The Master File mainly pertains to capital groups and includes information about the entire group of affiliated entities. However, the Master File does not have to be prepared for each capital group, but only for those that meet specified conditions.

Who is required to prepare Master File documentation?

According to the provision of the Corporate Income Tax Act (hereinafter referred to as CIT), preparing the Master File is mandatory for affiliated entities with financial statements consolidated using the full or proportional method, obligated to prepare Local File transfer pricing documentation, and which meet the following conditions:

  • the group prepares consolidated financial statements;
  • the consolidated income of the group in the year preceding the year for which the Master File must be prepared, exceeded the value of 200 000 000 PLN, or is equivalent to this amount.

Current deadlines - when does the Master File need to be prepared?

According to the CIT Act, the deadline for submitting the Master File transfer pricing documentation for 2021 expires in 12 months following the end of the tax year. For the current year, this deadline has been extended for an additional 3 months.

This means that taxpayers with a standard tax year (whose tax year is analogous with the calendar year) have time till the end of March of 2023 to prepare the Master File for 2021.

What information does the Master File contain?

The scope of the Master File documentation has been specified by Art. 11q par. 2 of the CIT Act as well as in the ordinance of the Minister of Finance from December 21st, 2018, as to the documentation of transfer pricing in the scope of the Corporate Income Tax.

The Master File transfer pricing documentation should be comprised of four main elements:

  1. group description;
  2. description of the group’s essential intangible and legal values;
  3. description of the group’s essential financial transactions;
  4. indicating financial and tax information.

The Polish Deal and the Master File - ultimately unchanged

The project of the Polish Deal predicted abolishing the material threshold for the Master File documentation (200 mln PLN). This change has not come into effect and the material threshold remains unchanged.

To conclude, the obligation of preparing the Master File does not occur solely on account of consolidated financial statements. The responsibility of documentation arises when the consolidated income of the group in the year preceding the year for which the Master File must be prepared, exceeded the value of 200 mln PLN.

Currently, there are no legislative projects underway, the consequence of which would be an abolition of the Master File documentation threshold.

In case of any doubts regarding transfer pricing, we invite you to contact the KR Group team.

What is a Real Estate Company?

A Real Estate Company is an entity obliged to prepare a balance sheet based on accounting regulations, which meets one of the following two conditions:

  • (for a start-up) - on the first day of a tax year, the market value of real estate located in Poland or rights to such real estate constituted more than 50% of the market value of assets (directly or indirectly), and the value of such real estate was higher than PLN 10 mln, or
  • (other entities) tax revenues in the year preceding the tax year from rental, sublease, lease, subtenancy, leasing (and other contracts of a similar nature) or transfer of ownership, the subject of which is real estate or rights to real estate, and from interests in other real estate companies, exceeded 60 percent of the company's total revenues, and on the last day of the year preceding the tax year, the market value of real estate located in Poland or rights to such real estate constituted more than 50 percent of the market value of assets (directly or indirectly), and the value of such real estate exceeded PLN 10 mln.

Who is affected by the new obligation?

The new obligation applies to both real estate companies themselves and their shareholders, who:

  • have shares or stocks that entitle them to at least 5% of the voting rights;
  • have title to at least 5% of profit-sharing rights, or
  • have at least 5% of the total number of participation units or rights of a comparable character.

What should reporting include?

The report submitted to the head of KAS (National Tax Administrative Office) should include data on:

  • entities holding, directly or indirectly, shares (stocks) in this real estate company, all rights and obligations, participation units or comparable character.
  • a number of the above-mentioned rights in real estate companies.

According to the regulation of the Minister of Finance, the deadline for submitting such information is September 30, 2022.

Important!

Following the new regulation, the Ministry of Finance released new CIT-N1 (for a real estate company) and CIT-N2 (for partners for a real estate company) forms, as well as their equivalents PIT-N1 and PIT-N2.

Unfortunately, it did not resolve the problematic issues of determining the status of a real estate company, or how far to report indirect ties. Instead, there have even appeared technical issues related to sending information for a partner (foreign entity). Many entities face, for example, the question of whether they are required to have a Tax Number Identification.

According to the assumption, the income tax will be paid by companies, as well as tax capital groups, which incur a loss from a source of income other than capital gains, or have a share of income from a source of income other than capital gains of no less than 1%.

Contrary to the Ministry of Finance's announcement, the minimum tax will be paid by many companies, especially those still affected by the Covid-19 pandemic.

The latest draft of the amendment to the Law on Corporate Income Tax (the CIT Law) includes a modification and postponement of the entry into force of the minimum income tax provisions.

Postponement of the entry into force of the minimum income tax provisions

Due to the current geopolitical situation and related economic uncertainties, it is now proposed to suspend the application (exemption) of the provisions of Article 24ca of the CIT Law for the first year - from January 1, 2022 to December 31, 2022.

The indicated procedure eis supposed to protect Polish companies from the consequences of the entry into force of the minimum income tax in circumstances when political and economic turmoil has an impact on the global economy and thus on the operating entities.

Read more about the alternative minimum corporate income tax here.

Planned changes

In addition to postponing the application of the provisions on the minimum income tax, the project changes its structure consisting in increasing the profitability ratio from 1% to 2% and changing the methodology of its calculation by excluding:

  • from tax deductible costs:
    • lease agreement fees,
    • increase in the value of wages and salaries and social security contributions on an annual basis,
    • increase in energy value at annual intervals,
  • from revenues - the value of trade receivables sold to entities from the factoring industry, and
  • the equivalent of excise duty.

The changes will enable to choose the method of determining the tax base.

As of 2023, the calculation formula for determining the tax base will be changed. The tax base will be the sum of:

  • an amount equivalent to 2% of the value of income (currently 4%) from a source of income other than capital gains earned by the taxpayer in the tax year,
  • debt financing costs incurred for the benefit of related parties, if they exceed the amount of the limit determined on the basis of the formula. The limit under the draft will be 15% of EBITDA (currently 30%),
  • deferred income tax resulting in an increase in gross profit or a decrease in net loss,
  • the portion of the costs of acquiring certain services or intangible rights incurred for the benefit of related parties or entities from a country applying harmful tax competition in excess of 5% of tax EBITDA (currently, the excess over PLN 3 MLN).

The simplified method

A taxpayer will be able to choose a simplified method of determining the tax base representing an amount equivalent to 4% of the value of income from a source of income other than capital gains earned in the tax year.

The taxpayer will inform about the choice of a method only in the submitted tax return for a given tax year.

Exclusion catalog extension

The draft provides the extension of the catalog of exemptions of taxpayers obliged to pay the minimum income tax by adding in art. 24ca the paragraph. 14 of the CIT Act:

  • CIT taxpayers whose annual revenues do not exceed EUR 2 mln,
  • companies conducting municipal management,
  • taxpayers, most of whose revenues were generated in connection with the provision of health care services,
  • taxpayers whose profitability in one of the last three tax years was above a 2% ratio, and
  • taxpayers placed in bankruptcy or insolvency.

Wherever a company is based, it is advised to be acquainted with local regulations, particularly due to the significant fines authorities may issue for non-compliance.

Poland

In Poland, all companies generating waste are obliged to maintain Waste Records in the BDO Database. Entities producing small amounts of waste may be exempt from this obligation, as specified by the Decree of the Minister of Climate of December 23, 2019, on types of waste and amounts of waste for which there is no obligation to keep waste records (Journal of Laws 2019 item 2531). As an example, entrepreneurs producing less than 50kg of fluorescent lamps, or less than 100kg of used equipment per year (such as printers or computers), are not obliged to keep waste records.

Based on the Waste Records, a company is required to file an annual report on waste generated and waste management. These reports must be submitted in the online system of Database on Products and Packaging and Waste Management (BDO) by March 15 of the following year (as established by the Law on Waste art. 76).

The annual report on waste generated and waste management, along with the waste records, must be entered in the BDO online system. During the transition phase, these records could be kept in paper form. As of January 1, 2021, records must be maintained via the BDO online database.

The transition to an online record system is tantamount with more precise and frequent inspections. A company is most at risk by being registered in the BDO system and not keeping waste records nor preparing annual waste reports.

Non-compliance with the aforementioned regulations may result in fines ranging from 5 000 PLN to 1 000 000 PLN.

Fines are issued separately for a failure to abide by each individual requirement.

Important!

