The introduction of the minimum tax for companies in Poland marks a significant shift in the country’s fiscal policy aimed at ensuring fair taxation and combating aggressive tax optimization practices. This article delves into the genesis, implementation, and implications of the minimum tax, providing detailed information on its calculation, legal foundations, and the dates of its entry into force.
Genesis of the Minimum Tax Introduction
The idea of a minimum tax emerged from the observation that some large corporations, despite generating substantial revenues, report minimal or zero taxable income. This discrepancy often results from sophisticated tax optimization strategies, utilization of tax allowances, or shifting profits to jurisdictions with lower tax rates. Such practices not only reduce tax revenues for the state but also create an uneven playing field for businesses.
To address these concerns, the Polish government, inspired by international trends and OECD recommendations, decided to implement a minimum tax. The primary objectives are:
- Ensuring Fair Taxation: All companies, especially those with significant revenues, contribute appropriately to the state budget.
- Preventing Tax Avoidance: Discouraging aggressive tax planning and profit shifting.
- Promoting Fair Competition: Leveling the playing field for all businesses operating in Poland.
Key Provisions of the Minimum Tax
1. Applicability of the Tax
The minimum tax applies to:
- Corporate Income Tax (CIT) Payers: Companies subject to CIT in Poland.
- Tax Capital Groups: Groups of companies taxed as a single entity.
- Criteria:
- Companies that, in a given tax year, report a tax loss from sources other than capital gains.
- Companies whose share of income in revenues (other than capital gains) does not exceed 2%.
2. Tax Rate and Calculation Formula
- Standard rule: Tax Rate: 10% of the tax base calculated according to specific rules.
3. Tax Base
The tax base for minimum tax in Poland is sum of an amount corresponding to 1.5% of the value of revenues from sources other than capital gains achieved by the taxpayer in the tax year and part of the costs calculated in specific rule (e.g. costs of advisory services, marketing, loyalties, loans form affiliated parties. The taxpayer may choose a simplified method of determining the tax base, which is an amount corresponding to 3% of the value of income earned by the taxpayer in the tax year from sources of income other than capital gains,
4. Exemptions and Exclusions
Certain entities are exempt from the minimum tax, including:
- Start-ups: Companies in their first three years of operation.
- Small taxpayers: e.g. entities with turnover under EUR 2M.
- Companies whose shareholders, stockholders or partners are exclusively natural persons and provided that the taxpayer does not hold:
- directly or indirectly, more than 5% of:
- shares (stocks) in the capital of another company or
- all rights and obligations in a company that is not a legal person,
- other property rights related to the right to receive a benefit as a founder (founder) or beneficiary of a foundation, trust or other entity or legal relationship of a fiduciary nature
- Financial Enterprises: Banks, insurance companies, and other financial institutions.
- Mining Companies: Entities extracting certain natural resources.
- Municipal Companies: Companies owned by local government units.
- Entities with Sudden Decline in Revenues: Companies experiencing at least a 30% drop in revenues compared to the previous year,
- Other: there are more exceptions provided
5. Offset Against Corporate Income Tax
- The amount of the minimum tax paid can be deducted from the corporate income tax (CIT) due in the following three tax years. This mechanism prevents double taxation and encourages companies to improve profitability.
6. Dates of Entry into Force
- Initial Legislation Date: The minimum tax provisions were introduced in the Act of 29 October 2021, amending the Corporate Income Tax Act and certain other acts.
- Original Effective Date: The tax was initially set to come into force on 1 January 2022.
- Postponement: Due to concerns raised by businesses and the need for further legislative refinement, the entry into force was postponed.
- Final Effective Date: The minimum tax provisions became effective on 1 January 2024.
Impact on Companies
1. Increased Tax Burden
- Companies subject to the minimum tax may experience an increased tax liability, affecting profitability and cash flow.
- The tax particularly impacts companies with high revenues but low profitability ratios.
2. Strategic Reassessment
- Businesses may need to reassess their financial strategies, focusing on improving operational efficiency and profitability to exceed the 2% profitability threshold.
- Encourages companies to limit aggressive tax planning and align with standard taxation practices.
3. Compliance and Reporting
- Enhanced reporting requirements to accurately calculate and report the minimum tax.
- Necessitates robust accounting systems and possibly professional tax advisory services.
Controversies and Discussions
1. Effectiveness in Combating Tax Avoidance
- Critics question whether the minimum tax effectively addresses tax avoidance or merely imposes additional burdens on legitimate businesses facing temporary losses or low margins.
2. Impact on Investment and Competitiveness
- Concerns that the tax may deter foreign investment and affect the competitiveness of Polish companies in the global market.
- Potential negative impact on industries with inherently low profitability but significant economic importance.
3. Complexity and Administrative Burden
- The complexity of the tax calculation and compliance requirements may increase administrative burdens, especially for large corporations with complex structures.
4. Alignment with EU Regulations
- Discussions on whether the minimum tax aligns with EU directives and principles, particularly concerning state aid and non-discrimination.
Conclusion
The introduction of the minimum tax for companies in Poland represents a concerted effort by the government to enhance tax fairness and increase budget revenues. By targeting companies that report minimal taxable income relative to their revenues, the tax aims to ensure that all profitable economic activities contribute appropriately to public finances.
Key Takeaways:
- Implementation Date: Effective from 1 January 2024.
- Applicability: Companies with revenues exceeding EUR 2 million and profitability below 2%.
- Tax Rate: 10% of the calculated tax base.
- Calculation Formula: Involves a combination of 1,5% of adjusted revenues and specific expense adjustments or simplified 3%
- Legal Foundations: Established through amendments to the Corporate Income Tax Act and associated regulations.
Companies operating in Poland should:
- Assess Applicability: Determine whether they fall within the scope of the minimum tax.
- Calculate Potential Liability: Use the provided formula to estimate the tax amount.
- Seek Professional Advice: Consider consulting tax professionals to navigate the complexities and ensure compliance.
- Monitor Legislative Changes: Stay informed about any further amendments or clarifications to the tax provisions.
In the broader context, the minimum tax reflects global trends towards ensuring that multinational corporations pay their fair share of taxes. As countries grapple with the challenges of tax base erosion and profit shifting, measures like Poland’s minimum tax are likely to become more prevalent.
References and Legal Acts
- Act of 29 October 2021 on the Amendment of the Corporate Income Tax Act and Certain Other Acts:
- Journal of Laws of 2021, item 2105.
- Introduced the minimum tax provisions as part of the Polish Deal reforms.
- Corporate Income Tax Act of 15 February 1992:
- Consolidated text: Journal of Laws of 2022, item 2587, as amended.
- Article 24ca specifically addresses the minimum tax.
- Act of 7 October 2022 on Amending the Corporate Income Tax Act and Certain Other Acts:
- Journal of Laws of 2022, item 2180.
- Adjusted certain thresholds and provisions of the minimum tax.
- Regulation of the Minister of Finance of 22 December 2022 on Exemptions from the Minimum Tax:
- Journal of Laws of 2022, item 2745.
- Details exemptions and exclusions from the tax.
- Ministry of Finance Explanatory Notes and Guidelines:
- Provide official interpretations and practical guidance.
- Accessible on the Ministry’s official website.
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