11_Summary of changes in tax regulations in Poland from 2018

Amendments to the Polish CIT Law and PIT Law announced by the Polish government

On 12 July 2017 the Polish government announced draft bill amending the Polish CIT Law and PIT Law. The most recent wording of draft regulations was published on 2 October 2017. Polish government accepted the current wording of draft regulations on 3 October 2017.

The bill draft focus on the following instruments which were identified in some cases as used for tax planning e.g.:

• minimum income tax level for taxpayers holding substantial real estate (shopping centers, office buildings, shops sales and other service buildings) in Poland;
• separation of income / loss sourced from capital transactions from other income / loss sources of the taxpayer;
• new thin capitalization restrictions;
• limitation of deductibility of costs borne on certain intangible and license services;
• WHT exemption for various categories of dividend–like income.

The amendment will i.a. partly implement provisions of the EU Anti-Tax Avoidance Directive in Poland and are aimed at further limitation of base erosion and profit shifting practices.

Split payment of VAT – as of 1 April 2018

On 9 November 2017, the Sejm adopted the act amending the VAT Act and certain other acts, implementing, among others, the split payment mechanism. The main goal of the amendment is to improve the stability of inflows from tax on goods and services (hereinafter: VAT), and to prevent the evasion of VAT payment. These changes are to result in greater tax security, reliability of business, and fair principles of competition.  The regulations are to enter into force on 1 April 2018.

According to the Act, a payment for a purchase invoice stating the amount of tax may be made with the split payment mechanism (using a special transfer message), where the payment of the entire or part of the amount of tax on the invoice is made to a special VAT account, and the payment of the entire or part of the amount reflecting the net sales value is made to the bank account of the contracting party or is settled otherwise.

The split payment mechanism will apply only to transactions made in Polish zlotys to accounts maintained in the Polish currency. For each settlement account of an economic operator, maintained in the Polish currency, banks will be obliged to open an additional VAT account. The opening of the account should not entail any additional administrative burdens or costs on the part of the economic operators (no new contracts, no fees for opening). At the tax payer’s request, it will also be possible to create a VAT account for more than one settlement account with a particular bank. 

The economic operator will be able to dispose of the amounts on the VAT account in a limited way, in particular: 

1. to pay the amount of VAT resulting from a purchase invoice within the split payment mechanism system;
2. to refund an amount resulting from a purchase invoice (in the case of an adjustment);
3. to move them to other VAT accounts of the economic operator at the same bank;
4. to use them for the payment of a VAT liability or sanction.

The funds collected in the VAT account may also carry interest – depending on the arrangements between the economic operator and the bank. Interest due on funds gathered in the VAT account is credited to the settlement account of the economic operator.

The amended act provides for a voluntary choice of the method of payment by the buyer. However, no transfers should be made with the mechanism to a contracting party without an active VAT account. Such payment may be ineffective.

The basic advantages resulting from the introduction of the split payment mechanism by the economic operators is the limitation of tax risk related to VAT. In particular:

• The payment with the split payment mechanism will result in the presumption of a bona fide action;
• In principle, the payment with the split payment mechanism eliminates the risk of application of provisions on joint and several liability and VAT sanctions (unless the economic operator is aware that the payment is made to a non-existent entity, for acts not done or such as may not be the subject matter of a legally binding agreement, or the amounts on the invoice do not correspond to the reality);
• In the case of a tax debt resulting from a return, where 95% of purchase invoices are paid with the split payment mechanism, no increased rate of default interest will be applied (up to twice the amount of input VAT indicated in the particular return);
• Where the entire amount of VAT liability is paid from the VAT account before the date of payment of the liability, it is possible to reduce the amount of the liability by an amount corresponding to the value of the liability, appropriately to the reference rate of the National Bank of Poland and the number of days by which the tax payment was accelerated;
• If the economic operator decides to claim a VAT refund to the VAT account, the refund shall be done to the economic operator’s VAT account within 25 days of the date of such a request and declaration (next, the economic operator will be able to manage the amount in the VAT account).

On the other hand, the basic limitation to the split payment mechanism is its application exclusively to particular purchase invoices and to domestic transactions settled in the Polish currency. In practice, in business transactions, it will be possible to use this mechanism only for some payments.

As a consequence, before making a decision to implement the split payment mechanism, the economic operator should first identify the suppliers and the invoices with respect to which it is possible to apply the split payment mechanism, as well as customers who may use this mechanism. Next, they should estimate the organization and financial costs of application of this mechanism, as well as its impact on the economic operator’s financial liquidity and commercial relations with contracting parties.

R&D Tax Relief – significant growth of the deduction and costs of staff on civil law contracts as qualified costs since 2018

The draft of bill proposed by the Ministry of Science and Higher Education assumes far more attractive terms of use of R&D Tax Relief.

According to current rules of R&D Tax relief, taxpayers may deduct expenditure incurred on employees hired only on employment contract basis. The proposed bill provides that the right to deduct will also cover the costs of staff hired by taxpayers for R&D purposes under selected civil law contracts.

The new regulations also clarify that R&D Tax Relief will also be available to taxpayers who, during the tax year, have operated in a special economic zone on the basis of a permit, regarding eligible costs that were not recognized as costs of running the activity covered by the SEZ permit.

The bill provides for special treatment for entities holding R&D Center status. According to the proposed provisions, R&D Center will be able to deduct up to 150% of qualified costs incurred on R&D, including depreciation of buildings and constructions, as well as acquired expertise, opinions, advisory services and their equivalents from entities other than research units (other entities are not allowed to deduct these costs).

On 10 May the bill was put forward by the government for public consultation. According to the Ministry's assumptions, changes in the functioning of R&D Tax Relief will come into forceon 1 January 2018.

Amendment to Social Security Act - one account and new identifiers of contribution remitters from 1 January 2018

On 18 May 2017, the President of Poland signed the Act from 11 May 2017 amending the Social Security Act. The purpose of the amendment is, among others, introduction of individual contribution accounts for social security remitters to which a single payment for all due amounts as required by the Social Security Institution [hereinafter referred to as ZUS] should be made. The new regulations come into force gradually, with the regulations concerning the individual contribution accounts coming into force on 1 January 2018.

In the current legal status, contribution remitters are obliged to transfer contributions to indicated by ZUS bank accounts in separate payments broken down into:

• social insurance (pension, disability, sickness and work accident insurance contribution),
• health insurance,
• The Labor Fund and Guaranteed Employee Benefits Fund,
• the Bridge Pensions Fund.

According to the amended regulations, ZUS will assign to each contribution remitter an individual contribution account number. Payment made into such an account will unambiguously identify the remitter, so the transfers will not need to include any additional identifiers. What is important, the new regulations abolish the so far practice of making several separate transfers. After the new rules enter into force, each remitter will make only one collective transfer to ZUS.

The new regulations also introduce changes in the rules of crediting payments paid by contribution remitters to their individual contribution accounts - the oldest receivables will be reconciled first according to the maturity date i.e. from the earliest date of receivables.  As a rule, the purpose of the above change is reduction of the late-penalty interest accruing in case of indebtedness in the remitter's account and limitation of the late-penalty interest extinguishment.

Contact:

Michał Zwyrtek
director in Tax and Legal Department at PwC

mail

Krzysztof Winski
manager in Tax and Legal Department at PwC

Olga Jędrzejewska
consultant in Tax and Legal Department at PwC