Exit tax, tax on unrealized profits, departure tax – are different names of the new levy that Poland’s Ministry of Finance is working on. The government wants to use the exit tax, know from foreign tax systems, to combat tax optimization involving transfer of company assets, its registered office, or tax residence by the taxpayer to another country. Even though by definition this tax applies only to such transfer of assets that involves loss of given country’s possibility to tax income generated prior to the said transfer, the idea of the Ministry of Finance has raised considerable concerns regarding the scope of taxation among the taxpayers.
The assumptions of the tax under consideration have been formulated in the draft of the Act amending the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Ordinance Act and some other laws of 24 August 2018. The idea to introduce the new levy is not a pioneer concept of the Polish Ministry of Finance – not only has it already been in force in tax regimes of other countries, such as Germany, the Netherlands, but also Poland is obliged to introduce the so-called exit tax by the end of 2019. This obligation is in line with the Council Directive (EU) 2016/1164 aimed at preventing tax avoidance practices (ATAD Directive).
Pursuant to the planned amendments, the taxation of income from unrealized profits shall apply to the following:
- transfer of an asset outside of Poland, as a result of which Poland shall, in whole or in part, lose the taxing right to income from selling that asset, where the transferred asset shall continue to be owned by the same taxpayer;
- change of the tax residency by a taxpayer with unrestricted tax liability in Poland, as a result of which Poland shall, in whole or in part, lose the taxing right to income from selling the asset owned by the taxpayer, who transfer its registered office or its effective management to another state.
The tax base of the exit tax shall be calculated as a sum of income from unrealized profits determined for particular assets (which shall be construed as a business or its organized part as well).
In the case of CIT taxpayers, the tax rate shall be 19% of the tax base, whereas in the case of PIT taxpayers, two rates have been provided for: regular 19% or reduced 3% rate, which shall apply when the tax base of the asset is not determined. In the case of natural persons, the tax shall apply only after exceeding the PLN 2 million threshold of the asset value.
Since we know that the proposed amendments are to apply to both legal and natural persons, one just can’t help but accuse the draft of a too broad approach to implementing the ATAD directive. According to the ATAD Directive, its regulations shall apply to CIT taxpayers. Given the above-mentioned scope of implementation provided for the in the ATAD Directive, the project goes beyond the minimum level of protection against aggressive tax planning.
The proposed regulations may have a negative impact on the profitability of cross-border, strictly business-oriented restructuring, and additionally discourage foreign entities from investing in Poland – when making such a decision, investors will definitely take the need to pay the discussed tax in the future into account.
Given the said concerns, with the head start of additional 12 months in mind (as mentioned, the ATAD Directive imposes the obligation to introduce the new tax by the end of 2019, calls for separate legislative works to be conduced with a broad participation of public and non-governmental partners, thus postponing the decision on the introduction of the exit tax until its shape is more well-planned, are understandable.
