Tax & Legal Highlights for Real Estate – September 2020

New WHT collection regime since 2021 – amendments in rules which have not been in force yet.

According to the information provided by the Ministry of Finance, the new WHT collection regime, the application of which is postponed by subsequent regulations, shall enter into force on 1 January 2021 in a modified (softened) wording.

• Currently, the new WHT collection regime assumes::
  1. payment regardless of the type of payment (e.g. interest, dividends, intangible services, royalties)< PLN 2M made to the benefit of a foreign entity – previous rules are applicable, i.e. WHT may not be collected or reduced Double Tax Treaty’s (DTT) WHT rates can be applied. However, the tax remitter is required to be due diligent verifying the conditions of the application of rates, exemption or non-collection of WHT and collect certain documentation.
  2. aforementioned payments > PLN 2M during a year – as a rule, an obligation to collect and pay WHT at 19% or 20% rate and its subsequent refund at the request of the taxpayer / tax remitter)
  3. aforementioned payments > PLN 2M – a tax remitter may not collect the WHT only if:
     1. submission of an appropriate statement by the tax remitter (Polish company) or
     2. obtaining an opinion on the application of WHT exemption.
• The following issues are to be included in the draft amendment announced by the MF:
  1. The pay and refund mechanism of settlements presented in point 2) part II above:
     1. should not apply to dividends paid to Polish tax residents
     2. should be limited only to passive payments (interest, dividends, royalties) to related parties
     3. would not apply to intangible services (regardless of relationship between the taxpayer and tax remitter)
  2. the definition of the beneficial owner will be clarified
  3. the opinion on the application of WHT exemption under the Interest-Royalties and Parent Subsidiary Directives will be replaced with the opinion on the use of preferences – as a result, apart from the situations covered by the exemption from the EU Directives, it will be possible to confirm the possibility of applying the preferences resulting from the Doble Tax Treaties
  4. the rules for signing the statement (vide: point 3) in part I above) by a Polish company to the extent that the contractor meets the criteria for applying the DTT preferences or exemption from the EU Directives
  5. the rules of fiscal penal liability will be softened.

Additionally, the Ministry of Finance has announced the issuance of tax clarifications in the field of WHT regarding, among others:

• due diligence when verifying contractors
• and the concept of the so-called „look through approach”, i.e. the possibility of applying preferences in the case of payments made to the beneficial owner who is not their direct recipient, will be clarified.

Projected changes in CIT in order to tighten the tax system

On September 2020 on the list of legislative and program works of the Council of Ministers under the number UD126  was an announcement of significant changes in the field of income taxes. The purpose of the announced changes is to tighten the tax system:

• CIT taxation of limited partnerships and selected general partnerships

Currently, limited partnerships are tax transparent entities. It means that they are taxed only at the level of the partners and not the company itself. According to the announcements of the Ministry of Finance, this situation is going to be changed – after the change, the income tax will be paid by the limited partnership as well. Although it does not follow from the published information, it can be assumed that the distribution of profit from a limited partnership to its partners will also be taxed, similarly to the case of capital companies and a limited joint-stock partnership. An analogous taxation system may also be introduced for general partnerships whose partners participating in the general partnership’s profits are not disclosed.

• Transfer of the tax burden on the sale of shares in the so-called real estate companies from the seller (shareholder) to this real estate company
• Extension of taxation to the issue of post-liquidation assets to shareholders

Article 14a of the Polish Corporate Income Tax Act regulates the tax consequences of settling liabilities through non-monetary performance. According to the current ruling of the Supreme Administrative Court, the release of post-liquidation property to its partners is not covered by the provisions of Art. 14a of the CIT Act and therefore not subject to CIT. Considering the above, the Ministry of Finance intends to clarify Art. 14a of the CIT Act by stating explicitly that its norm also covers „transfer by a liquidated company (co-operative) of tangible assets to its partners (shareholders, members of a co-operative) by way of division of the assets of the liquidated legal person”.

• Limiting the possibility of settling losses in the case of:
  1. acquisition of another entity, or
  2. when the taxpayer has received an in-kind contribution in the form of an enterprise or an organized part of an enterprise, or 
  3. when a cash contribution was made for which the taxpayer acquired the enterprise or an organized part of the enterprise.
• Changes in the method of determining the value of debt financing costs that may be classified as tax deductible costs. The above is to eliminate interpretation doubts regarding the excess of debt financing costs.
• Extending the obligation to apply the arm’s length principle – the changes will apply to situations where the beneficial owner has its seat in the so-called „tax haven”. In addition, the scope of obligations for such transactions is to be increased.
• Adjusting the regulations concerning the division of income into non-residents to the standards introduced by the so-called MLI Convention.
• Increasing the income threshold for „small taxpayers” entitled to apply the 9% CIT rate from EUR 1.2 M of revenues to EUR 2 M of revenues.
• Introducing changes in the tax on commercial real estate (the so called MinCIT), allowing for the extension of the exemption in a situation in which after December 31, 2020, the „state of epidemic” will be continued in Poland.
• Approximation of the principles of tax and accounting depreciation and amortization.
• Limiting the possibility of manipulating the depreciation rates (mainly by reducing them) in a situation where the taxpayer benefits from the CIT exemption.
• Introducing the obligation to prepare and publish information on the „tax policy” for a given tax year, which may result in the imposition of additional obligations on a taxpayers.

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