Another obligation is just around the corner: income tax report

On 20 March 2024, the Polish Sejm adopted a bill on amendments to the Accounting Act and certain other acts.

Author:

The purpose of the amendment to the Accounting Act is to transpose Directive (EU) 2021/2101 of the European Parliament and of the Council of 24 November 2021 amending Directive 2013/34/EU as regards the disclosure of information on income tax by certain undertakings and branches (Official Journal of the EU L 429 of 01.12.2021, p. 1) hereinafter referred to as "Directive 2021/2101".

According to the draft, taxpayers will be required to publish and make available a report on income tax within 12 months from the end of the financial year in the appropriate court registry and on the entity's website for a period of at least 5 years. The aim of the new requirement is to increase transparency regarding taxation.

Important: The legislature anticipates that such an initiative will contribute to more effectively combating practices of abusing the tax system, which lead to profit shifting to other jurisdictions, including so-called "tax havens".

Who do the new regulations apply to?

The obligation to prepare, publish and make available income tax reports will cover:

entities based in the European Economic Area:
the ultimate parent entity, if the revenues included in the annual consolidated financial statements of this entity exceed PLN 3,500,000,000 for each of the last two financial years
an independent entity, if the revenues included in the annual financial statements of this entity exceed PLN 3,500,000,000 for each of the last two financial years
entities based outside the European Economic Area:
an independent entity, if the revenues included in the annual financial statements of this entity exceed EUR 750,000,000 for each of the last two financial years
an affiliate of a capital group, if the revenues included in the annual consolidated financial statements of the ultimate parent entity of this capital group exceed the amount of EUR 750,000,000 for each of the last two financial years

When the parent company is domiciled outside the European Economic Area (EEA), the obligation rests on the subsidiary entities, provided that in the last two financial years, such a subsidiary exceeds at least two out of three thresholds:

25,500,000 PLN - in the case of the balance sheet total at the end of the financial year;
- 51,000,000 PLN - in the case of net revenues from the sale of goods and products for the financial year;
- 50 employees - in the case of average annual employment calculated in full-time equivalents.

Important: If the report is not available, the subsidiary entity should request the ultimate parent entity to provide this report for publication and availability by the subsidiary entity, as well as to provide the necessary information to prepare such a report by the subsidiary entity.

In addition, in the case that the ultimate parent does not provide an income tax report, the subsidiary publishes and makes available a report containing the information it has received and a statement stating that the ultimate parent did not make the report or information available for its preparation.

What information should the report contain?

The income tax report should contain information on all the activities of the stand-alone entity or the ultimate parent, including the activities of all subsidiaries included in the consolidated financial statements of the ultimate parent for the financial year, such as:

a brief description of the nature of the ultimate parent entity or standalone entity and a list of all subsidiary entities included in the consolidated financial statements of the ultimate parent entity;
a presentation currency of the income tax report;
a number of employees in full-time equivalents;
revenues, including transactions with related parties;
the amount of profit or loss before taxation;
the amount of income tax due for the financial year;
the amount of income tax paid for the financial year by entities and branches in a given tax jurisdiction, including withholding tax paid by other entities in relation to payments to entities and branches within the group;
the amount of undistributed profit from previous years at the end of the financial year.

Information included in the income tax report is presented separately for:

any country belonging to the European Economic Area;
any tax jurisdiction that is considered a tax haven according to the EU as at March 1 of the financial year for which the income tax report is to be prepared;
other tax jurisdictions - in aggregate form.