The deadline for submitting the annual waste management return is March 15th of the successive year.

Hungary

A company carrying out waste management activities (subject to permit) or exceeding a certain amount of produced waste, is obliged to submit a waste declaration. The waste declaration and the records it requires are regulated by Government Decree 309/2014 (XII. 11.) on waste registration and reporting obligations.

A waste declaration is required when the following annual quantities (per site) of generating waste are exceeded (all waste categories must be declared if any of the following limits have been reached):

  • 200 kg for hazardous waste;
  • 2000 kg for non-hazardous waste;
  • 5000 kg for non-hazardous construction and demolition waste.

The list above does not include waste collected by the public service provider. No declaration is required for waste collected by the public service provider.

Failure to abide by these regulations may result in significant fines.

The deadline for submitting the annual waste management return is 1st of March of the successive year.

Romania

All companies in Romania (such as manufacturers, offices, producers of goods) generating waste through their activities need to maintain Waste Management Records

Waste Management Record obligations require identifying the category of waste generated by the company. Furthermore, a company must maintain monthly waste records, prepare annual reports, deliver waste to collectors authorized for transport; store, treat and recycle waste as to reduce its harmful impact on health and environment; and capitalize on resources by reusing recoverable parts. Waste producers are also required to collect waste separately.

Recording waste management must be carried out by someone trained in this regard (Environmental Manager). In case a company’s activity requires authorization from environmental authorities, it is mandatory that the individual in charge of waste management underwent and completed specialized courses.

Waste management activity is regulated in Romania by GEO 92/2021 and by GD 856/2002.

Non-compliance with these regulations may result in fines ranging from 20 000 lei to 40 000.

Fines are issued separately for the failure to abide by each individual requirement.

Important!

The deadline for submitting the annual waste management return is March 31st of the successive year.

Czech Republic

Legal entities and natural persons authorized to conduct business in the Czech republic, the activity of which results in waste production, are obliged to regularly maintain waste records. Therefore, entrepreneurs must keep records on the type and amount of waste being produced. Records must be kept separately for each individual operation and type of waste. Entrepreneurs are obliged to sort all produced waste and act as to prevent its production. Waste must be stored in separate containers depending on waste type.

Another obligation for business entities is to ensure the disposal of all waste. Entrepreneurs, unlike residents, cannot use containers for sorted waste located in cities and municipalities without a permit. To do so, entities must negotiate the use of these containers on the basis of a contract with the given municipality, or they are obliged to arrange for an external waste service provider.

Entrepreneurs are obligated to fill an annual report on production and waste management. Act No. 541/2020 Coll. on waste (concreted by decree No. 273/2021 Coll. on details of waste management) defines the obligation for business entities which exceed a given amount of waste. This amount varies according to the type of waste being produced (e.g., more than 600 kg hazardous waste). The annual report must be submitted by the end of February of the successive year through the Integrated System for the Fulfillment of Reporting Obligations (ISPOP). Entities must first register in the system. If the entity produces waste, it must create an identification sheet and equip hazardous waste management sites with this document. When transporting waste, it is necessary to have the registration sheet on hand.

The deadline for submitting the annual waste management return is 28th of February of the successive year.

Thus, the deadlines for filing transfer pricing information and a statement on the preparation of local file documentation have been extended

  • until September 30, 2022 - where the deadline is between January 1, 2022 and June 30, 2022,
  • by 3 months - in case the deadline expires in the period from July 1, 2022 to December 31, 2022.

The overriding goal of these changes to the aforementioned deadlines is to make it easier for businesses to meet their transfer pricing obligations in a challenging tax reality.

The act entered into force on 1 July 2022, although some of the regulations will become effective only from 1 January 2023.

Changes in tax regulations from 1 July 2022

New PIT rates

The tax rate for the first tax bracket was reduced from 17% to 12% for income obtained by employees, contractors, persons hired under a contract for a specific work, retirement and disability pensioners, and business operators paying income tax under the tax scale.

The threshold of PLN 120,000 (from which taxpayers begin to pay 32% tax) and the tax-free amount of PLN 30,000 remain unchanged.

The amount of revenue subject to 50% revenue-earning costs for copyright, related rights, and disposal of such rights (applicable to employees who are authors, artists or performers) also remains unchanged. In 2022, 50% revenue-earning costs cannot exceed PLN 120,000 in the tax year.

The relief for young taxpayers—the limit of revenue exempt from PIT for persons up to age 26 (PIT Act Art. 21(1)(148))—remains unchanged, at PLN 85,528. Persons up to age 26 will thus pay tax only after crossing that limit, and at first the 12% rate will apply. If their taxable income exceeds PLN 120,000, the 32% tax rate will apply.

The new 12% tax rate is applied in withholding of advances from July 2022, but in the annual PIT return it will apply to income taxed at the tax scale and earned by the taxpayer throughout 2022.

No retroactive corrections will be made, even though the 12% rate will apply for the entire year 2022.

IMPORTANT! On all salary paid from 1 July 2022 (i.e. also salary for June paid on or before 10 July), the new tax regulations will have to be applied—the 12% rate as well as the new amount reducing tax (PIT-2) in the amount of PLN 300 per month.

Amount reducing tax—PIT-2

Alongside the new 12% tax rate, the amount of tax relief, i.e. amount reducing tax (PIT-2), has also changed. From 1 January through 30 June 2022 this was PLN 425 per month. From 1 July 2022, this amount will be PLN 300 per month, i.e. PLN 3,600 per year (PLN 30,000 × 12% = PLN 3,600 / 12 = PLN 300). PIT-2 forms already filed will remain valid; there is no need to refile them.

IMPORTANT! In the annual PIT return, the new amount of this tax relief (PLN 300 per month) will apply for the entire year 2022. This means that the difference resulting from the change in the amount of the relief, of PLN 125 per month (PLN 425 ˗ 300 = PLN 125) for the period of January through June 2022 will have to be returned in the annual settlement.

Elimination of mechanism of double calculation of tax advances

A uniform system for calculating tax advances has been introduced—meaning elimination of the obligation to make a double calculation of tax advances for 2022 for employees, contractors, and retirement and disability pensioners earning up to PLN 12,800 per month. Consequently, the regulations extending the deadlines for withholding and remitting income tax advances have been repealed.

Tax remitters are thus no longer obligated to calculate tax advances based on the 2021 regulations and based on the 2022 regulations, compare those amounts, and withhold tax in the lower of those amounts.

IMPORTANT! No retroactive corrections are to be made. This means that tax shortfalls accruing for the period from February through June 2022 will have to settled in the annual tax return.

From July 2022, lawmakers have abandoned the mechanism of double calculation of tax advances, but the amount of the health insurance premium should at all times limit the amount of the PIT advance calculated according to the rules from December 2021. This was probably an oversight by the parliament, which, while amending the tax regulations, did not amend the rules in the Act on Publicly Funded Healthcare Benefits for setting the limit on health insurance premiums.

Under Art. 83(2a) of that act, if the health insurance premium is higher than the income tax advance calculated according to the Personal Income Tax Act in the wording in force on 31 December 2021, the premium calculated for the specific months shall be reduced to that amount. This means that when calculating salaries in lower amounts (e.g. where a person is employed part-time, or for payments for a portion of a month), as well as salaries for persons enjoying an exemption for zero PIT (“relief for young taxpayers” up to age 26, “relief for persons returning from abroad,” “relief for parents of four or more children,” or “relief for working seniors”), it will be necessary to make double calculations:

  • For PIT purposes, the advance will be calculated according to the new rules.
  • For the purpose of health insurance premiums, the limit of the premium will be set by the PIT advance calculated according to the rules from December 2021.

Elimination of middle-class tax relief

From 1 July 2022, the middle-class tax relief has been eliminated, and is no longer being applied in calculating tax advances. However, to ensure that taxpayers do not lose out from elimination of the middle-class tax relief and do not pay higher tax for 2022, a “hypothetical tax” is being introduced.

The tax office will be required to calculate the hypothetical tax for 2022 for employees and business operators settling income according to the tax scale and generating revenue from PLN 68,412 to 133,692 annually, in accordance with the provisions of the Polish Deal in force prior to the changes of 1 July 2022, i.e.:

  • Reflecting the middle-class tax relief
  • Applying a 17% tax rate for the first tax bracket
  • Applying the amount reducing tax (PIT-2) of PLN 5,100 annually (i.e. PLN 425 per month).

