A new way to settle withholding tax! Taxpayers will have to wait 6 months.
According to the currently binding provisions of the CIT Act, tax remitters have the right to apply a preferential withholding tax rate to payments made to foreign contractors already at their payment. However, according to government announcements, in the case of qualified payments (i.e., dividends, interest, royalties, intangible services) received by a single recipient from one tax remitter which exceed PLN 2m in total, WHT will be levied at statutory rates (i.e., 19% for dividends and 20% for interest, royalties and services) from the amounts exceeding PLN 2m, unless a tax remitter provides a specific statement to the tax authorities or the tax authorities issue a so called „opinion on the application of exemptions”.
Nevertheless, a refund of the WHT levied from the amounts exceeding PLN 2m will be possible upon request submitted by the taxpayer or tax remitter (but only in case the tax remitter incurred an economic burden of the tax). In general, the refund would be made within 6 months from submitting the application.
A new definition of „beneficial owner”
Planned amendments in CIT regulations put emphasis on verifying the legitimacy of the WHT exemption or preferential treatment with respect to the interest and royalties paid by the Polish taxpayers. In particular, in order to benefit from the exemption or lower interest level the recipient of payment should meet the definition of the „beneficial owner”. A new definition of the „beneficial owner” has been introduced. According to the new definition, a „beneficial owner” is an entity for which the following conditions are jointly met:
- receives the payment for its own benefit, being able to decide on its further use and bears the economic risk associated with the loss of the amounts received
- is not an intermediary, representative, trustee or other entity legally or actually obliged to transfer all or part of the receivables to another entity
- conducts a real economic activity in the country of residence – if the receivables are obtained in connection with the conducted business activity.
An investment fund management company can be considered as the beneficial owner of receivables
On August 8, 2018, the Director of the National Fiscal Information in response to the application filed by TPA Poland issued an individual tax ruling in which the applicant’s position was confirmed, indicating that the direct consequence of the recognition of the German company managing an open-ended real investment fund, which performs investment activities among others in Poland via SPVs located in Poland in which the managing company holds 100% of the shares, as a taxpayer in terms of income generated by the fund’s assets was the recognition of the managing company as the beneficial owner of the received receivables. Consequently, the management company meets the requirements authorizing it to apply the withholding tax exemption in relation to the interest received on the loan granted to the related Polish entity.
No obligation to pay CIT due to assets received from the liquidation of a foreign company
According to the ruling of the Supreme Administrative Court (NSA) of July 31, 2018 (reference number II FSK 2049/16), there is no need to pay corporate income tax on assets received from the liquidation of a foreign company. The verdict concerned a Polish company being a shareholder of a Cypriot company that was to be liquidated. The Polish taxpayer was to receive investment certificates from the liquidation assets of the company, which in his opinion were not subject to CIT taxation. According to the Polish tax law, the corporate income tax is levied only on the income generated by a foreign entity and not on the assets received within liquidation. The taxpayer’s position was confirmed by the NSA, which stated that the release of assets to the shareholder of the liquidated company is not a consequence of the performance of a non-cash obligation, but only the disposition of its assets.
The first occupancy of the building does not need to take place as part of the VAT-taxed activity
In accordance with the ruling of the Provincial Administrative Court (WSA) in Gliwice of July 24, 2018 (reference number III SA / Gl 256/16), the first occupancy of the building is putting the building to use to the first purchaser or user of buildings, structures or their parts. This event does not require any VAT taxable activity (e.g. renting the building). According to the court, the term first occupancy should also be understood as any use of the building after its construction (improvement), including that for the needs of business activity. The case in question concerned a Polish company, which in 2001 bought a social and administrative building via an asset deal exempt from VAT, in which improvements were made in the amount higher than 30% of its value. The building was used only by the company for purposes related to its business activity. According to the taxpayer, the potential sale of the building in accordance with the UE VAT directive will benefit from the VAT exemption, as the first occupancy of the building occurred already at the time of its purchase from the first user.
The WSA in Gliwice confirmed the position of the company citing the ruling of the Court of Justice of the European Union of November 16, 2017. (Case C 308/16).
A draft amendment to the Act on the National Revenue Administration
The draft amendment significantly extends the existing competences of the National Revenue Administration. The tax audit may also be initiated in the absence of the controlled person, and the auditors will only have to prove their professional ID. It will also be possible to institute customs and tax controls on tax capital groups that have lost their taxpayer status (i.e., have been dissolved). In addition, the possibility to submit an adjustment to the tax return will be significantly reduced. If during the control the taxpayer agrees with the tax authority and decides to make a correction of the declaration, then after the end of the proceeding the tax payer will not be able to effectively reverse the correction made. These restrictions will apply to the extent to which the adjustment provides for the withdrawal of customs and tax control findings.
The limit on the deduction of debt financing costs will remain at the current level (?)
According to the regulations in force as of the beginning of 2018, the taxpayer is obliged to exclude from the tax-deductible costs the surplus of debt financing costs above the level of 30% of tax EBITDA. On July 2018, the Ministry of Finance published a bill on PIT and CIT for public consultations, which foresaw the reduction of the current threshold to 20%. During the public consultations, the Minister of Entrepreneurship and Technology suggested that this limit should remain unchanged. In response to the postulates, the Minister of Finance in a letter dated August 20, 2018 (DCT2.8200.1.2018) announced that the limit will, however, be maintained at the current level of 30% EBITDA.
The costs of intangible services provided by limited partnerships are costs incurred by the investment fund
In its ruling of September 13, 2018, (reference number I SA / Kr 734/18), the Provincial Administrative Court in Krakow (WSA) confirmed the position of the tax authority expressed in an individual tax ruling, indicating that if the investment fund being a taxpayer of income tax is in the structure with limited partnerships being tax-transparent entities (including foreign entities), the costs of intangible services incurred by these companies should be considered as incurred by the fund as the only taxpayer, being a legal person. Consequently, the statutory reduction of tax-deductible costs related to intangible services is assigned to the fund.
Let’s meet at Expo Real 2018
On October 8-10, 2018, Europe’s largest B2B trade fair for property and investment – Expo Real – will take place in Munich.
During 80 symposiums, conferences and discussions speakers will discuss trends and innovations in the real estate, investments and financing markets.
We would like to invite you to meet our experts from TPA Poland and Baker Tilly Woroszylska Legal during this event.
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