A change in the interpretation? Interest only up to PLN 3 million!
On 04 June 2018, the Head of National Revenue Administration issued and individual interpretation concerning the obligation to exclude debt financing from the tax deductible expenses (no. 0114-KDIP2-2.4010.138.2018.1.AM). The authority pointed out that the maximum threshold for the deduction of the surplus of debt financing costs shall be PLN 3 million a year or 30% of the EBIDTA (if the surplus exceeds PLN 3 million).
Pursuant to effective regulations, taxpayers are not allowed to include the amount of debt financing costs which exceeds 30% of the EBIDTA in a given year in tax deductible costs. The surplus is the amount by which debt financing costs (i.e. interest, commissions, fees, etc.) exceed the taxpayer’s interest-related revenue. The authority stressed that if the value of 30% of the EBITDA is lower than PLN 3 million, the surplus – up to PLN 3 million – is allowed to be included in tax deductible costs. However, if the 30% EBITDA value exceeds the amount of PLN 3 million, the total surplus must be excluded from tax deductible costs.
Interestingly, when asked recently by DGP, the Ministry of Finance confirmed that in both cases there was no limit of PLN 3 million in a given year. It was only surplus that was limited. With respect to debt financing costs, the limit was 30% of a company’s EBITDA, whereas in case of intangible services – 5% of its EBITDA.
A change in the law? Revolution in transfer pricing continues
On 16 July 2018, a draft bill amending the Corporate Income Tax Act and the Personal Income Tax Act was published. The bill is to abolish current regulations and replace them with new ones, included in a separate chapter of both acts. These amendments are to adapt Polish regulations to the OECD Guidelines and seem to reduce some administrative encumbrances related to transfer pricing
A draft bill amending the Corporate Income Tax Act and the Personal Income Tax Act »
A change in the law. Minimum CIT 2.0.
The Polish Journal of Laws already contains an act amending the regulations on the minimum CIT, i.e. the minimum tax on commercial real estate. In its latest version, the tax will generally apply to all real properties being subject to lease, unless the share of leased space in the total floor space area does not exceed 5% of its usable area (GLA).
The nominal tax rate remains the same; however, the clarification of the moment to determine the tax base and the change in the method of calculating the tax exempt amount may result in a different effective rate. The following entities should pay a particular attention to the amendments:
- groups of companies
- owners of leased properties, which until now haven’t been subject to taxation (e.g. hotels, warehouses)
- PRS sector companies
- owners of properties that were not fully let, which have been subject to taxation so far
- tax capital groups.
There also considerable changes related to the possibility of the minimum tax refund, which was not deducted from the ‘regular’ tax. The tax refund will be possible after the end of the year upon the taxpayer’s request; however, in case of requesting the refund, the taxpayer should take into account the possibility of a tax investigation, especially one related to the market relevance of financing costs.
Some amendments, among others those concerning the tax refund, have been in force since January 2018, while the remaining ones will become effective in 2019.
New law? Another version of Polish REITs
Another version of the draft bill on Polish REITs, this time referred to as FINNs, was published on the website of the Government Legislation Centre. In accordance with the announcements of the legislators and contrary to the lobbying of the real estate industry, the concept of REITs that would apply only to residential properties, including senior and student housing was retained.
Detailed information can be found at the website of the Government Legislation Centre. The bill will be referred to the Sejm, the lower chamber of Polish parliament.
