According to the justification presented by the government, the changes mainly result from comments by the Ministry of State Assets, which took the view that the new regulations would impose a much greater tax burden on Polish state-owned companies than on foreign-based corporations.

1. The first change involves the manner of determining losses and the ratio of net income to revenue which would subject a taxpayer to the minimum tax.

It is proposed that these values would not include revenue or costs connected with transactions in which the price or the manner of setting the price is determined by statute or normative acts issued pursuant to statute, and, from a source of revenue other than capital gains, the taxpayer has:

• Suffered a loss on such transaction, or
• Generated from such transaction a share of net income within revenue not exceeding 1% during the tax year,

where the loss and the share of net income in revenue is calculated separately for transactions of the same type.

According to the government justification, in a situation where the price or the manner of setting the price is regulated, taxpayers achieving low profit because transactions are subject to regulated prices would be burdened by an additional tax, which would only exacerbate their problems with economic margins (this mainly concerns regulated prices for electricity).

1. Another change concerns the possibility of reducing the amount of the minimum income tax by the amount of income tax due for the same tax year under general rules.

According to the justification from the Ministry of Finance, this regulation is intended to clearly specify the manner of proceeding in a situation where for the given tax year, the taxpayer would have to pay both the minimum income tax and income tax under the general rules. This change would effectively set off the two taxes, excluding double taxation of the same amount.

1. The list of taxpayers not subject to the alternative minimum tax is greatly extended.

An exemption has been added to the bill for taxpayers generating most of their revenue, from sources other than capital gains, from operation of ships or aircraft in international transport, or from extraction of minerals whose prices depend directly or indirectly on global market prices. According to the justification presented by the Ministry of Finance, exemption from application of the minimum tax for entities generating revenue from operation of ships or aircraft is intended to ensure that the new regulations are consistent with tax treaties concluded by Poland (under the treaties, revenue of this type is generally taxed in the state where the taxpayer has its registered office). The exemption concerning minerals governed by market prices is due to the need to take account of sudden changes in prices and thus in the profitability of entities operating in these sectors, where the taxpayers often have no influence over these changes and it would be difficult (cost-intensive) to make changes in the taxpayers’ operations. In practice, this makes it necessary for taxpayers to continue operating in situations where there is a slump on global commodities markets, or where there are great fluctuations in the prices for such commodities.

Today we describe the changes regarding:

• Changes in the form of options for taxing financial services,
• Promotion of non-cash transactions in Poland,
• introducing a quick VAT refund for non-cash taxpayers,
• Changes to binding rate information.

Taxation of financial services

The bill provides for changes in the form of the possibility for a taxpayer to elect VAT taxation of financial services.

Under Art. 135(1)(b)–(g) of Directive 2006/112/EC, financial services are generally exempt from VAT. However, member states have the option of introducing a choice by a taxable person to tax financial services supplied by it. It should be stressed that this tax option does not apply to insurance services.

The services for which this option could be elected would be:

• Transactions, including brokerage, in currencies, banknotes and coins used as legal tender
• Fund management
• Credit or cash loan granting services and intermediation in the provision of these services and credit or cash loan management by a lender
• Services involving the granting of sureties, guarantees and other security for financial and insurance transactions, as well as intermediation in the provision of these services, as well as loan guarantee management by a lender
• Services involving the deposit of funds, maintenance of cash accounts, all kinds of payment transactions, money orders and transfers, debts, cheques and bills of exchange, and brokerage services in the provision of these services
• Services, including brokerage services, the subject of which are shares in companies or other legal persons
• Services relating to financial instruments and intermediation services in this area.

NOTE!!! The option to tax financial services will only apply to services provided to VAT payers. Financial services provided to non-taxable individuals will continue to be compulsorily exempt from VAT.

Promotion of non-cash payments in Poland

Promotion of non-cash turnover is to take place through the introduction of a quick VAT refund (i.e. within 15 days) for taxpayers using cashless methods for the majority of their turnover.

A refund could be obtained within this period after meeting a number of conditions, including that the excess input VAT over output VAT to be refunded could not exceed PLN 3,000.

Changes to binding rate information

In connection with changes to the Tax Ordinance introducing a new institution, the investment agreement, which would also include issues that are the subject of binding rate information (determination of the classification and VAT rate for goods or services subject to certain VAT-taxable transactions), the regulations on binding rate information are to be revised in this respect. The purpose of the changes is to introduce provisions eliminating the possibility that the same entity could apply for interpretations (indication of the classification of goods/services and VAT rates) in the same scope, in two different forms at the same time, and thus there would be no duplication of decisions on an investment agreement already in force.

