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Recent and planned changes in Polish tax environment

Poland
Important and crucial amendments to both the Polish CIT and Polish VAT Act entered into force as of 1 January 2014. In addition, the CJEU has published an opinion regarding Polish CIT taxation of investment funds which could potentially impact businesses moving forward. Taxand Poland explores these changes.

The amendments to the Polish CIT Act regarding the liability of Polish joint-stock partnerships (Polish: spółka komandytowo-akcyjna; SKAs) to CIT have been signed by the President and published in the Journal of Laws. As such, from 1 January 2014 SKAs have become regular CIT taxpayers. The main changes related to the Polish VAT Act are (i) determination of a tax point, (ii) the moment of deductibility of input VAT, and (iii) the rules regarding invoicing.

New regulations: Polish CIT Act

Based on the new regulations in the Polish CIT Act, Polish joint-stock partnerships (SKAs) will now be treated as regular CIT taxpayers. Consequently, the income derived by SKAs will be subject to taxation both at the level of the partnership and on the distribution of income to its partners.

Additionally, despite previous assumptions announced by the government, the limited partnerships (Polish: spółka komandytowa; SPK) will remain tax transparent entities for income tax purposes. This means that it will still be possible to use SPKs as vehicles to benefit from limitations of liability (for limited partners) with one-layer taxation (only at the level of partners).  

Taxation of SKAs with Polish CIT will end the very popular structures with the use of FIZ (Polish closed-end investment fund) that constituted easy and safe method of conducting business activity without taxation of operating profits, achieving a step up on value of assets owned by Polish entity as well as allowed for a tax-wise exit from investment in Poland. Still, it is possible to implement the very favourable structure with the use of a shelf SKA that might benefit from the old regulations at least until the end of November 2014 (such shelf SKA are now available).

At the same time, as SPKs remained tax transparent, more complicated but rather safe structures with the use of SPK, FIZ and foreign partnership limited by shares are still available.   

Changes to the Polish VAT Act

Another significant change to the Polish tax system is the introduction of changes in the Polish VAT Act, which entered into force on 1 January 2014.

The above amendments include the following:

Matter Until 31 December 2013 As of 1 January 2014
VAT tax point (the moment when the tax will become chargeable) Following the general rule, the tax point in VAT arises at the moment the invoice is issued but no later than 7 days after supply of goods or provision of services.

The tax point will arise at the moment the goods are supplied or the services are rendered.

There will be several exceptions, however, e.g. with respect to continuous services or leases. 

Moment when the input VAT will become deductible As a general rule, taxpayers are entitled to deduct input VAT in the period when (i) they acquire goods or services and (ii) they receive an invoice.

Taxpayers will now have the right to deduct input VAT in the period in which the tax point for the seller arises, but not earlier than in the period the invoice is received. This means that before deducting input VAT, taxpayers will have to ascertain the moment of the tax point for acquired goods or services.

Invoicing An invoice should be issued no later than 7 days after supply of goods or services.  An invoice will now have to be issued no later than the 15th day of the month after the month when the goods or services were supplied. It cannot be supplied earlier than the 30th day before the supply of goods or services, or receipt of the payment (or part of the payment) with some exceptions.

Opinion of CJEU regarding Polish CIT taxation

In addition to the above changes to the Polish tax law, the Advocate General of the Court of Justice of the European Union (CJEU) has announced his opinion on a Polish CIT case regarding WHT that was imposed on dividends paid to a non-EU investment fund (C-190/12 – Emerging Markets).

Specifically, the Advocate General’s opinion addressed Polish CIT taxation of investment funds that have their registered office outside the European Union, such as the plaintiff in the case, a US investment fund known as Emerging Markets.

According to the opinion, WHT on the dividends paid by a Polish company to a US fund is justified since there is no legal instrument allowing the Polish tax authorities to verify information provided by the US fund. The Advocate General stated that such a possibility exists in the framework of the EU but it does not cover a third country like the United States.

In the case at hand, the US investment fund Emerging Markets invested in Polish joint-stock companies and received dividends. The Polish company paid WHT charged on the distribution of the dividend but the Polish tax authorities refused to refund the WHT. The authorities claimed that the non-EU investment fund should not be allowed to benefit from the exemption applicable to EU-headquartered funds.

According to the Advocate General’s opinion from 8 November 2013, the funds from third countries (in this case from the USA) might be treated differently than EU funds, as they are not obliged to apply the EU rules and are not supervised by EU regulations. The Advocate General said that Poland was allowed to impose CIT taxation on American investment funds even though investment funds from EU countries are exempt from CIT. At the same time, the Advocate General concluded that non-EU investment funds might apply the free movement of capital principle enshrined in EU Law.

The opinion is not binding on the CJEU but its judgments often follow the statements made by the Advocate General.


Your Taxand contacts for further queries are:
Andrzej Puncewicz
T. +48 22 324 59 49
E. Andrzej.Puncewicz@taxand.pl

Amelia Górniak
T. +48 22 324 59 98
E. Amelia.Gorniak@taxand.pl

 

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Taxand's Take

The liability of SKAs to CIT per the revised legislation will significantly limit the tax efficiency of restructuring scenarios using SKA structures. This includes the most popular structure which consists of the use of an SKA and Polish closed-end investment fund (FIZ). However, as SPKs will remain income tax transparent and they also make it possible to limit the liability of their partners, tax structures that use an FIZ may still be implemented.  

Changes in the tax point and invoicing rules for VAT purposes will require some adjustment. The change or replacement of internal VAT procedures may be required, and a revision of the tax policy may be advisable.

The Advocate General’s unfavorable opinion is controversial, particularly given that a tax treaty between the US and Poland permits the exchange of information between the authorities of both countries. Bearing in mind the above, the final judgment of the CJEU may differ and include some positive conclusions of the Advocate General’s opinion regarding the application of the free movement of capital principle by non-EU investment funds. Multinationals with operations in Poland should stay abreast of any developments. 

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