An entity managing a foreign investment fund without the right to benefit from VAT exemption in Poland
The Minister of Finance, Development Funds and Regional Policy, in the general tax ruling of September 2, 2021 (ref. no. PT6.8101.2.2021), explained that only the activities of managing investment funds based in Poland could benefit from VAT exemption. Therefore, the exemption does not apply to funds domiciled abroad.
The general tax ruling explains that the exemption provided for in the VAT Act applies to the funds referred to in the provisions of the Act on investment funds and management of alternative investment funds. In practice, professional entities carry investment fund management, such as investment fund companies (IFC). On the other hand, the act regulating the operation of funds shows that the status of an investment fund company can only be obtained by a joint-stock company with its registered office and management board in Poland, which has obtained a permit to conduct activity as IFC.
The Minister explained that foreign investment funds are not included within the scope of the concept of „investment funds, alternative investment funds (…) within the meaning of the provisions on investment funds and management of alternative investment funds” referred to in the VAT Act. Thus, due to the failure to meet the statutory requirements, they cannot benefit from VAT exemption in Poland.
Limited partnership transformed into a limited liability company will be entitled to benefit from the reduced 9% CIT rate
The Director of the National Fiscal Information in the individual tax ruling of September 8, 2021 (ref. no. 0111-KDIB1-2.4010.229.2021.2.ANK), stated that a limited partnership transformed into a limited liability company is entitled to benefit from the reduced 9% CIT rate, provided that it meets three conditions:
- The company’s revenues in the tax year did not exceed EUR 2 million and,
- The company’s revenues from sales (including the amount of tax on goods and services) for the previous tax year did not exceed EUR 2 million, and
- The transformed company is a CIT taxpayer.
The case concerned a limited partnership (not being a legal person), which, as a result of the amendment to the CIT regulations, became in 2021 a CIT taxpayer. In the ruling application, the company’s partners indicated that they plan to transform the limited partnership into a limited liability company. Therefore they would like to know whether there would be a possibility to benefit from preferential 9% CIT rate. It should be emphasized, that as a rule, the provisions of the CIT Act do not allow to apply the preferential CIT rate to companies created as a result of the transformation of companies not being legal persons.
In the tax ruling, the Director of the National Fiscal Information confirmed that the newly established limited liability company might take advantage of the preferences because, from the beginning of 2021, limited liability companies and limited partnerships are treated as legal persons (companies) for the CIT purposes. Consequently, a company whose revenues do not exceed EUR 2 million (in the current and previous year) transformed from another company is entitled to apply the 9% CIT rate.
New tax on the largest companies (minimum income tax) in the “Polish Deal”
In the draft tax amendments under the Polish deal, a new tax on revenues has been introduced – the so-called “tax on large corporations”.
The Ministry of Finance indicates that the tax will apply to Polish capital companies (residents) and tax capital groups “which make a loss on operating activities for a given tax year or achieved such a low income from such activities that they did not have to pay taxes.”
Thus, the tax will apply to companies and tax capital groups that:
- incurred a loss from a source of income other than income from capital gains (i.e. operating loss), or
- whose share of income in their revenue will be less than 1% (low operating profitability).
It is worth mentioning that the new regulation will also apply to foreign taxpayers (non-residents) operating through a foreign establishment located in Poland, to the extent to which the revenues generated and losses incurred will be related to the operation of this establishment.
The intention of the Ministry of Finance – as is clear from the justification for the proposed change – is to burden the largest corporations that have so far avoided taxation in Poland (although the current proposed regulations do not imply such a restriction, because – for example – there is no limit as to the taxable income). The new rules, however, provide for specific exclusions in the application of the minimum income tax to taxpayers who, despite meeting the conditions mentioned above (level of income in revenues / tax loss from operating activities) are:
- start-up entities (in the year of commencement of operations and in two subsequent years),
- financial companies,
- entities with revenues decreased by at least 30% compared to the previous year,
Entities operating in a simple organizational and legal structure, without extensive connections (i.e., the shareholders or partners are only natural persons, and the company does not have shares (stocks) in the capital of another company).
The Supreme Administrative Court: The payer does not have to verify the status of the dividend recipient
According to the judgment of the Supreme Administrative Court of April 27, 2021 (ref. no. II FSK 240/21), it is sufficient to benefit from the exemption from withholding tax on dividends paid to a foreign company (under Article 22 paragraphs 4-4d of the CIT Act) having a taxpayer’s certificate of residence as well as fulfilment of the conditions enumerated in the CIT regulations. The tax remitter paying the dividend has no obligation to verify whether the payment’s recipient has a beneficial owner status.
The case concerned a Polish company that intended to pay a dividend to a foreign partner, its sole shareholder. The company thought it would be sufficient to meet the conditions set out in the CIT Act to apply for the withholding tax exemption. Therefore, there would be no need to verify whether the payment recipient is the beneficial owner of the dividend. The Director of the National Fiscal Information found the company’s position incorrect and pointed out that it is a rule that the payer should exercise due diligence when applying for the exemption.
The Provincial Administrative Court in Łódź and the Supreme Administrative Court disagreed with the tax authority. The courts unanimously decided that the release of dividends from WHT only requires fulfilling the statutory conditions (indicated in Article 22 (4-6) of the CIT Act). The payer is only obliged to exercise due diligence in verifying the fulfilment of these conditions by the taxpayer. However, the status of the recipient of the dividend as its beneficial owner is not subject to examination.
Copies of residence certificates will suffice
The modified draft of the so-called The Polish Deal provides specific facilitation for taxpayers making payments abroad that are subject to withholding tax (WHT). The new regulations indicate that „the taxpayer’s residence for tax purposes may be confirmed with a copy of the certificate of residence if the information resulting from the submitted copy of the certificate of residence does not raise any justified doubts as to compliance with the facts”.
Therefore, it will be possible to use a copy of the certificate of residence to apply the WHT exemption or preference. Nevertheless, the copy must match the original document issued by the foreign tax authority.
So far, Polish tax authorities have been refusing to apply WHT preferences – for example – in the case of payments (in excess of PLN 10,000) for advertising services made to Facebook or Google, when the tax remitter only had a copy of the certificate of residence downloaded from the contractor’s official website. According to the assumptions of the so-called Polish Deal, this will no longer be a problem as the regulations will be liberalized.
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