If the hypothetical tax is lower than the tax for 2022 calculated according to the new regulations, the head of the tax office will be required to notify the taxpayer of the amount of the overpayment within 21 days after filing of the PIT return and refund the difference in tax to the taxpayer.

IMPORTANT! The hypothetical tax will apply only to income tax settlements for 2022.

Joint settlement with a child

The possibility of joint settlement with a child in the annual PIT return for single parents has been reintroduced. The relief of PLN 1,500 which was introduced in January 2022 has been eliminated, while the possibility of joint settlement with a child according to the rules in force through the end of 2021 has been restored. The tax-free amount for single parents is PLN 60,000.

In addition, the limit on earnings that may be achieved by the child without losing the tax preferences for parents has been raised from PLN 3,089.00 to PLN 16,061.28.

The act also expands the catalogue of types of income of the child that are not subject to inclusion in the parents’ income, to include the family disability pension. Health insurance premiums will not be deducted from family disability pensions for children up to age 18.

IMPORTANT! The regulations concerning joint settlement with a child entered into force on 1 July 2022 but will apply to all income taxed according to the tax scale earned by the taxpayer from 1 January 2022 onwards.

A single parent may file the relevant declaration with their employer on or after 1 July. Remember that declarations on joint settlement may be filed by employees at any time before the end of the tax year. The employer will reflect that beginning with the month following the month when the declaration was filed (PIT Act Art. 32(1b)).

Other reliefs and parental benefits

Tax reliefs (i.e. tax exemptions for income up to PLN 85,528 during the tax year), such as:

  • “relief for young taxpayers” (up to age 26)
  • “relief for persons returning from abroad”
  • “relief for parents of four or more children”
  • “relief for working seniors”

also cover parental benefits awarded to parents and guardians. Under the act, a parental benefit is due for the period of maternity leave, parental leave, or paternity leave.

IMPORTANT! Sickness benefits and care benefits are not subject to the aforementioned tax reliefs! Sick pay is subject to the tax relief. This change will apply to income earned throughout 2022; however, tax advances withheld from parental benefits up to June 2022 will not be subject to correction, but will be settled in the annual tax return.

If the parental benefit is paid by the Social Insurance Institution (ZUS), in the case of the relief for young taxpayers (up to age 26), for ZUS to apply the relief it is necessary to file a request for calculation of tax advances reflecting this relief.

Reminder!

From 1 January 2022 new tax reliefs were introduced for revenue up to PLN 85,528 during the tax year for:

  • Parents exercising parental authority over four or more children. This relief applies to each parent separately.
  • Persons returning from abroad, for four successive years after moving. An exemption from tax on income not exceeding PLN 85,528 during the tax year is allowed to each taxpayer moving their place of residence to Poland. The exemption for persons returning from abroad will be available with the four successive tax years counting from the beginning of the year in which the taxpayer moved his or her residence, or from the start of the next year.
  • Working seniors, who despite having reached age 60 (women) or 65 (men) waive receipt of benefits under a retirement pension, family disability pension, or pension for uniformed services or judges, in order to continue working, performing contracts, or operating a business. This relief extends only to income that is the basis for social insurance. The exemption for pensioners who are professionally active and not receiving pension benefits (up to the fixed limit of PLN 85,528) applies only to revenue earned as part of an official relationship, employment relationship, cottage industry or cooperative employment relationship, under contracts of mandate referred to in PIT Act Art. 13(8), and in non-agricultural business activity. Revenue earned under a managerial contract or copyright agreement is not eligible for this relief.

If the taxpayer is eligible for relief on more than one basis, the amount free of tax for all such revenue cannot exceed PLN 85,528 (plus the amount of income free of tax up to PLN 30,000, for taxpayers settling tax under the tax scale).

Health insurance of commercial proxies

The regulations concerning mandatory health insurance coverage for commercial proxies have been clarified, expressly including them in the list of persons subject to mandatory health insurance. But it should be pointed out that according to the justification for the bill, this change occurred from 1 January 2022 and is now only being expressly stated.

Reminder!

The obligation for management board members and commercial proxies to pay 9% health insurance premiums was introduced from January 2022. Persons appointed to serve under an act of appointment, who receive compensation on this basis, are subject to health insurance. The duty to calculate the 9% premium arises as of the date of appointment and ceases as of removal from office, and the entity paying the compensation is required to notify the person for coverage. In other words, the entity appointing a commercial proxy or management board member and paying their compensation will be the remitter—in the case of a commercial proxy, only of health insurance premiums, and in the case of a management board member, PIT advances as in previous years and also, starting from 2022, health insurance premiums.

Changes in tax regulations from 1 January 2023

Change in the rules for applying the amount reducing tax (PIT-2) for PIT advances for persons with several simultaneous sources of income

At the new tax rate of 12%, the amount of the relief will be PLN 3,600 per year, i.e. PLN 300 per month.From January 2023 the amount free of tax can be applied by:

  • Employees
  • Management board members
  • Persons working under managerial contracts
  • Contractors (under a contract of mandate)
  • Persons working under a contract for a specific work
  • Other persons receiving compensation for work performed personally
  • Persons receiving income from property rights
  • Taxpayers earning income without the intermediation of remitters (e.g. based on an employment contract with a foreign employer).

When several contracts coincide, the taxpayer will be able to split the tax-free amount and authorize a maximum of three remitters to apply the amount reducing the PIT advance, respectively:

  • On one contract, 1/12th of the annual amount reducing tax, i.e. PLN 300 per month
  • On two contracts, 1/24th of the annual amount reducing tax, i.e. PLN 150 per month
  • On three contracts, 1/36th of the annual amount reducing tax, i.e. PLN 100 per month.

Request not to withhold income tax advances

From 1 January 2023, taxpayers who anticipate that the income they earn subject to taxation according to the tax scale will not exceed PLN 30,000 during the tax year will be able to submit to the remitter a request not to withhold income tax advances. This possibility will apply not only to employees, but also to persons working on such bases as a contract of mandate, a managerial contract, or a resolution.

Request to calculate income tax advances without applying revenue-earning costs

From the beginning of 2023, the taxpayer will also be able to submit a request to calculate income tax advances without applying revenue-earning costs. This will apply to the basic costs of PLN 250 per month and the increased PLN 300 per month, as well as 50% costs for exploitation or disposal of copyright.

Calculation of PIT advances after the end of a legal relationship

If a remitter pays any benefits to the employee after the end of the employment relationship, or to a contractor after the end of the contract of mandate, when calculating the advance on income from that legal relationship the remitter will ignore the following declarations and requests previously submitted by the taxpayer:

  • PIT-2 declaration
  • Declaration on fulfilling the conditions for applying increased revenue-earning costs of PLN 300 (this applies only to the increased revenue-earning costs; the basic revenue-earning costs of PLN 250 can still be applied).

However, in calculating the amount to be paid out, the remitter will still apply requests and declarations on:

  • Calculation of advances without applying the exemption under PIT Act Art. 21(1)(148) (PIT-0 for young taxpayers)
  • Calculation of advances without applying monthly revenue-earning costs (PLN 250 or 300)
  • Resignation from applying 50% revenue-earning costs
  • Fulfilment of the conditions for applying PIT Act Art. 21(1)(152)–(154), i.e. “relief for persons returning from abroad,” “relief for parents of four or more children,” or “relief for working seniors”
  • Withholding advances applying the 32% tax rate.

Mandatory social insurance and health insurance in joint-stock limited partnerships

General partners of joint-stock limited partnerships will be covered by mandatory social insurance and health insurance.

Analysis of salaries based on change in regulations over time

Assumptions: employee above age 26, employment contract, revenue-earning costs of PLN 250, PIT-2 filed, not a participant in a PPK savings scheme. The calculations below cover only the first tax threshold and do not reflect the mechanism of double calculation of tax advances.