These changes in the field of VAT are included in Art. 12 of the proposed amending act (pp. 173 and following). The entire bill can be found at the following link: https://legislacja.gov.pl/docs//2/12349409/12805420/12805421/dokument514502.pdf

Comparative/consistency analysis

Under the proposed changes, local transfer pricing documentation could be relieved of the mandatory comparative analysis or consistency analysis when the documented transaction:

• Meets the criteria for the safe harbour mechanism for controlled transactions constituting low value-adding services
• Is concluded by related entities which are micro enterprises or small enterprises under the definitions in the Business Law
• Is a transaction with a counterpart from a tax haven but not a related entity
• Is a transaction with an unrelated entity, where the counterparty’s beneficial owner is a resident of a tax haven.

In addition, in the case of a partnership agreement, joint-venture agreement or other such agreement, the analysis of transfer prices would cover mainly the established rules governing the rights of shareholders/partners and the rights of the parties to participate in profit or loss.

Adjustment of transfer prices

The bill would potentially allow a taxpayer to make a downward adjustment if the entity received accounting evidence from a related entity demonstrating that an adjustment of transfer prices has been made.

The proposal also abandons the requirement for the taxpayer to include information on adjustment of transfer prices in its annual tax return.

Financial safe harbour

Under the proposed amendment, the period for which the possibility of claiming the financial safe harbour would be the given tax year. Currently, this examination applies to the financial year. The time at which a given financing agreement would have to comply with the conditions established by the Minister of Finance under the financial safe harbour mechanism, in terms of the interest rate, would be any time when there is a change in the loan agreement. The existing regulations require an analysis of compliance with the conditions for the financial safe harbour at the time the financing agreement is concluded.

Exemption from the obligation to prepare transfer pricing documentation

The bill proposes a series of exemptions from the transfer pricing documentation obligations. Expansion of the catalogue of exemptions from the requirement to prepare local transfer pricing documentation covers situations where the given transaction:

• Is covered by the financial safe harbour mechanism
• Is conducted between foreign establishments located in Poland whose parent entities are related
• Is conducted between a foreign establishment in Poland of a related entity which is a non-resident, and a related entity with tax residence in Poland
• Is subject to a tax agreement
• Is subject to an investment agreement
• Is solely a reinvoicing transaction.

However, in the case of reinvoicing transactions, the following criteria would have to be met:

• The transaction generates no added value
• The transaction is settled without a markup
• No allocation key is applied to the settlement
• The settlement is not linked with performance of another controlled transaction
• The settlement occurred immediately after payment was made to the third party
• The related entity does not its residence, registered office or management in a tax haven.

Foreign undertakings, universities and other entities referred to in §2(15)–(16) of the Regulation of the Minister of Finance, Funds and Regional Policy of 28 December 2020 (Journal of Laws 2020 item 2456) which have achieved income from economic activity in the PLN equivalent of at least EUR 3m are required to notify the head of their current tax office, in writing, by 15 October 2021, of the change in jurisdiction of the tax offices. The taxpayer must also submit such notification when it ceases to meet the conditions referred to above, and the competent tax office will again be determined by the general rules, but in that case the exclusion may take place following two subsequent tax years in which these conditions have not been met.

How to determine the jurisdiction of the new tax office?

Entities with net income/turnover of EUR 3m to EUR 50m are subject to the specialized tax office with jurisdiction based on the location of their registered office. However, for taxpayers with a net income/turnover exceeding EUR 50m, the relevant authority is the head of the First Masovian Tax Office in Warsaw. A detailed list of the relevant tax offices is included in an annex to the regulation.

Determining the amount of turnover

The amount of income is determined on the basis of data for 2020 (or if the tax year does not coincide with the calendar year, on the basis of data for the last tax year that ended no later than in 2020). The conversion of amounts in euro is based on the average exchange rate announced by the National Bank of Poland on the last day of the tax year. The equivalent of EUR 3m based on that exchange rate at the end of 2020 was PLN 13,844,400, and the equivalent of EUR 50m was PLN 230,740,000.

The methods for determining income are set out in §3 of the regulation and, as a rule, are determined based on the statement of income (or loss) in the tax year, but if this is not possible, and other methods referred to in this provision cannot be applied, it should be established on the basis of VAT declarations. In that situation, the turnover is the net amount of delivered goods and services, including delivery of goods and services in Poland, delivery of goods and services outside Poland, intra-Community supply of goods, and export of goods, based on VAT declarations for January through December or four quarters of a given tax year, drawn up on the basis of the VAT Act of 11 March 2004.

