On October 4, 2018, Poland’s lower house of Parliament (Sejm) held its first reading of the 2019 Budget proposals in Draft Bill No. 2860 (Parts 1 and 2). Following a public consultation on September 25, 2018, Poland’s government sent the legislation to Parliament for consideration, which contains the following BEPS measures.
Editor’s Note: Draft Bill No. 2860 (Parts 1 and 2) also contains transfer pricing measures relating to BEPS Actions 8-10 and 13, which are not addressed in this article.
Virtual Currency (BEPS Action 1)
Article 1(23) of Draft Bill No. 2860 (Part 1) would add a new Article 30b to Poland’s Personal Income Tax Act (Ustawa o Podatku Dochodowym od Osób Fizycznych) (PITA), which would subject gains on virtual currency (e.g., Bitcoin) to a 19% capital gains tax. Any losses realized from trading virtual currency would not be deductible for Polish personal income tax purposes.
The VAT amendments would apply from January 1, 2019, if enacted.
Controlled Foreign Companies (BEPS Action 3)
Article 2(27) of Draft Bill No. 2860 (Part 1) would amend Poland’s controlled foreign company (CFC) rules in Article 30f of the PITA to extend their application to the following foreign entities, among other changes:
- A group of companies or its members, which independently from the group qualify as a CFC.
- Permanent establishment (PE) of a foreign entity.
The CFC amendments would apply from January 1, 2019, if enacted.
Innovation Box Incentive (BEPS Action 5)
Article 2(29) of Draft Bill No. 2860 (Part 1) would add new Articles 24d and 24e to Poland’s Corporate Income Tax Act (Ustawa o Podatku Dochodowym od Osób Prawnych) (CITA) to introduce an innovation box incentive regime, with effect from January 1, 2019.
The innovation box incentive would include a preferential tax rate of 5% on qualified intellectual property (IP) income, where the taxpayer is the owner, co-owner, or user of IP rights under a license agreement. The 5% rate would apply only to IP rights that have been created, developed, or improved by the taxpayer with respect to corresponding R&D.
“Qualified intellectual property rights” would include the following:
- Additional protection rights for the invention.
- Protection law for utility model.
- Rights from registration of an industrial design.
- Rights from registration of integrated circuit topography.
- Additional right of protection on a patent for a medicinal product.
- Rights from registration of a medicinal and veterinary product authorized for marketing.
- Rights from registration of new plant varieties and animal breeds.
- Rights to a computer program (e.g., software).
A Polish taxpayer would qualify for tax relief under the innovation box if he purchases the qualified IP rights mentioned above, provided he then incurs costs related to the development or improvement of the IP. The income eligible for the innovation box would be derived from royalties or other charges related to the use of qualified IP rights, as well as income from the sale of qualified IP rights.
Under the proposed innovation box incentive, taxpayers must keep detailed accounting records, which depict the calculation of the tax base, including incurred R&D costs that are associated with the income from IP rights. The taxpayer could apply the tax relief throughout the period of legal protection of eligible IP rights.
Mandatory Reporting Requirements (BEPS Action 12)
Article 3(22) of Draft Bill No. 2860 (Part 1) would add new Chapter 11a to the CITA to introduce mandatory disclosure obligations, including by implementing EU Directive 2018/822 of May 25, 2018 on administrative cooperation in the field of taxation (“DAC 6”).
DAC 6 introduces EU reporting obligations for intermediaries, such as tax advisors, accountants, banks, and lawyers, who design and promote tax planning schemes for clients. DAC 6 requires EU member states to automatically exchange information on reportable “cross-border arrangements.” EU member states must adopt and publish, by December 31, 2019, the laws, regulations and administrative provisions necessary to comply with DAC 6, and must apply these provisions from July 1, 2020.
A “cross-border arrangement” involves either multiple EU member states or a member state and a third country, where at least one of the following conditions is satisfied with respect to the arrangement:
- Not all participants are tax resident in the same jurisdiction.
- One or participants is simultaneously tax resident in more than one jurisdiction.
- One or more participants carries on a business in another jurisdiction through a PE situated in that jurisdiction and the arrangement forms at least part of the PE’s business.
- One or more participants carries on an activity in another jurisdiction without being a tax resident or creating a PE in that jurisdiction.
- It has a potential impact on the automatic exchange of information or the identification of beneficial ownership.
A “reportable cross-border arrangement” is any cross-border arrangement that contains at least one of the “hallmarks” listed in Annex IV of DAC 6. A hallmark is a characteristic or feature of a cross-border arrangement that indicates a potential risk of tax avoidance.
An “intermediary” is any person that facilitates the implementation of a reportable cross-border arrangement. It can also refer to a person, who knows or could be reasonably expected to know, that he has undertaken to provide aid, assistance, or advice on facilitating or managing the implementation of a reportable cross-border arrangement.
To qualify as an intermediary, a person must meet at least one of the following additional conditions:
- Tax resident in an EU member state.
- Have a PE in a member state, through which the services for the arrangement are provided.
- Incorporated in, or governed by the laws of, a member state.
- Registered with a professional association related to legal, tax, or consulting services in a member state.
Poland would automatically exchange information received on tax planning schemes through a centralized database with other EU member states, and would impose penalties for companies that do not comply with the transparency measures. The rules would cover all intermediaries, all potentially harmful schemes, all types of direct taxes (income, corporate, capital gains, inheritance, etc.), and all EU member states.
New arrangements entered into between June 25, 2018 and January 1, 2019 must be reported to the Polish tax authorities by March 30, 2019. This is 17 months earlier than the August 31, 2020 deadline in DAC 6.
New arrangements entered into after January 1, 2019 must be reported to the Polish tax authorities within 30 days of one of the following events, whichever occurs first:
- The date the arrangements are made available.
- The date the first step in the implementation is taken.
Whereas DAC 6 requires reporting of cross-border arrangements only, the Polish proposals would also include reporting of domestic tax arrangements.
The draft legislation, if approved, would enter into force on January 1, 2019.
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