More changes in income taxes ahead: limited partnership as a corporate income taxpayer, new obligations for real estate companies, new TP obligations and COVID-19 reliefs
Last week, the Polish Lower Chamber of Parliament (Sejm) approved a bill amending the Corporate Income Tax Act. The bill is yet to be approved by the Upper Chamber (Senat) and to be effective as of 1 January 2021 it should be published in the Official Journal as late as by 30 November 2020. Apart from the obligation to publish the tax strategies (for more details see here) other important changes, briefly summarized below were also proposed.
Limited partnership (SK) as a CIT payer
- Limited partnership has gained its popularity thanks to the two-partners’ structure where one bears limited, and the second unlimited liability. As at today, an SK is also transparent for tax purposes.
- Assuming the abovementioned deadlines are kept, an SK will become a CIT payer, subject to 19% CIT (or 9% CIT if certain conditions are met) starting from 1 January 2021, with an option to choose application of new rules from 1 May 2021.
- Distributions from an SK will be taxed with 19% WHT; hence potentially double taxation of profits may occur. Due to the wording of the provisions, there are some doubts if the limited partner (being a company) should be able to benefit from the WHT exemption based on the Parent-Subsidiary Directive.
- 50% of the limited partner's revenues obtained from the SK may be exempt from tax, up to the amount of PLN 60,000 (c.a. EUR 13 k) in the tax year – provided that the limited partner is not in any way affiliated with the general partner.
- The distribution to the general partner may be reduced by a portion of CIT paid by the SK (according to the share in the SK).
New obligations for real estate companies
The draft law also introduces certain new obligations for so-called real estate companies i.a.,:
- A real estate company will be considered as such if, in general, the book value of its assets derived directly or indirectly from the real estate located in Poland exceeds 50%, and the book value of the real estate is higher than PLN 10 mln and – for companies already conducting business activity – their tax revenues or financial revenues (in case of the non-income tax payer) in the previous tax year derived from lease, sub-lease or similar agreements concerning real estate, or transfer of real estate or shares in other real estate companies, exceeded 60% of tax revenues (or financial revenues in case of a non-income tax payer).
- Payment of capital gains advanced tax upon the transfer of shares of a real estate company will become an obligation of that company (the subject of transfer), if the transferor is not a tax resident in Poland. The taxpayer will be obliged to transfer the amount of the tax advance to the real estate company prior the payment deadline.
- A real estate company being a tax resident outside the European Union/European Economic Area will have to appoint a tax representative in Poland.
- Real estate companies and their direct and indirect shareholders will be required to periodically inform the tax authorities about their direct and indirect shareholders.
- Real estate companies’ tax results will be published by the tax authorities irrespective of their revenues (currently the latter related only to taxpayers with annual revenue exceeding EUR 50 mln).
New TP obligations and certain COVID-19 reliefs
- Application of the arm's length principle and preparation of TP documentation would be extended to non-controlled transactions when the beneficial owner is located in a tax haven jurisdiction (defined as a country or territory employing harmful tax competition). Additionally, unless proved otherwise, it will be assumed that the beneficial owner of the counterparty in a transaction has its seat in a tax haven if that counterparty, in a given tax year, had any transaction with any tax haven’s resident. The above will apply provided that the transaction value for the tax year exceeds PLN 500 k (c.a. EUR 111 k) .
- Certain additional measures aimed at relieving taxpayers during the time of the COVID-19 pandemic were also foreseen including:
- An exemption from the requirement to prepare TP documentation for domestic transactions could be extended to the cases when any party to the transaction declared a tax loss. The exemption could be granted for the tax year starting after 31 December 2019, when a COVID-19 state of emergency was in force, under the condition that a party in a tax loss position in this year, declared a 50% revenue drop (when compared against the total revenue earned in the corresponding period of the previous tax year).
- An exemption from the requirement to obtain a declaration from a related entity stating that the entity made transfer price adjustments in the same amount for the tax year when the COVID-19 state of emergency was in force (or the adjustment is made in the time that the state of emergency was declared).
- Declarations for recordkeeping and maintaining the Local file could be signed by the representatives of the company (not the full board).
Apart from the above, the threshold of revenues to benefit from the 9% CIT rate will be increased from EUR 1.2 mln to EUR 2 mln