Declarations, records, and summary information for December 2021, to be submitted in January 2022, e.g. the JPK_V7M file for December 2021, will have to be submitted to the tax office that is competent following the change in tax offices.

This solution is to replace the current restriction on classifying as tax-deductible costs the costs of intangible services provided by related parties, under the current Art. 15e. If and when the changes under the Polish Deal come into force, Art. 15e will disappear, but not entirely: it will be included as relevant in the provisions defining the alternative minimum income tax and will become one of the elements of the tax base (Art. 24ca).

According to the justification of the draft amendments, the purpose of the proposed solution is to eliminate the possibility of obtaining tax benefits through tax schemes aimed at transferring income from intangible assets to tax jurisdictions with a low effective tax rate. Such transfers are considered relatively simple, and determining the value of the revenue is sometimes problematic because the schemes can be innovative and unique.

Tax rate

The tax rate on pass-through income is to be set at the same level as the basic corporate tax rate, 19%.

Tax base

While the current Art. 15e limits costs for services from related parties, the new tax implies the taxation of such costs. The following are considered to be costs of revenue passed through directly or indirectly to a related party:

1. Consulting services, market research, advertising services, management and control, data processing, insurance, guarantees and warranties, and services of a similar nature
2. Fees and charges of any kind for the use of, or the right to use, copyrights, licences, industrial property rights and know-how
3. Transfer of the risk of a debtor’s insolvency under loans other than those granted by banks and cooperative savings and credit unions, including under liabilities arising from derivative financial instruments and benefits of a similar nature
4. Costs of debt financing related to obtaining funds and using such funds, in particular interest, fees, commissions, bonuses, the interest portion of leasing instalments, penalties and charges for delay in payment of liabilities, as well as costs of securing liabilities, including costs of derivative financial instruments
5. Fees and remuneration for the transfer of functions, assets or risks.

Costs in the form of depreciation write-offs on tangible and intangible assets, as well as costs attributable to participation in a partnership that is not a legal entity, from joint ownership, a joint venture, joint possession or joint use of property or property rights, are also considered to fall within the foregoing set of costs.

Conditions of taxation

Expenses incurred directly or indirectly for the benefit of a party related to the taxpayer are considered to be pass-through income if they represent a receivable from that party and:

1. The income tax actually paid by that related entity for the year in which it obtained the receivable, in its country of residence, is at least 25% less than the amount of income tax that would have been payable by it if the income of that entity had been taxed at the 19% tax rate [and/or]
2. These costs constituted at least 50% of the value of income obtained by this entity determined in accordance with the provisions on income tax or the provisions on accounting.

To avoid the negative effects of double taxation in the economic sense, a provision is to be introduced whereby in case income (or revenue) and costs are treated as earned or incurred by at least one other entity or at least one other individual, for the purposes of point 1 above, the income tax actually paid by those other entities or individuals will be taken into account.

Taxation of pass-through income will be subject to the condition that the sum of costs incurred in the tax year for the benefit of entities, including unrelated entities, exceeds the threshold of 3% of the sum of deductible costs incurred in that year in any form, and the limitation on debt financing costs will not apply to the determination of the sum of such costs.

The provisions on taxation of pass-through income will not apply to the extent that the taxable costs were incurred for the benefit of an affiliate in a country in the EU or the EEA that carries on taxable real economic activity in that country.

Taxable subject and tax amount

The shifted income is not to be aggregated with other income (or revenue) of the taxpayer, and the remitter of the tax is to be the company shifting the income. In the case of a tax capital group, each of the companies forming the group would be a remitter.

The tax on pass-through income is to be reduced by:

1. The amount of the flat-rate withholding tax collected by the remitter of this tax, and
2. The value corresponding to the product of the value of debt financing costs excluded in the company in the tax year from deductible costs and the tax rate in effect for the taxpayer in the tax year.

Remitters of the tax on pass-through income are to be obliged to calculate this tax for the tax year in the annual return and pay it to the account of the tax office by the date of submission of the annual return.

Provisions concerning taxation of pass-through income will apply also to taxpayers conducting business through a foreign permanent establishment located in Poland.

