We would like to draw your attention to the new amendments proposed in the major CIT reform amending act, which is currently undergoing the legislative process in the Polish Parliament (already passed to Senate).
In its most recent session (27 October 2017), the Polish Parliament passed the regulations that significantly limit the scope of tax exemptions for investments funds and collective investment institutions. These regulations literally cover:
- exclusion of the general tax exemption for collective investment institutions with reference to:
- new commercial property tax (so called minimal tax), i.e. the tax on the ownership of commercial properties with an initial value exceeding PLN 10 million (later: Commercial Property Tax) – pursuant to new article 6.5 of CIT Act; in other words also CIT exempt funds will be obligated to pay the minimal tax on commercial properties. This requires in our view analysis of cost segregation and FAR in order to correctly determine the taxable basis starting from 2018.
- income derived from the properties covered by the Commercial Property Tax – pursuant to new article 6.4.2 of CIT Act; in other words for profits derived out of the commercial properties to which Commercial Property Tax refers, exemption will not apply even if the funds fulfill all the requirements for the general fund exemption.
- limitation of the tax exemption for closed-ended investment funds and similar collective investment institutions with reference to income derived from the properties covered by the Commercial Property Tax – new article 17.1.57.g) and 17.1.58 of CIT Act. It means that incomes of closed-end funds derived from investing in commercial properties (as defined for Commercial Property Tax purposes) will no longer be exempt.
Passing of the above mentioned regulations, providing that there will be no pushback from the Upper Chamber of Polish Parliament (Senate) means that they will come in force effectively on January 1, 2018.
The above described amendments were not incorporated in the proposed draft of the major CIT reform that was presented to the Polish Parliament. As such, there is no justification available in either the proposed major CIT reform as well as in the documents/reports submitted by the Public Finance Commission. However, bearing in mind the last year’s reform, which changed the rules of taxation for investment funds and collective investment institutions, we could infer that the purpose of this change is actually to increase the effectiveness of their CIT taxation (equally to foreign, as well as to local funds).
Hence, we highly recommend monitoring the final stage of the legislative process and preparing for the changes in your tax reconcilliations should these regulations come into force in their proposed form.
We kindly encourage to contact us with any concerns and questions.