Gross base salary (PLN per month)  Net salary in 2021 (PLN per month)  Polish Deal 1.0 Net salary through 30 June 2022 (PLN per month)  Polish Deal 2.0 Net salary from 1 July 2022 (PLN per month) Difference between Polish Deal 2.0 and 1.0 (PLN per month)Difference between Polish Deal 2.0 and 2021 (PLN per month)
3,010.002,209.572,363.572,363.570+154.00
3,500.002,555.342,702.342,716.34+14.00+161.00
4,000.002,907.963,021.963,056.96+35.00+149.00
5,000.003,613.203,660.203,738.20+78.00+125.00
6,000.004,318.434,319.434,420.43+101.00+102.00
7,000.005,024.675,024.675,101.67+77.00+77.00
8,500.006,082.536,082.536,124.53+42.00+42.00
9,000.006,435.156,372.156,465.15+93.00+30.00
10,000.007,140.396,937.397,147.39+210.00+7.00
11,000.007,845.637,501.637,828.63+327.00˗17.00
12,000.008,550.878,129.878,509.87+380.00˗41.00
14,000.009,962.359,407.359,873.35+466.00˗89.00
15,000.0010,667.5910,045.5910,555.59+510.00˗112.00
18,000.0012,784.3011,961.3012,600.30+639.00˗184.00
20,000.0014,194.7813,238.7813,963.78+725.00˗231.00
24,000.0017,016.7415,792.7416,690.74+898.00˗326.00

The document has not yet been formally adopted and will still be subject to consultation by Ecofin (the EU Council for Economic and Financial Affairs), but it is unlikely that any changes will be introduced at this stage.

A significant change compared to the draft decision proposed by the European Commission in March concerns the planned validity period of the decision - it is to be applied from January 1, 2024 to December 31, 2026. After this period, Poland will be able to apply for the extension of the KSeF.

The draft of the Polish act introducing this obligation has not been published yet, which is also necessary to introduce the obligatory KSeF and will contain detailed regulations, eg in the scope of extending this obligation to foreign entities. According to the draft decision of the EU Council, this obligation is to apply to entities based in Poland. As long as there is no Polish act, it is not known whether this obligation will also apply to taxpayers who have a fixed establishment in Poland, and maybe even registered only for the purposes of VAT in Poland.

Despite the probable extension of the time for the implementation of the mandatory KSeF, it is recommended to plan the preparations in advance, -  the preparation process will be very complex and will require the creation of not only technical facilities, but also adaptation of the invoice issuing processes.

You can read the content of the draft EU Council decision here.

Foreign expansion relief (also termed the relief for increasing product sales) serves a complementary role to the R&D relief in effect since 2016. The new relief covers costs incurred for the commercialization of a manufactured product. Running a research and development company is not imperative to benefit from the foreign expansion relief — the tax relief is directed towards all taxpayers who incur costs from product promotion.

Who can benefit from the foreign expansion relief?

CIT taxpayer:

According to art. 18eb par. 1 on the CIT Act, taxpayers earning income other than from capital gains, may deduct the costs of obtaining income incurred through increasing income procurement from product sales, from their tax base.

The limit of deductibles is 1 000 000 PLN during a tax year.

Important: Thedeductible amount cannot exceed the amount of income earned by the taxpayer in a single tax year from income other than from capital gains.

PIT taxpayer:

A PIT taxpayer earning income from non-agricultural economic activity (identical regulations are found in Art. 26gb par. 1 on the PIT act).

Increasing income from the sale of products produced by the taxpayer is considered a paid disposal of those products to an entity which is not an affiliate.

Important: Regulations exclude the possibility of benefiting from this relief by taxpayers who do not produce their own products — taxpayers who conduct, for example, distribution sales, will not be entitled to benefit from the foreign expansion relief.

Which costs are deductible?

The costs considered as costs of obtaining income incurred through increasing income procurement from product sales, include:

  • costs of participating in fairs:
    • organizing of an exhibition area;
    • purchasing plane tickets for employees;
    • employee board and accommodation;
  • promotional and informational operations, such as: purchasing advertising space, preparing a website, press publications, brochures, information catalogues and leaflets relating to the products;
  • adapting product packaging to requirements of contractors;
  • preparing documentation enabling the sale of products, particularly concerning the certification of goods and trademark registration;
  • preparing documentation essential for tender accession, as well as for making proposals for other entities.

Deductions, as is the case with other innovation reliefs, are made in the annual tax return for the tax year when costs of increasing income from product sales were incurred.

In case the taxpayer incurred losses during a tax year, or the taxpayer’s income is lower than the amount of due deductibles, those deductibles — respectively, in their entire amount or their remaining quantity — are made in tax returns during the consecutive six tax years, following the year when the taxpayer took advantage, or had the right to take advantage of the deductibles.

Costs of obtaining income incurred from increasing income procurement through product sales, analogically, just like in the case of R&D relief, are deductible only when they have not been returned to the taxpayer in any form whatsoever or have not been deducted from the tax base by the income tax.

Foregin expansion relief — doubts

Undoubtedly, the expansion relief needs refinement. Many doubts are raised by the conditions of increasing income from product sales during the consecutive two years after incurring costs aimed to increase sales.

A taxpayer is entitled to utilize deductibles provided that during the span of consecutive 2 tax years, following the tax year when cost of increasing income were incurred, referred to in par. 1, the taxpayer increased income from product sales in relation to income established on this account on the last day of the tax year preceding the year when the costs were incurred, or when income was earned from the sale of products not yet offered, or income was earned from the sale of products no yet offered in a given county.

Art. 18eb par. 4 of the CIT Act

The regulation above puts taxpayers in an unfavorable situation, as it will be challenging to ascertain whether costs incurred from the increase of sales in a given year factually entail an increase of income in the consecutive two years.

Important: if there will be no increase in income, the taxpayer will have to face consequences - the relief will have to be returned.

Find out more about tax reliefs for innovation!

VAT group is a possibility of joint VAT settlements by taxpayers who meet the criteria specified in the act. We have written extensively on this topic in the article "Polish deal - introduction of VAT groups".

VAT group

The introduction of regulations enabling the establishment of a VAT group is to enable the creation of one new VAT payer instead of several separate ones. The entities in the group must be related parties. In addition, the group will only be able to create Polish entities and Polish branches of foreign entities (we wrote more about what constitutes a branch in the article – Changes in VAT in so-called VAT groups).

The introduction of the possibility of creating VAT groups will most likely be postponed to January 1, 2023, as mentioned in the bill, which is currently being processed in the Sejm.

These actions are dictated by great doubts held both by tax and accounting advisors, as well as by the Ministry of Finance itself,  concerning the method of operation and VAT settlement in groups.

Concerns

The greatest doubts concern the method of intra-group VAT settlement and the group's right to deduct input VAT. Controversy is raised by the way, or rather alack of a way, in which the right to deduct VAT should be established in a situation where, for example, one entity from the group makes sales related and not related to taxable activities, as well as, for example, sales exempt from VAT. In such a situation, it is difficult to determine the proportion in which the right to deduct input tax will be entitled. It is only known that each entity from the group should define its own proportion. How to do it if it turned out that, for example, one of the taxpayers performs activities solely for the benefit of another taxpayer from the group? Intra-group activities are not taxable, and outside the group, perhaps those activities would be taxable. Additionally, a group member could also have exempt sales.

In light of the current regulations, which were originally supposed to come into force on July 1st 2022, it is difficult to find the correct answer to these and many other questions. Apparently, the legislator is also aware of these problems, given how there is so much time to introduce these regulations.

Expanded scope of VAT group obligations

Apart from postponing the date of introducing VAT groups, it is already noticeable that the draft act increases the scope of obligations of the VAT group. Highlights include:

  • extending to a very significant extent the scope of information that the group will have to carry out in terms of activities performed within the group, as well as
  • the obligation of reporting this information to the tax office in the form of SAF-T by the 25th of each month following each subsequent month.

You can read the bill here.

These changes will concern the scope of transferred information on transfer pricing submitted for the tax year which commenced after the 31st of December 2020.

In practice, the planned changes expand the scope of submitted information on transfer pricing in PIT and CIT. The most important changes apply to submitting information concerning micro/small businesses, entities from “tax havens,” and transactions exempt from the obligation to prepare the Local File documentation on transfer pricing.

2021 is the last year when the declaration on preparing transfer pricing documentation will not constitute an attachment to the TPR form.

TPR and micro/small businesses

The changes introduced affect transactions made by micro and small businesses. Such entities will no longer have to indicate the benchmark and compliance analysis in their documentation of transfer pricing.

A micro business hires up to 10 people and has a net turnover that does not exceed 2 mln EUR. On the other hand, a small business hires up to 50 people and its net turnover does not exceed 10 mln EUR.

