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October 14, 2024
2024-1880

Poland considers introducing cash grants to palette of incentives, as Pillar Two may affect current Polish Investment Zone/Special Economic Zone credits

  • The Polish government is considering introducing a system of cash grants to encourage investment in the country.
  • The grant amounts awarded would be tied to investment profitability.
 

Executive summary

During a conference on 4 October 2024, Maciej Zukowski, Director of the Department of Development and Investments at the Ministry of Development and Technology (MRiT), outlined the Polish government's plans regarding incentives systems. The proposed reform aims to enhance the incentives system to ensure Poland remains competitive and attractive to investors. The reform announced by MRiT will introduce a system of cash grants, correlated with the profitability of the investment.

Detailed discussion

The global minimum tax initiative under Pillar Two of the Base Erosion and Profit Shifting (BEPS) 2.0 framework may undermine the effectiveness of Poland's current tax-investment incentives, particularly the Polish Investment Zone and Special Economic Zone tax credits. This is because application of these tax-credit incentives may reduce the effective tax rate below the 15% threshold, which in turn could lead to a top-up tax for groups falling under Pillar Two.

MRiT proposes a new cash grant system that correlates to the profitability of investment-related activities. The maximum grant amount will be determined by several factors, including the value of the investment, its location according to the regional aid map, and the number of declared quality criteria met.

The support mechanism proposed by MRiT will be based on the following main principles:

  • Cash grant amounts will be tied to investment profitability.
  • The grant will be available upon investment completion, with a 15-year period to utilize the aid pool.
  • Profitability will be a prerequisite for grant eligibility, with no grant available in unprofitable years.
  • The level of support will be determined by a quality assessment, with up to 20 points affecting the aid intensity:
    • 8-12 points = 60% support
    • 13-16 points = 80% support
    • 17-20 points = 100% support
  • Grants will be provided on a pro-rata basis, upon annual payment requests as a percentage of revenues, depending on the gross profitability of the activity.
  • Under Pillar Two, grants are expected to be treated as increases of income rather than reductions in qualified taxes.

Cash grants will be a part of a dual-support model. It is anticipated that the existing tax relief for new investments will be primarily utilized by smaller enterprises, whereas cash grants may be preferred by larger firms.

Conclusion

The announced directional changes are aimed at maintaining Poland's competitiveness. The planned reform also reflects a broader trend of countries' reevaluating their tax incentive programs considering the global minimum tax.

However, these are preliminary announcements, and the final model may be subject to change. Affected taxpayers are awaiting the draft legislation in this area and should monitor updates on the implementation of Pillar Two regulations. Companies should also begin considering the implications for their investment strategies.

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Contact Information

For additional information concerning this Alert, please contact:

EY Doradztwo Podatkowe Krupa sp.k., Warsaw

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

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor