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Get the RET right. The tax side of real estate | June 2022

Ministry of Finance suggests more changes to income taxes. Following prior announcements, the draft Act of June 27, 2022 Amending the Corporate Income Tax Act and Selected Other Acts has been published recently. It covers the following:

– Postponement (until the end of 2022) and significant modifications of to the minimum tax regulations, especially a rise in the profitability rate (2%) and a change in the method of its calculation, expansion of the list of exemptions (for small taxpayers, municipal companies, taxpayers in bankruptcy or liquidation, taxpayers whose profitability in one of the past three tax years was above the 2% ratio, and taxpayers that earn most of their income in connection with the provision of healthcare services), and introduction of an alternative method for determining the tax base.

– Revocation of the “hidden dividend” regulations.

– Amendments to provisions concerning the taxation of the so-called “shifted income,” especially clarifications of the criteria indicated in the regulations, and introduction of provisions concerning the determination of the tax base.

– Amendments to the settlements of debt financing costs in tax expenses, i.e. making it clear that taxpayers are obliged to exclude – from the tax-deductible costs – the debt financing costs to the extent in which the excess of debt financing costs goes beyond the higher of PLN 3,000,000 or 30% of EBITDA, and the introduction of exemptions to the application of the regulations in situations where the financier is a bank or credit/savings union based in an EU or EEA member state, and in the case of debt financing granted for the acquisition or subscription of shares (or all rights and obligations) in entities that are not affiliated with the taxpayer.

– Amendments to withholding tax (WHT) regulations, i.e. exemption of the application of certain obligations as regards payments related to treasury securities, and extension of the validity term (until the taxpayer’s tax year) of the payer’s statement precluding the obligation to apply the pay-and-refund mechanism.

– Amendments to the regulations on the Polish holding company, involving the relaxation of the conditions for exemption eligibility, incl. granting the holding company with the right to use the CIT exemption on dividends, exemptions for SEZs and the Polish Investment Zone, waiver of the ban on holding over 5% of shares in another company’s share capital and holding all rights and obligations in a partnership, introduction of a 100% exemption on dividends (currently: 95%) and the obligation to apply the pay-and-refund mechanism, expansion of the scope of the application of the regulations to include the simplified joint-stock company, and clarifications of the regulations (incl. the criterion concerning the holding of shares in a subsidiary for one year).

– Simplification of the procedure for reimbursement of the tax on income from buildings by clarifying that the non-deducted amount of tax on income from building is refundable at the request of the taxpayer (with no need for any decision to be issued in that regard), as long as the request does not give rise to any reasonable doubt. 

– Amendments to regulations on foreign controlled corporations (CFCs), incl. the introduction of provisions eliminating double or multiple taxation of CFCs in the case of a series of dividend payments in holding structures, clarifications of the criterion concerning the profitability of a foreign unit in relation to the assets held in connection with the disposal of assets during the year, and clarifications of the “subsidiary” definition.

The draft act is being discussed. It is scheduled to take effect as of January 01, 2023.

The Ministry of Finance has published draft regulations on the jurisdiction of competent authorities with respect to information on real estate companies in PIT and CIT.

The website of the Government Legislation Center has published draft regulations on the jurisdiction of tax authorities as regards the receipt, handling and transfer (to other competent authorities) of the information referred to in article 45 section 3f of the Personal Income Tax Act and article 27 section 1e of the Corporate Income Tax Act, with respect to real estate companies and shareholders/partners thereof.

According to these regulations, the authority receiving information on the shareholding structure of real estate companies under article 27 section 1e item 1 of the CIT Act / article 45 section 3f of the PIT Act would be:

– the head of the tax office with jurisdiction over the real estate company (if the company is a CIT payer) or the address of the real estate company’s registered office (if the company is not a CIT payer); or

– the head of the Third Mazowiecki Tax Office in Radom – if the real estate company does not have an established registered office address in Poland as of the last day of its tax year or financial year.