Iportant

TPR and “tax havens”

The proposed changes introduce the obligation to indicate on the TPR form any transactions with entities from “tax havens,” or with entities that inhabit, or have headquarters or management in a country applying harmful tax competition. This obligation concerns purchase transactions made since 1st of January 2021.

The new obligation concerns transactions with counterparties, the value of which exceeds 500 000 PLN in a given tax year.

Iportant

TPR and transactions exempt from preparing TP documentation

Any domestic transactions that meet specified criteria, safe-harbor transactions, and transactions covered by an investment or tax agreement, will not be the subject of TPR information.

It is not required to specify information concerning the applied transfer pricing or verification methods in the form. It is also not required to confirm that the transfer pricing covered by the Local File documentation was established on transaction terms made by non-affiliated entities.

Iportant

In case of any questions or doubts, we invite you to contact Olga Kucewicz or Miłosz Saramak.

A lack of awareness with recovery and recycling obligations does not exempt from liability for the failure to submit annual reports, pay fees (for the absence of recycling), and adhere to other obligations for a period of 5 years from the date of the obligation’s emergence.

What is the product fee?

The product fee is a penalty for the failure to achieve recovery and recycling levels of packaged products introduced into the Polish market. This also applies to packaging products are put into before being sent to the end customer (physical person), such as clothing, toys, building materials, and many others.

The obligation to recover and recycle arises when entrepreneurs introduce products in cardboard or plastic stretch wrappers, pallets, and send them by mail or courier to a client. All these packages should be counted, recorded and weighed to establish the level of recycling and recovery, and to set the fee for educational campaigns.

Important: The establishment of the BDO database has sealed the system for checking entrepreneurs! The Marshal's Office has greater capability to check whether obligations arising from the introduction of packaged products were fulfilled in the previous year.

Sanctions

In regards to introducing packaged products:

  • for not keeping records of packaging in which products were placed on the Polish market,
  • for not obtaining an official entry in the register

you must be aware of a penalty ranging from PLN 10,000 to PLN 500,000 imposed by the Regional Inspector for Environmental Protection.

Failure to pay the product fee may result in financial penalties ranging from tens to hundreds of thousands of zlotys.

Deadline

The product fee for the previous year must be paid by March 15 to the account of the Marshal's Office appropriate to the location of the company. In case of foreign companies, it is the account of the Marshal's Office in Warsaw.

Example No. 1

An entrepreneur runs a small store with clothes, which he sells stationary and online via a popular online platform. He buys goods from Italy, which come in large cardboard boxes and plastic bags. After selling online, he packs the products in cardboard and sends them to the customer through a courier service.

The entrepreneur becomes a party introducing packaged products due to the packaging with which intra-Community acquisitions of products are made, and due to the packaging in which clothes being sold to the customers are packed. As such, the entrepreneur has the following obligations:

  • Registering in the BDO system;
  • Ensuring an appropriate level of recovery and recycling of packaging in which the clothes have been shipped from abroad and in which the clothes are then packed, and transferring 2% of the value of the packaging to educational campaigns - it can be done by signing an agreement with a recovery organization;
  • Keeping records of packaging in which products were introduced in a given calendar year;
  • If the recovery and recycling level is not ensured, a product fee calculated on the basis of the amount of packaging in which the clothes were sold must be paid (calculated on the basis of kg);
  • Maintain documentation including registration number;
  • Preparing an annual report on packaged products;
  • If an entrepreneur sells clothes in plastic bags in a store, there is an obligation to collect the recycling fee from the customers and pay the recycling fee to the account of the Marshal's Office after the end of the quarter. It is also necessary to keep records of plastic bags purchased and issued and to prepare an annual report.

Example No. 2

An entrepreneur runs a building materials store and sells cement, tiles and building tools online. Materials are bought from various sources, some from Poland and some from other European Union countries. The online sales are conducted through a popular online platform. The entrepreneur packs the tools in additional foil and cardboard before making a shipment to the customer. In a stationary store, at checkout, building materials are packed in disposable plastic bags. The entrepreneur is introducing packaged products and therefore has the following obligations:

  • Registering in the BDO system;
  • Ensuring an appropriate level of recovery and recycling of packaging in which building materials and tools are ordered and in which they are sent to customers, and transferring 2% of the packaging value for educational campaigns - this may be done by signing an agreement with a recovery organization;
  • Keeping records of packaging in which products were introduced in a given calendar year;
  • Maintaining documentation including the registration number;
  • In case the level of recovery and recycling is not ensured, a product fee calculated on the grounds of the quantity of packaging in which the products were sold must be paid (calculated on the basis of kg);
  • Preparation of an annual report on packaged products;
  • In the stationary store, due to plastic bags, the entrepreneur has an obligation to collect the recycling fee from the customer, keep records, pay the recycling fee to the account of the Marshal's Office, and prepare an annual report.

As a result of the introduction of electric and electronical construction tools, as well as tools that contain batteries, company owners have a vast array of ensuing obligations specified, among others, by the Act on Used Electronical Equipment or the Act on Batteries.

On 09.05.2022, the website of the Government Legislation Centre published a draft regulation by the Minister of Health on the declaration of a state of epidemic emergency on the territory of the Republic of Poland. According to the draft, from 16.05.2022 the state of an epidemic will be abolished in Poland and a state of epidemic emergency will be introduced. This change has consequences in terms of tax law.

Tax on income from buildings

Pursuant to Article 38ha(2) of the CIT Act, income generated from 01.01.2021 till the end of the month in which the state of an epidemic is revoked, is exempt from tax on income from buildings. Therefore, if the state of an epidemic is abolished on 16.05.2022, it means that corporate income taxpayers will again be required to pay tax on income from buildings starting from June 2022 (payment due by 20.07.2022).

Important: in case the building was made available for use in part, the income is determined proportionally to the share of the usable area made available for use in the total usable area of the building. - Before paying the tax again, it is advisable to verify the said areas (moreover, the tax is not calculated if the share of the usable area does not exceed 5% of the building's area). The taxpayers of this tax are the owners of commercial properties whose value exceeds PLN 10 million if they rent, lease, or make the area usable on the basis of another similar agreement. The tax rate is 0.035% and the tax base is the initial value of a taxable fixed asset as indicated in the tax records.

Bad debt relief

Article 38o of the CIT Act introduced a shorter time limit for the bad debt relief for both creditors and debtors - the tax base is reduced/increased by receivables overdue by 30 days (instead of the standard 90 days). This provision shall apply no longer than till the end of the calendar year in which the state of epidemic declared on account of COVID-19 is revoked. If the state of epidemic is revoked on 16.05.2022, the regulation shall apply till 31.12.2022. 

Suspension of deadlines for submitting information on tax schemes (MDR)

The so-called "Anti-COVID shield" regulations in force during the epidemic state provided for the suspension of deadlines for reporting information on tax schemes. These regulations remain in effect despite the lifting of the epidemic state. The legislator introduced the principle according to which this solution is valid both during the epidemic state and the state of an epidemic threat, and till the 30th day following the day these states are cancelled.

Preference with respect to certificates of residence

The "Anti-COVID shield" regulations in effect during the epidemic state, which provide for changes in the validity of certificates of residence, also remain in effect despite the removal of the epidemic state. The legislator has introduced the principle that these solutions are valid both during the epidemic state and the state of epidemic emergency, and for a period of 2 months after these states are cancelled. 

Important: during the period of the validity of the mentioned regulations:

  • the payer shall take into account certificates of residence that do not contain a validity period, with respect to which the period of consecutive twelve months of validity expires during the period of validity of the state of epidemic emergency or state of epidemic declared in regard with COVID-19;
  • the taxpayer's residence and domicile for tax purposes may be confirmed by a copy of the residence certificate if the information from the submitted copy of the residence certificate does not raise reasonable doubt as to its accuracy;
  • the condition for the payer to obtain a certificate of residence from the taxpayer is also deemed to be met if the payer has a certificate of residence of that taxpayer covering year 2019 or 2020, and a statement from the taxpayer as to the timeliness of the data contained therein.

Timing of issuance of tax rulings

The "Anti-COVID shield" regulations in force during the epidemic state provide for a 3-month extension of the deadline for issuing individual tax rulings (to a total of 6 months). This extension remains in force despite the end of the epidemic because, in accordance with the will of the legislator, this regulation remains in force until the date of cancellation of the state of the epidemic and the epidemic threat.

