regulations will be amended.

Executive summary

The Polish government on 28 June 2022 had announced draft legislation implementing changes to the Polish CIT law. The proposed changes would affect several areas of taxation; however, most of the changes are related to areas which were covered by the last reform implemented on 1 January 2022.

The potential impact of the proposals, including the areas where the 1 January 2022 tax reform has not yet become effective, should be assessed by businesses in order to prepare for the changes and undertake necessary action.

On 28 August 2022, draft legislation implementing changes to the Polish Corporate Income Tax (CIT) law was passed to the Sejm (lower house of Parliament). The draft legislation introduces further changes to transfer pricing obligations related to transactions with tax havens.

For an overview of the other proposed amendments, see EY Global Tax Alert, Poland proposes significant changes to Corporate Income Tax Law, dated 7 July 2022.

Detailed discussion

According to an explanation of the draft proposal, the wording of the regulations introduced in 2020 on indirect transactions with tax havens would lead to an excessive burden on Polish counterparties that is disproportionate to the potential benefits resulting from obtaining information by the National Revenue Administration.

Under the most recent version of the draft legislation, the regulations introducing the requirement of documenting transactions where a beneficial owner of payments (not only the transaction counterparty) has its seat in a tax haven will be withdrawn entirely.

In addition, the draft legislation proposes simplifications in regard to direct transactions with tax havens. The draft law proposes increases to the materiality thresholds in the case of direct transactions with entities established in a tax haven as follows:

  • In the case of financial transactions conducted with entities established in a tax haven – the threshold would be PLN2,500,000, i.e., US$500,000 (instead of the current threshold of PLN100,000, i.e., US$20,000).
  • In the case of transactions other than financial transactions – the threshold would be PLN500,000, i.e., US$100,000).

The new regulations are expected be applied retrospectively for financial years starting on 1 January 2021.

Next steps

The legislative process is still ongoing. It is expected that the wording of the regulations will be amended.

Future Global Tax Alerts will report on further developments in this area.

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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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