Information provided by the shareholders/partners of real estate companies under article 27 section 1e item 2 of the CIT Act / article 45 section 3f item 2 of the PIT Act will instead be sent to:

– the head of the tax office with jurisdiction over the address of the registered office / residence of the taxpayer that is a shareholder/partner of a real estate company (if this taxpayer has a registered office address in Poland); or

– the head of the Third Mazowiecki Tax Office in Radom – in the case of shareholder/partners that are legal entities with no registered office address in Poland; or

– the head of the Third Warszawa-Śródmieście Tax Office – in the case of shareholders/partners who are natural persons with no registered address in Poland.

The draft regulations are being discussed.

The rent for leasing a plant will be regarded as a hidden profit under article 28m section 3, in conjunction with article 28m section 1 item 2 of the CIT Act, and will thus be subject to a fixed-rate tax on the company’s income, according to the advance tax ruling issued on June 07, 2022 by the President of the National Fiscal Information (0111-KDIB1-2.4010.103.2022.4.AK), thus finding the taxpayer’s position to be incorrect.

In yet another advance tax ruling regarding the interpretation of article 28m section 1 item 2 of the CIT Act, the President of the National Fiscal Information stated that the rent paid by the company to a shareholder for the lease of a property (plant) should be categorized as hidden profit, as defined in article 28m section 3 of the CIT Act. In the tax authority’s view, setting the transaction price (the amount of rent) in line with the arm’s length principle does not automatically mean that other applicable criteria listed in article 28m section 3 of the CIT Law have not been met. The authority found it important that the company does not have its own plant, which is necessary for its business operations, and intends to lease the plant from its shareholders, leading to the conclusion that “the company’s shareholders did not equip the company with the assets necessary for its business operations.”

According to the announcements made by the Ministry of Finance, due to numerous interpretation doubts about the application of these provisions, they are supposed to be revoked.

Tax-deductible costs cannot include depreciation/amortization write-offs made after December 31, 2022 with respect to residential units purchased, leased and entered into the records of fixed assets and intangible assets before January 01, 2022, according to the advance tax ruling issued on June 06, 2022 by the President of the National Fiscal Information (0115-KDIT3.4011.417.2022.2.AD).

The tax authority did not share the taxpayer’s opinion that the solution adopted by the lawmaker contradicts the principle of protection of acquired rights and the principle of protection of ongoing interests, arising from the principle of a democratic state and article 2 of the Constitution, thus finding the taxpayer’s position to be incorrect. Consequently, it has been confirmed that after December 31, 2022, taxpayers will lose the ability to categorize depreciation/amortization write-offs as tax deductible-expenses, even if these pertain to incompletely depreciated residential units entered into the fixed asset register before January 01, 2022.

The use of the dividend exemption for dividends paid before 2022 does not rule out the possibility of using the preference option for holding companies, according to the advance tax ruling issued on May 12, 2022 by the President of the National Fiscal Information (0111-KDIB1-3.4010.162.2022.1.IZ).

One of the conditions for using the preferential tax regime for holding companies is (article 24o section 1, in conjunction with article 24m item 1.c of the CIT Act) the non-application of the dividend taxation exemption discussed in article 22 section 4 of the CIT Act. In an advance tax ruling issued by the President of the National Fiscal Information, it was confirmed that the use of the dividend taxation exemption before January 01, 2022, i.e. prior to the effective date of the holding company regulations, does not preclude the possibility of tapping into the exemption from taxation on profits from the sale of shares in a subsidiary. Starting from January 01, 2022, taxpayers have to choose whether they will take advantage of the exemption from taxation on the sale of shares or, alternatively, the exemption from taxation on dividends, as referred to in article 22 section 4 of the CIT Act.

In case the changes announced by the Ministry of Finance come into effect, it is possible that both of the aforesaid preferential option could be applied concurrently.

Need any assistance? Got any questions? Call or e-mail us

Małgorzata Wąsowska
Tax Advisor / Partner / Head of Tax
+48 691 477 047
malgorzata.wasowska@actlegal-bsww.com

Jakub Świetlicki vel Węgorek
Tax Advisor / Senior Associate
+48 505 703 768
jakub.swietlicki@actlegal-bsww.com

Katarzyna Adydan
Tax Advisor / Senior Associate
+48 665 667 110
katarzyna.adydan@actlegal-bsww.com

Szymon Kokot
Tax Advisor / Associate
+48 691 557 507
szymon.kokot@actlegal-bsww.com

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05.07.2022

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