Download the PDF file here.

The following table presents issues, deadlines, as well as real consequences of the introduced changes. Important: the data applies to taxpayers whose tax year coincides with the calendar year. It cannot  be ruled out that new regulations will be introduced which would give taxpayers the option to choose a tax regime.

Issueconsequences Description of changes
Transfer pricing adjustments2022Article 11e (3-4) of the CIT Act

Simplifications have been introduced in the in minus adjustments and the recognition of information about the adjustments in the annual tax declaration. There is no obligation to confirm that the transfer pricing adjustment has been made in the tax return. It is possible to use an accounting document, and not only a statement confirming that the adjustment was made by another entity.  

In consequence, in order for a taxpayer to be able to apply transfer pricing adjustments, the following conditions must currently be met:
1. maintaining the terms of transactions corresponding to non-affiliated entities;changes have occurred in relevant circumstances affecting the terms agreed upon during a given fiscal year, or the actual costs borne or revenues earned, being the basis for calculating the transfer price, are known, and an adjustment to the transfer prices is required to ensure their conformity to the terms that would be agreed upon by non-affiliated entities;
2. at the time of the correction, the taxable person holds a statement of the affiliated entity or an accounting document confirming that the said entity adjusted transfer prices by the same amount as the taxable person;
3. there are legal grounds to exchange tax information with the country in which the affiliated entity has a registered office.

During the pandemic, taxpayers are exempt from obtaining statements from contractors. It can be assumed that the real consequences will be borne by taxpayers in 2022.
Added exemptions from the obligation to prepare transfer pricing documentation2023Article 11n of the CIT Act

A number of exemptions from the obligation to prepare transfer pricing documentation for 2022 have been introduced, i.e. in the case of transactions: covered by the safe harbor mechanism, with a foreign establishment, covered by a tax or investment agreement.  

The taxpayer may be exempt from the obligation to prepare local transfer pricing documentation, when the transaction:
1. is concluded by domestic entities, and the taxpayer has not suffered a tax loss and does not benefit from any exemptions;
2. is concluded between foreign establishments of related entities located on the territory of Poland, domiciled outside Poland, but in a Member State of the European Union or a country belonging to the European Economic Area;
3. is covered by an APA or an investment agreement;is concluded between companies forming a tax capital group;
4. is in connection with the State Treasury or local government units;in which the price was set under an open tender procedure;
5. is executed between a group of agricultural producers;
6. is executed between a group of fruit and vegetable producers;
7. is re-invoiced under certain conditions;
8. complies with safe harbor conditions for low value-added services;
9. complies with safe harbor conditions for financial transactions.  

Important: the period for which the safe harbor is examined is a given tax year. Currently, the examination  applies to the financial year. The moment when a financing agreement should comply with the conditions established by the Minister of Finance under the safe harbor mechanism in terms of interest rates, should be each moment of changing the loan agreement. Until now, the regulations required an analysis confirming the fulfillment of the safe harbor conditions at the time of concluding a financing agreement.  

It is recommend  to look for exemptions from the obligation to prepare additional analyses when concluding transactions with related entities during the fiscal year 2022. When concluding financial transactions with related entities during the fiscal year 2022, it is recommended to meet the financial safe harbor criteria, which will reduce the obligations and minimize the risk in the area of transfer pricing.
Re-invoicing transactions2022Article 11n (10) of the CIT Act

Re-invoicing transactions consisting solely ofthe settlement of expenses incurred for the benefit of an unrelated entity between related entities are exempt from the obligation to prepare transfer pricing documentation if the following conditions are jointly met:
1. lack of added value in the form of a margin;
2. re-invoicing is not related directly to another controlled transaction;
3. settlement was made immediately;
4. a related entity is not an entity established in a tax haven.  

It is  recommend to conduct due diligence during the tax year when making re-invoicing transactions with related entities, so as to meet all the conditions and be exempt from documenting this transaction.
ORD-U2022Article 82 § 1c. of the Tax Ordinance

Aolishing the obligation to submit the ORD-U form for entities submitting the TPR form while not simultaneously making direct or indirect transactions with contractors in tax havens.
Tax and Investment Agreement2022Article 11c (6) and 11n (2) of the CIT Act  

The definition of an investment agreement has been introduced alongside the already introduced definition of a tax agreement and will be included in the Tax Ordinance.

The agreements are to constitute a premise that does not allow the tax authority to determine the tax obligation in the case and scope of the relevant agreement, also including matters related to transfer pricing.

Important: Since 2022 it is possible to obtain a tax agreement and an investment agreement.
Sanctions in the Penal Fiscal Code for failure to prepare transfer pricing documentation or TPR form2022Article 56c § 1. § 2. of the Penal Fiscal Code

Up to 720 of daily rates.
Sanctions in the Penal Fiscal Code for failure to prepare transfer pricing documentation or TPR form on time2022Article 56c § 3. § 4. of the Penal Fiscal Code

Up to 240 of daily rates.
Entities obliged to prepare group transfer pricing documentation2023Article 11p of the CIT Act

The threshold for Master File obligations has been abolished. From the new tax year, related entities which are obliged to prepare local transfer pricing documentation, whose financial statements are consolidated using the full or proportional method, are obliged to prepare the group transfer pricing documentation (Master File), prepared for the financial year, by the end of the twelfth month after the end of the tax year.
Value of the transaction2023Article 11l (2a) of the CIT Act

If VAT is not neutral for the taxpayer, the amount of VAT resulting from the controlled transaction will be included in the value of the transaction related to the documentation threshold.
The thresholds:
1. PLN 10 000 000 - in the case of a commodity transaction;
2. PLN 10 000 000 - in the case of a financial transaction;
3. PLN 2 000 000 - in the case of a service transaction;
4. PLN 2 000 000 - in the case of a transaction other than those specified in subparagraphs (1) to (3).

It is recommend to conduct ongoing analyses of transactions with related entities during 2022.
Benchmarking / compatibility analysis2023Article 11q (3a) of the CIT Act

A number of exemptions from the obligation to prepare TP analyzes were introduced in the case of transactions:
1. covered by the safe harbor mechanism for low-value services;
2. concluded by affiliated entities that are micro or small entrepreneurs;
3. and some transactions with entities from tax havens.

In the case of a contract of a company that is not a legal person, joint venture or other such agreement, the TP analysis is to include mainly established rules regarding: the rights of partners, parties to the contract to participate in profit / loss. It is recommended to look for the possibility of an exemption from the obligation to prepare additional analyses.

It is advised to pay attention to the following mechanisms: safe harbor for low value-added services; and safe harbor for financial transactions.

Safe harbor for low value-added services

The following conditions must be met:
1. the markup on the costs of services is:
* not more than 5% of the costs - in the case of service acquisition;
* not less than 5% of the costs - in the case of service provision;
2. using the cost plus method or the transactional net margin method;
3. the service provider is not an entity residing in a tax haven;
4. the service recipient has a calculation including the following information:
* type and amount of costs included in the calculation;
* the method of application and the rationale for the selection of allocation keys for all related entities using the services;
* a description of the transaction, including analysis of functions, risks and assets.  

Safe harbor for low value added services applies to the services listed in Annex 6 to the CIT Act, which meet all of the following conditions:
1. they are services supporting the economic activity of the service recipient;
2. they do not constitute the main object of the activity of the group of affiliated entities;
3. the value of those services provided by the service provider to non-affiliated entities does not exceed 2% of the value of those services provided to affiliated and non-affiliated entities;
4. they are not the object of further resale by the service recipient, excluding re-invoicing.

Safe harbor for financial transactions

The following conditions must be met:
1. the annual interest rate on the loan at the date of the conclusion of the agreement is set based on the type of base interest rate and the margin specified in the announcement of the Minister of Finance from 21 December 2021 on the type of base interest rate and margin for transfer pricing purposes;
2. no commission or bonus under the loan;
3. the loan was granted for a period not longer than 5 years;
4. during the tax year, the total level of liabilities or receivables of the affiliated entity arising from the principal amount of loans with affiliated entities, calculated separately for granted and taken loans, does not exceed PLN 20 000 000 or the equivalent of this amount;
5. the lender is not an entity having the registered office in a territory or in a state applying harmful tax competition.  