Tax agreements and investment agreements

The bill introduces the definition of “investment agreement” into the Tax Ordinance, alongside the existing definition of “tax agreement.” Both types of agreements are to constitute grounds preventing the tax authority from assessing a tax obligation if the relevant agreement is in force, and within the scope of the agreement. This includes transfer pricing matters.

ORD-U

The new changes provide that the obligation to file form ORD-U would be eliminated for entities filing form TPR and not conducting transactions other than controlled transactions with counterparties from tax havens.

Sanctions in the Fiscal Penal Code

The bill calls for changes in the fiscal penal sanctions involving transfer pricing documentation and form TPR. A taxpayer would be exposed to a fine of up to 720 per diem units for failure to file transfer pricing documentation or form TPR. Late filing of transfer pricing documentation or form TPR could be punished by a fine of up to 240 per diem units.

Assumptions of the system

The National e-Invoice System is to be an electronic platform operated by the Head of the National Tax Administration, through which taxpayers will be able to issue and receive electronic invoices. Each user of the system will have an individual account, invoices will be issued and received via the interface software in a uniform structured form, which will become another acceptable form of documenting transactions. The interface software will be made available by the Ministry of Finance together with a template of the structured invoice.

Creating an account in the system

In order to create an account in the system, it will be necessary to authenticate the taxpayer with a qualified electronic signature or a trusted profile, and most likely an electronic seal in the case of a legal entity. The taxpayer can give authorization to access his account in the system, which means that accounting offices will be able to issue and receive invoices using the system.

Issuing and receiving invoices in the system

Once the document has been checked for compliance with the logical structure, the system will give each invoice a unique identifying number and store it for 10 years from the end of the year in which it was issued. When the period for storing invoices in the system expires, taxpayers will be required to store the invoice outside the system until the expiry of the tax liability limitation period.

For the seller, a structured invoice will be deemed to have been issued on the day on which it is sent to the National e-Invoice System. For the buyer the structured invoice is deemed to have been received using the National e-Invoice System on the date the number identifying the invoice is assigned in that system. The use of the system will also result in no need to issue duplicate invoices.

The receipt of invoices structured using the National e-Invoice System requires the acceptance of the invoice recipient, however the regulations do not provide for a specific form of such consent. It should be assumed that such consent should be given in the same manner as the consent to receive electronic invoices, i.e. in any way, for example by e-mail.

Benefits of using the system

1. Taxpayers who:
   • decide to use the new solution and will issue invoices only with its help,
   • have been registered as active VAT taxable persons for more than 12 months,
   • have submitted tax returns in the period of 12 months,
   • had a bank account or an account in a cooperative savings and settlement bank included in the white list in the period of 12 months,
   • whose amount of input tax or tax difference not settled in previous periods and disclosed in tax return for reimbursement did not exceed PLN 3 thousand,
     
     will be able to count on a faster VAT refund - within 40 instead of 60 days.
2. An additional improvement for taxpayers issuing e-invoices will be the possibility to reduce the taxable amount and the amount of output VAT in the settlement period in which they issue the correction invoice in a structured form. However, in the case of purchasers, if they agree to receive invoices via the e-invoicing system, there will be a mirroring of the way in which the received in minus corrections will be recognized – such  corrections will be recognized when the invoice is received via the system. If the buyer does not agree to receive invoices via the e-invoicing system, the moment of the correction of the output VAT at the issuer of the correcting invoice will not change, but the buyer will have to apply the conditions for settling the correction in accordance with the rules provided for in Article 86 (19a) of the VAT Act, concerning the agreement between the seller and the buyer on the conditions for lowering the taxable amount and their fulfilment.
3. Taxpayers issuing invoices via the e-invoicing system will also be exempt from the obligation to send the structure of the single audit file for invoices (JPK_FA) at the request of the tax authorities.

Entry into force

The bill is currently in the Senate and will then be signed by the President. The new regulations are scheduled to take effect on 1 January 2022, but use of the system will be voluntary during the initial period, currently scheduled to end on 31 December 2022.

Pilot program

An invitation to participate in the tests of the National e-Invoice System has already appeared on the website of the Ministry of Finance on 7 October 2021. It is addressed primarily to entities offering invoicing software. No registration is required to participate in the pilot however, it is recommended to use anonymized data during the tests. The conditions of the pilot project are available at https://www.podatki.gov.pl/ksef/strefa-testowa-ksef/ and the test version of the software can be accessed at https://ksef-test.mf.gov.pl/

Invoices issued during the tests will not have any legal effect and will be deleted from the system after a specified period.