On 24 November 2006, the Polish President signed a Bill introducing amendments to the Corporate Income Tax Law. The Bill was published in the Journal of Laws on 29 November 2006. The amended Corporate Income Tax Law became effective on 1 January 2007. The most important amendments are summarized below.
Taxation of dividends
In principle, dividends received by Polish companies are subject to a 19% tax against which a tax paid abroad can be credited. However, from 1 January 2007, dividends received by a company resident in Poland from another Polish resident company or from a company resident in one of the EU/EEA Member States or Switzerland are tax exempt provided that:
|-||the recipient company holds at least 15% of the shares in the distributing company (for Switzerland the participation threshold is 25%); and|
|-||the recipient company holds the shares for an interrupted period of at least 2 years (exemption applies before the required time period elapses). In case of an interruption of the holding period, tax and interest are due.|
The exemption also applies to dividends received by a Polish permanent establishment from companies resident in one of the EU/EEA Member States or Switzerland.
Moreover, the exemption from withholding tax on dividends distributed by companies resident in Poland is also extended to cover dividends paid to companies resident in the EEA Member States. In order to enjoy the exemption from withholding tax, the above-mentioned conditions have to be satisfied.
New documentation requirements for PEs
Transactions, carried out by a Polish permanent establishment of a foreign enterprise, with a related foreign or domestic company or a company resident in a "tax haven" country, have to be documented following the transfer pricing regulations. The tax authorities are entitled to estimate income attributed to the permanent establishment by means of the traditional methods or, if their application is impossible, the transactional profit method. If the amount of estimated income is higher than the income declared and the taxpayer does not provide the transfer pricing documentation within 7 days upon the tax office's request, the surplus resulting from the estimation is subject to a 50% tax rate.
New definition of moment of taxable event
According to the amended rules, taxable income arises on the day when the goods are delivered, a property right is disposed of or a service is entirely or partly supplied, but not later than on the day when a payment is made or an invoice is issued.
In case of services accounted for on the basis of accounting periods, provided that those periods are not longer than a year, the taxable income arises on the last day of such a period, as stipulated in a contract or an invoice. This principle is followed in case of supply of pipeline gas, electricity and heat.
In case of income to which the above principles do not apply, the taxable income is determined on a cash basis.
New regulations concerning tax deductible costs
Under the amended CIT Law, the definition of tax deductible cost is extended to cover not only expenses incurred in order to generate income but also expenses incurred in connection with the aim of maintaining or securing a source of income.
In addition, the amendments introduce a distinction between expenses that allow a taxpayer to determine an accurate moment of their deduction. In principle, expenses directly linked with income should be deducted in the year when the corresponding income is earned whereas expenses indirectly linked with income are deductible when they are deemed to be incurred (on the day when an expense is entered into an accounting book on the basis of an invoice or another document).
Moreover, under the amended CIT Law, certain changes are introduced to a list of business expenses that are deemed to be non-deductible. The limitation of tax deductibility of non-public advertisement expenses is abolished; on the other hand, all representation expenses become non-deductible.
Reorganizations of companies
Until the end of 2006, in case of a contribution in kind of a business or an organized part thereof, it was possible for a purchaser to record it on the market value (a step-up). From 1 January 2007, if a business or organized part thereof is acquired by means of contribution in kind, its initial value has to be determined by reference to the initial book value of the company that has made that contribution. Under the principle of continuation, when making the depreciation write-offs, the purchaser is obliged to recognize the method of depreciation and the amount of depreciation write-offs already made by the company that has made that contribution.
Benefits amounting to a tax deferral in the case of certain forms of reorganizations as envisaged by the Merger Directive are extended to tax resident companies of EEA Member States.
Several changes are introduced to regulations on depreciation of assets:
|-||small taxpayers and "starters" (new companies created as a result of reorganization of already existing companies are excluded) are entitled to a one-off depreciation write-off of certain fixed assets. The deduction takes place in the year when the fixed asset is recorded and is limited to EUR 50,000 per year;|
|-||the 30% depreciation write-off available in the first year of usage of a new fixed asset has been abolished; and|
|-||a purchaser of a used non-residential building, when determining a period of depreciation, is obliged to compute it as a difference between a depreciation period of a new non-residential building (40 years) and the periods of depreciation made by previous owners. In any case, a period of depreciation cannot be shorter than 10 years.|
Deductibility of donations made to foreign charitable organizations
Until the end of 2006, donations made to domestic charitable organizations could have been deducted from the company's profit (with a maximum of 10% of the profit). From 1 January 2007, the entitlement to the 10% deduction has been extended to donations given to charitable organizations in the EU/EEA Member States. However, a deduction of donations to foreign charitable organizations is subject to two conditions:
|-||the taxpayer has to submit to the tax office a statement issued by the recipient of the donation that it meets the requirements envisaged by Polish law on charitable organizations; and|
|-||there must be a legal basis allowing the Polish tax authorities to obtain the information from the tax authorities of the state where the charitable organization has its seat. With respect to the EU Member States, the Polish tax authorities are entitled to obtain the information on the basis of the provisions implementing the Mutual Assistance Directive. Similar information can be obtained from the Norwegian and the Icelandic tax authorities on the basis of the relevant tax treaty. However, since Poland has not concluded a tax treaty with Liechtenstein, donations made to charitable organizations in Liechtenstein cannot be deducted.|