It is  recommend to conduct an ongoing safe harbor analysis in 2022, also in terms of possible MDR reporting.
Deadline for preparing local transfer pricing documentation (Local File)2023Article 11k (1) of the CIT Act

Change from 9 to 10 months after the end of the tax year. The change will have real effects on taxpayers in 2023, when documentation for the tax year 2022 will be prepared. However, it is possible that the legislator will extend the deadline for preparing the documentation in 2022.
Deadline for submission of TPR form2023Article 11t (1) item 2 of the CIT Act

Change from the current 9 months to 10 months after the end of the tax year. The change will have real effects on taxpayers in 2023, when the TPR form for the tax year 2022 will be prepared.
Deadline for preparing group transfer pricing documentation (Master File)2023Article 11p (1) of the CIT Act

The deadline is 12 months after the end of the tax year (no change).
The deadline for submitting transfer pricing documentation to the tax authorities in the case of tax audit2023Article 11s (1) of the CIT Act

Change from the 7 days to 14 days.
TP statement2023Article 11t (2) item 7 of the CIT Act

There is no obligation to submit a separate statement on the preparation of transfer pricing documentation and certification of the arm's length nature of transactions with related entities. The content of the declaration will be included in the TPR form. The change will have real effects on taxpayers in 2023, when the TPR form for the tax year 2022 will be prepared.
Submitting the TPR form2023Article 11t (1) item 2 of the CIT Act

The “Polish Deal” introduces the obligation to submit the TPR form to the tax offices competent for submitting the annual income tax declaration. Currently, the form is submitted to the Head of KAS. The change will have real effects on taxpayers in 2023, when the TPR form for  tax year 2022 will be prepared.
TPR form for entities that are not a legal person2023Article 11t (1a) item (1-3) of the CIT Act

Non-legal entities are also obliged to submit the TPR form to the head of the tax office competent for the registered office or place of business of the entity. So far, the TPR form has been submitted by a designated partner to the Head of KAS. The change will have real effects on taxpayers in 2023, when the TPR form for the tax year 2022 will be prepared.

One of them is a very common transaction, which consists in shifting the costs incurred by the entrepreneur onto another entity. In order to perform this correctly, you need to answer a few questions that will provide  information allowing  the correct settlement of this transaction.

In the Polish act on tax on goods and services (hereinafter: the VAT Act), there are provisions that partially show us how to proceed in the case of re-invoicing - they do not regulate the issue comprehensively.

1. On own behalf and for the benefit of a third party

The basic provision in this regard is ar. 8 sec. 2a of the VAT Act. Pursuant to this provision: When a taxpayer, acting in his own name but for a third party, participates in the provision of services, it is assumed that that taxpayer has received and provided the services himself.

By analyzing the content of this provision, we can easily come to the conclusion that it applies to a situation where, firstly: we act on our own behalf, and secondly: we act for the benefit of a third party.

Determining these circumstances is very important, not only from the point of view of how we tax the transaction, but whether it is taxable at all.

The purpose of re-invoicing is to transfer the costs incurred by the re-invoicing entity onto the entity that actually used the given services, despite the fact that the entity re-invoicing the given services did not perform them. The "re-invoice" is therefore a simple VAT invoice issued by an intermediary between the relevant service provider and the actual buyer of this service. This applies to a situation where a taxpayer buys a service and then resells it "unprocessed" to its contractor.

When do we act on our own behalf and for the benefit of someone else?

We act on our own behalf in a situation where we are obliged to bear the cost, e.g. we are a party in a service contract and the service provider derives from us an obligation to provide money to him.

Acting on someone else's behalf means that the service cost paid by entity A is consumed by entity B.

IMPORTANT

acting on one's own behalf but for a third party means  that entity A will be formally obliged to incur the expenditure, but in fact the service will be consumed by entity B.

A typical example of such a situation is charging the costs of water consumption in  rented premises. In such a situation, the party inthe water supply contract is most often the owner of the premises, who is also obliged to pay for its consumption, regardless of whether he will actually be reimbursed by the tenant who actually used the water.

What VAT rate do we apply in this case?

In a situation when we act on our own behalf but for someone else's benefit, there arises a casereferred to in Art. 8 sec. 2a of the VAT Act - we almost always use the rate thatwas on the original invoice!

Unfortunately, not always…

It is not the case that the VAT rate should always be duplicated on the invoice / exemption from the original invoice. First you need to determine:

1. Is re-invoicing a separate service or is it part of a comprehensive service?

In the most popular case, i.e. rental, we can find some tips in the verdict of the Court of Justice of the European Union C-42/14 (Minister of Finance vs. Military Housing Agency in Warsaw), in which the CJEU stated that if the cost of utilities from the rental service is singled out on the invoice, or a separate invoice is issued and, in addition, the cost depends on the consumption of utilities, and is not fixed, e.g. settled with a lump sum, then we deal with two independent rental services and e.g. water supply.

In my opinion, consumption may depend not only on the actual consumption determined on the basis of the meter, but may also be determined by, for example, a key area in its entirety, it is important that this fee is not fixed, but changes.

Example.

Entity A leases 20% of the property. The invoice for water consumption is PLN 1000 plus VAT and applies to water consumption in the entire facility, but as a rule, the total invoice depends on the actual water consumption in the entire facility and its value may change every month. Then Entity A's fee will change and depend on consumption, so it will not be a lump sum.

When we are dealing with a separate service, we generally apply the same rate as on the original invoice, while if the services are part of a comprehensive service, we use the rate appropriate for the comprehensive service.

2. Does re-invoicing concern a service whose place of provision will be in the territory of the country (domestic service), or will it be provided outside the territory of the country (export of services)?

The provision of services, in the context of VAT, should always be analyzed in terms of the place of supply of these services. The provisions in this regard are contained in Art. 28a-28n of the VAT Act and the regulation of the Minister of Finance issued on the basis of art. 28o of the VAT Act.

The most popular case when re-invoicing will not include the VAT rate at all, is when we re-invoice a service provided, for example, in Poland for an entity that does not have a registered office or a permanent place of business in Poland, and the place of service provision is regulated according to the general rule specified for B2B transactions in art. 28b of the VAT act, according to which, in such a case, the place where the service is provided is at the place where the customer is established.

There may be a situation where we receive apurchase invoice  with the VAT indicated on it, but we will re-invoice this service (pass the cost) without VAT.

3. Are we an entity that may apply, for example, a reduced rate or exemption from VAT, e.g. due to restrictions introduced by the legislator (subject-subjective VAT exemptions)? From who do we purchase services and what VAT status do we have ourselves?

When we purchase services from an entity exempt from VAT, and we ourselves are an active VAT payer, the purchased service will be documented with an invoice without the VAT amount charged. However, at the time of resale of these services as an active VAT taxpayer, we will resell this service while charging VAT according to correct rate for this service.

IMPORTANT

when re-invoicing a service purchased from a VAT-exempt entity, a VAT taxpayer should apply the tax rate appropriate for a given service.

However, if we purchase services that are exempt not because of the entity that provides them, but because of the type of service (objective exemption), then the entity that re-invoices them applies the same rate, e.g. insurance services.

On the other hand, if we are dealing with objective and subjective exemptions from VAT, i.e. the exemption applies to specific services provided by a specific entity, (e.g. certain postal, sports or cultural services). Therefore, when re-invoicing this type of service, the reseller cannot apply the same exempt VAT rate -The VAT rate appropriate to the nature of the service should apply (without using the tax exemption for specific entities).

4. Has there been a change in VAT rates between receipt and re-invoicing of the service in circumstances requiring the application of the new rate on the re-invoice?

In a situation where there is a change in VAT rates, the application of the appropriate rate will consist in determining the date when the tax obligation arises and applying the appropriate rate on that date.

IMPORTANT

In such situations, we recommend that you always check transitional (temporal) letters from which another rule  applicable in this case may be derived.

WARNING!

Energy and all of its forms are GOODS (gas, electricity) and therefore Art. 8 (2a) is not applicable as it solely concerns  services. However, in such a situation there are no restrictions as to the transfer of costs of purchasing goods, thus we operate on the basis of their resale and apply the rate as it was when they were purchased. Unless their resale is of a special nature and is carried out, for example, as part of intra-community supply of goods, export, etc., then the ra

Margin - there is no prohibition of adding your own margin when re-invoicing. Problems, but not necessarily related to tax, may arise when we increase the price in the case of specific services,  for example,  an official price (technical inspection of  a vehicle), or one requiring, for example, a concession. Then, other regulations, e.g. those regulating the price, may be violated, but in principle there are no limits as to the margin.

