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What is the domestic top-up tax?

The draft law on the top-up tax is a result of the implementation of the EU Council Directive.
Author:
Dominika Gruszka
Junior TAX Consultant

The draft law on the top-up tax for constituent entities of international and domestic groups, dated April 25, 2024, is a result of the implementation of the Council Directive (EU) 2022/2523 of December 14, 2022, into Polish law. This directive ensures a global minimum level of taxation for multinational groups of enterprises and large domestic groups within the European Union (referred to as the GloBE Directive).

Top-up tax – purpose of introduction

The goal of the new taxation system is to eliminate tax practices of multinational enterprises that allow them to shift profits to countries where they are either not taxed or subject to very low taxation.

Under the GloBE Directive, constituent entities of an international or domestic group that have achieved a minimum group revenue in at least two out of four fiscal years preceding the tax year will be required to pay a top-up tax if their effective tax rate (ETR) is lower than 15%.

What is the minimum group revenue?

The minimum group revenue refers to the annual revenue of an international or domestic group reported in the consolidated financial statement (prepared by the top-level parent entity of such a group), amounting to at least EUR 750 million.
The relevant fiscal years are 2021, 2022, 2023, and 2024 (if the group's fiscal year coincides with the calendar year).

In cases where the international or domestic group has existed for fewer than four fiscal years, the requirement is considered met if the group has achieved the minimum group revenue in at least two fiscal years of its current operation.

What is the effective tax rate (ETR)?

The ETR calculation determines whether the top-up tax is due in a given country. If the ETR is below 15%, Poland is considered, from the perspective of the group, a low-tax jurisdiction, and each entity located in Poland is treated as a low-taxed entity. In such cases, the domestic top-up tax should be collected.

Who is subject to the domestic top-up tax?

The following entities located in the Republic of Poland will be subject to the domestic top-up tax:

  • A constituent entity of an international group whose top-level parent entity is located in another country;
  • A constituent entity of an international group whose top-level parent entity is located in Poland;
  • A constituent entity of a domestic group.

Important : The domestic top-up tax is not the same as the minimum corporate income tax (Article 24ca of the CIT Act) or the tax on income from buildings (Article 24b of the CIT Act). Although it will be linked to corporate income tax (CIT), the top-up tax will be governed by a separate law.

Currently, the Polish government has presented the draft law with significant delay. Meanwhile, EU regulations aimed for the directive to be implemented by January 1, 2024, which led the European Commission to file a complaint against Poland with the Court of Justice of the European Union due to this delay. Nevertheless, it is certain that Poland will introduce top-up tax regulations, so it is advisable to start familiarizing oneself with this issue.

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