The Sejm amends the CIT Act

3 min.

On 15 September 2022, the lower chamber of the Polish parliament passed a bill amending the Corporate Income Tax Act (the “CIT Act”).

Based on the explanations available on government websites, the amended CIT Act introduces regulations clarifying certain existing solutions.

The amendment is very important from the point of view of taxpayers. Notably, it abolishes obligations that posed many problems and were even unenforceable, while removing harmful provisions of law and correcting legislative defects.

With regard to transfer pricing provisions, the most important changes proposed in the bill include:

  • repealing the provisions on applying the arm’s length principle and documentation obligations for indirect tax haven transactions, i.e. transactions where the beneficial owner of a receivable is resident in a tax haven; the amendment is proposed to take effect from the date of the act coming into force, with a retroactive effect to 1 January 2021;
  • raising the documentation thresholds to PLN 2.5 million for financial transactions, and to PLN 500,000 for other transactions, with respect to the documentation of direct tax haven transactions. Here, the thresholds are proposed to apply to both controlled transactions and other transactions.

In terms of withholding tax, the bill introduces a realignment and relaxation of the withholding mechanism in force since 1 January 2019, commonly referred to as the pay & refund mechanism. The draft provides for more flexible time limits for submitting a statement from the remitter by extending the deadlines for filing an initial statement and a follow-up statement and extending the validity of the initial statement until the end of the tax year. In practice, this means that remitters will have more time to prepare for the submission of these statements. Once an initial statement is submitted, the pay & refund mechanism will not apply until the end of the remitter’s tax year.

In addition, remitters will be bound by their statements filed in 2022. The draft implies the application of extended deadlines in relation to payments made in 2022.

The catalogue of significant changes that will be implemented by the bill includes:

  • the modification and postponement of minimum income tax provisions in connection with suspending the application of the new provisions during the years 2022-2023;
  • the repeal of provisions governing hidden dividends, which restrict the tax-deductibility of certain expenses, including distributions to shareholders and related entities, but also to entities related to the corporate taxpayer;
  • an amendment to the rules governing Polish holding companies;
  • an amendment to the regulations on profit shifting taxation, the relaxation of regulations on charging debt financing costs as tax-deductible costs, the removal of the existing obligation to include an attachment to the tax return disclosing information on taking advantage of a VAT bad debt relief; and
  • an improvement of the regulations on lump-sum tax on corporate income (the Estonian CIT),

Changes affecting other taxes will concern the maintenance of VAT rates at the current level in connection with the continued increase in inflation and the negative implications of the war in Ukraine for the Polish economy and society.

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Attorney trainee in Poland
Agata Wleklińska
Tax advisor
ECOVIS Legal Poland
+48 22 400 45 85

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This article is part of the Newsletter | September 2022.