Tax obligation - for re-invoicing arises the same way as the obligation for a given service. It does not always mean that it is on the same date - e.g. in the case of re-invoicing of utilities (water, garbage collection), rental services, the obligation arises, as a rule, on the date of issuing the invoice. However, in the case of a re-invoice, the tax obligation for the buyer will arise on the date of the re-invoice, and not on the date of the original invoice. The date of the obligation may also change not due to what we buy, but from who. The time when the obligation arises will be different when the re-invoiced service is resold by the taxpayer applying the general rules of VAT settlement, and differently by the so-called small taxpayer who opted for the cash-based method of settling VAT. The tax obligation for a small taxpayer will arise for a given transaction according to the deadline for settling the payment for the service indicated on the re-invoice. The taxpayer settling VAT on general terms will recognize the tax obligation according to the rules that have been established for a given type of service.

ATTENTION

if we re-invoice a service for which we apply the general principles for the emergence of a tax obligation, and it arises in a different accounting month than the one in which this service will be re-invoiced, it will mean that we will, in principle, recognize the selling of this service by the  by corrected declaration in which the tax obligation arose.

Place of provision of services - if the place of provision is the territory of a country other than PL, then we are dealing with the export of services, otherwise we should recognize the import of services (the general rule is that in the case of B2B services, the place of provision is the place where the customer is located, while for B2C it is  where the service provider is established).

2. We act on our own behalf and for our own benefit

A situation that most often causes costs to be charged onto another entity may arise when we act on our own behalf and for our own benefit. To determine whether we are dealing with such a situation, we also need to check:

  • who is actually paying the expenditure and
  • 0who ultimately uses it

We determine this case without analyzing the deeper conditions of such a situation, because as a rule, we can always come to the conclusion that if someone incurred an expense in a case that concerns the client, he was acting on behalf and for the benefit of the client.

Important: in this situation we verify who actually incurred the expense and who actually used it, a typical example illustrating this issue will be the purchase of a bus ticket.

Example.

Entity A was commissioned to take photos in the field for a calendar. In order to carry out the order and get there, he decided that he would go to the place by bus, i.e. he chose the means of transport himself and paid for it and used the transport himself. The client was not obliged to bear this expense, nor did he actually use the transport. In such a situation, it means that the contractor incurred the expenditure on his own behalf and for his own benefit. Therefore, this is not a situation regulated in Art. 8 sec. 2a of the VAT Act - this part will be included as a component of the entire photographic service.  The tax obligation will arise according to the appropriate date for the photo service as a component of that service.

3. We act on behalf of and for someone’s benefit

Another case when costs are shifted to another entity may occur when someone bears the costs on someone else's behalf and for someone else's benefit. Here we are dealing with a situation where we bear the cost for someone, i.e. he is obliged to pay, but he agreed with us that we will incur such a cost, e.g. for practical reasons.

Example.

Lawyers are working on behalf of the client to file a complaint to the administrative court against the decision of the authority. According to the law, the administrative cost of the entry is paid by the client, but the lawyers, as part of their services, do it instead. According to the law, it is the client who is obliged to do it and he benefits from it. If the client does not pay this cost then the complaint will not be recognized by the court.  In the above case, we are also not dealing with the situation specified in Art. 8 sec. 2a of the Act on VAT, this issue is regulated by Art. 29a paragraph. 7 point 3 of the VAT Act.

The tax base does not include the following amounts: received from the buyer or customer as a reimbursement of documented expenses incurred on behalf and for the benefit of the buyer or customer, and recognized temporarily by the taxpayer in the tax records kept by him.

This activity is outside the scope of VAT - the transfer of the cost in such a situation takes place, for example, with a debit note.

Margin - you cannot add a margin. When we increase the value of the expenditure by it, the margin will be taxed (as a service, e.g. brokerage).

Should you be interested in obtaining further information, or would like to discuss the impact of the above changes, please contact us.

What quantities of Controlled Substances and F-Gases contained in air conditioners and refrigerators are subject  to being reported?

  1. Controlled Substances - if there are more than 3 kg of controlled substances in the air conditioner, the Operator (owner) is required to register with the CRO and  prepare an Equipment Card. Examples of controlled substances in air conditioners are CFCl3 (Trichlorofluoromethane), Halon-1211 (Bromochlorodifluoromethane), CTC (Tetrachloromethane).
  2. The F-Gases - the obligation to prepare an equipment card arises in the case of at least 5 tons of CO2 equivalent of fluorinated greenhouse gases. Each fluorinated greenhouse gas has a different GWP (Global Warming Potential) and the amount of CO2 equivalent is calculated based on that.

Examples of refrigerant quantities that make up 5 tons of CO2 equivalent:

  • R404A - 1.25 kg
  • R32 - 7.41 kg
  • R407C - 2.82 kg
  • R410A - 2.39 kg
  • R422D - 1.83 kg
  • R426A - 3,32 kg

Important: Depending on the amount of F-Gases in the cooling system and the installation of a correctly functioning leak detection system, leakage checks must be carried out at intervals of at least 24 months, 12 months, 6 months, 3 months.

What is the deadline for preparing an Equipment Card?

Pursuant to Article 14 (4) of the Law on Substances that Deplete the Ozone Layer and Certain Fluorinated Greenhouse Gases (u.s.z.w.o. Law), issued on May 15, 2015, the Equipment Card must be prepared within 15 working days from the date of delivery of the equipment to the operation site. If the equipment requires installation - within 15 working days from the date the installation was completed and filled with the controlled substance or fluorinated greenhouse gas.

What are the penalties for failing to comply?

  1. Failure to prepare the Equipment Card on time is punishable by an administrative fine of PLN 600 - 4500.
  2. Failure to ensure timely recording of the Equipment Card may result in an administrative fine in the amount of PLN 600-4500.
  3. Failure to ensure the performance of leakage checks referred to in Article 4 of Regulation (EU) No 517/2014, or failure to comply with the inspection requirements referred to in Regulation (EC) No 1516/2007, is punishable by an administrative fine of  4,000 - 15,000 PLN.

At KR Group we analyse the individual air conditioner and refrigerant based on documentation provided by the client. We help with CRO registration, creating an Equipment Card, and keeping track of leakage inspection dates.

After the approval of the EU Council - nothing will hold back the implementation of the system.

Important: This system has been operating on a voluntary basis in Poland since January 1st 2022.

How the KSeF system works?

Structured invoices (so-called e-Invoices) are prepared in accordance with the invoice template published on the website of the Ministry of Finance (MF). They can be issued both in local financial and accounting programs of entrepreneurs and with the use of free tools that will be prepared by the Ministry of Finance. The invoice is sent via the interface (API) to the central MF database (KSeF), and is subsequently available in the system and can be downloaded by the contractor.

To introduce this system, on August 2, 2021, Poland submitted to the European Commission a derogation application under Council Directive 112/2006 of November 28, 2006 on the common system of value added tax (the Directive), in order to authorize the application of a measure derogating from Art. 218, 226 and 232 of the Directive.

The derogation would consist in allowing Poland to apply a derogation from Articles 218 and 232 of the Directive. This means a derogation consisting in recognizing as an invoice only the electronic invoice issued in the KSeF while waiving the necessity to accept such an invoice by the buyer.

In February 2022 Poland has changed its proposal to derogate from Art. 226 of the Directive, i.e. the mandatory elements that should be included in the invoice, as well as, which is very important, narrowed the group of entities that would have to use this KSeF. According to the new wording, only entities based in Poland would be obliged to apply the KSeF.

The draft of the EC decision provides for the introduction of derogations in the period from April 1, 2023 to March 31, 2026, with the possibility of extension.

The obligatory KSEF cannot be introduced in Poland until April 1, 2023.

Download the PDF file here.

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Pursuant to the Personal Data Protection Act of 29 August 1997 (Journal of Laws Dz.U. 2016 item 922, as amended), I consent to receive commercial and marketing information from KR Group sp. z o.o. sp. k. with its registered office at ul. Skaryszewska 7, 03-802 Warsaw, and to introduction into the database and processing by KR Group sp. z o.o. sp. k. of my personal data provided in this form. I also acknowledge that my consent is voluntary and that I have the right to review, correct or remove my data.

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