October 3, 2022
Poland proposes change to shifted profits tax that places burden of proof on the Polish taxpayer
On 25 August 2022, the Polish Government submitted to the Parliament draft legislation introducing changes to the Polish Corporate Income Tax (CIT) law. Although the submitted proposal provides for several amendments compared to the initial version published by the Government on 28 June 2022, the main focus of the proposed changes is still to modify areas covered by the reform implemented as of 1 January 2022. During the parliamentary process, the draft bill was further amended.
The potential impact of the proposed changes, 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 change and undertake the necessary actions.
One of the significant changes under the proposed amending act makes certain modifications to the shifted profits tax regulations.
For an overview of the other proposed amendments, see the EY Global Tax Alert, Poland proposes significant changes to Corporate Income Tax Law, dated 7 September 2022.
According to the currently applicable rules, the 19% shifted profits tax applies to Polish entities and to entities with a permanent establishment (PE) in Poland and is levied on certain categories of costs (such as financing costs, royalties payments, payments for selected services) incurred in a tax year by a Polish CIT payer towards (directly or indirectly) a related entity applying a low effective tax rate. For an overview of the current legislation, see EY Global Tax Alert Poland plans to introduce tax on shifted profits, dated 28 September 2021.
The current draft provides for the following modifications to the shifted profits tax provisions:
Since the shifted profits tax can have a very broad impact and affect payments or arrangements under genuine business operations, it is important to assess such an impact for each organization that could occur and undertake actions as necessary.
With the new rule regarding the burden of proof placed on the taxpayer, groups should make sure that sufficient analysis is done and properly documented as part of an ongoing activity of the tax function in their structures.
The legislative process is still ongoing, so it is expected that the text of the regulations may change. EY will continue to monitor these developments.
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