- Cancellation of an epidemiological risk state – tax consequences
- B+R relief – exercise of supervisory and managerial functions as an eligible cost
- The COVID Act did not suspend the running of the limitation period for tax liabilities
- New regulations on family foundation
- The issue of overdue contributions – General ruling of the Minister of Finance
- Reverse charge mechanism in domestic trade
1. Cancellation of the state of epidemiological risk – tax consequences
An epidemiological emergency has been in place in Poland since 16 May 2022. However, due to the improving situation and a decrease in the number of diagnosed SARS-COV-2 infections, a draft regulation lifting the state of emergency has been placed in the Sejm.
The draft has now been sent for consultation, but it is intended that the epidemiological emergency would be lifted by 1 July 2023. This will have significant implications affecting the tax obligations of businesses. We outline the most important of these below:
- Reporting of domestic tax schemes (MDR) – normal reporting deadlines will be restored; schemes with a suspended deadline must be reported by the 30th day after the end of the epidemic emergency.
- Withholding tax (WHT) – need to obtain’ current certificates from counterparties for the purpose of applying exemption or preferential withholding tax rates – within two months after cancellation.
- Transfer Pricing – removal of facilitation. Requirement to have a related party adjustment statement when making a transfer pricing adjustment. Reinstatement of the related party non-loss condition for the application of the local transfer pricing documentation exemption.
- VAT White List – reinstatement of the deadline of 8 days from the date of the transfer order, concerning Notification of payment of receivables to an account outside the “VAT White List”.
- Individual rulings – return to the statutory deadline for issuing individual interpretations of up to 3 months.
2. B+R relief – exercise of supervisory and managerial functions as an eligible cost
On 21 March 2023 The Supreme Administrative Court has issued a favourable judgment on the application of the B+R relief (case number II FSK 2217/20). A company engaged in the design and development of products and production of prototypes asked whether the salaries of employees performing supervisory and managerial functions could be recognised as an eligible cost. It indicated that only activities directly related to B+R activities were to be taken into account.
In the opinion of the Director of the National Fiscal Information, these costs are not deductible under the relief in Article 18d of the CIT Act, as they only have the characteristics of activities supporting B+R activity. It is also difficult to attribute to them a creative character or one aimed at increasing knowledge resources and using them to create new applications.
The Company appealed against the individual interpretation to the Voivodship Administrative Court in Gliwice (case file I SA/Gl 1588/19), which, while admitting the Company’s right, indicated that expenses related to any employee performing such activity (B+R), and not only those directly performing B+R activity, should be considered as eligible costs. The CIT Act does not specify which categories of employees it refers to, nor does it exclude employees performing supervisory and managerial functions. Therefore, costs related to supervision and management should not be excluded from the exemption as they are an indispensable part of these activities. This approach was also confirmed by the Supreme Administrative Court. The NSA’s ruling provides important guidance for companies operating in the innovation sector.
3. The COVID Act did not suspend the running of the limitation period for tax liabilities
On 27 March 2023, a group of seven judges of the Supreme Administrative Court issued a resolution under case no. I FPS 2/22, ruling that Article 15zzr(1)(3) of the Act on Special Arrangements for Preventing, Counteracting and Combating COVID-19, Other Infectious Diseases and Crisis Situations Caused by Them does not apply to tax legislation. This has resolved the suspension of the statute of limitations for tax liabilities during a pandemic, which has been of practical importance for the past three years.
Tax authorities had previously applied Article 15zzr(1)(3) of the aforementioned Act to tax time limits, allowing a decision to be issued determining the tax liability within the “extended” time limit, but this did not occur in situations favourable to taxpayers. There was a lack of uniform jurisprudence of the administrative courts in this respect, and there were even discussions on the length of the possible suspension period, which caused uncertainty.
The resolution of the Supreme Administrative Court means that assessment decisions issued within the ‘extended’ period should be revoked, as they were issued after the expiry of the statute of limitations for tax liabilities. The proceedings in which these decisions were issued should be terminated, precluding their continuation in the future. However, taxpayers may still invoke Article 15zzr(1) of the COVID Act in relation to situations involving the exercise of their rights within the “extended” time limit, and the principle of in dubio pro tributario is relevant when interpreting the unclear regulations of Article 15zzr.
The resolution is important insofar as it applies to all taxes and affects all tax liabilities that have not yet expired during the period of the provision. The resolution of this issue by means of a resolution of the Supreme Administrative Court was necessary, and the relevant procedural provisions must be taken into account for its effects to occur. However, it should be pointed out that resolutions of the Supreme Administrative Court, unlike judgments of the Courts, do not create a new legal situation of the addressees of decisions issued after the limitation period on the basis of these provisions. Therefore, they do not constitute an independent basis for resumption of proceedings or annulment of a decision.
In this respect, it is necessary to select the appropriate grounds for extraordinary annulment of the decision and to justify it accordingly. Mere reference to a resolution of the Supreme Administrative Court is not sufficient, all the more so as they are not binding on the tax authorities and so the case will have to be brought before an administrative court.
4. New family foundation regulations
Family foundations are an increasingly popular solution for families who want to ensure the continuity of their business or protect their assets from inheritance problems. The amendments to the Family Foundation Act include provisions that make further improvements to the taxation rules for foundations and their founders and beneficiaries.
A family foundation is a not-for-profit organisation whose purpose is to manage the family’s assets and achieve social objectives. One of the main purposes of a family foundation is to transfer assets to the foundation, thus minimising inheritance tax costs. A family foundation also allows the assets to be better protected from claims by creditors and potential heirs.
The new draft proposes changes to, among other things:
- Introducing the concept of ‘hidden profits’ – taxing the family foundation with 15 per cent CIT – on the same basis as the payment of benefits to the funder or beneficiaries, in the case of a ‘benefit in the form of hidden profits’.
- Possibility to combine the role of a founder/beneficiary of a family foundation with the role of a partner in companies taxed with Estonian CIT – individuals who are founders/beneficiaries of family foundations will be able to be partners in companies taxed with Estonian CIT at the same time.
- Taxation at the rate of 10 per cent of PIT on payments to individuals from I and II tax groups – introduction of an additional, third group of beneficiaries who will pay 10 per cent of PIT on benefits paid from foundations. This group is to be made up of persons from the extended family, e.g. son-in-law, daughter-in-law, stepfather, stepmother, in-laws, descendants of siblings, siblings of parents.
- Restriction in the scope of CIT exemption of foundations – expansion of the catalogue of events causing taxation on the part of the foundation, it will pay CIT on income obtained from lease, tenancy or another agreement of a similar nature, the subject of which is an enterprise, an organised part of an enterprise or assets serving to conduct activity by a beneficiary, founder or an entity related to the family foundation, beneficiary or founder. Additionally, a family foundation will not benefit from a subjective exemption from CIT if, being in organisation, it is not registered within six months of its establishment or the registration court legally refuses to register it – in such a case the foundation will be taxed from the date of its establishment.
- Undercapitalisation – CIT taxpayers receiving financing from a family foundation will not be forced to exclude costs incurred in connection with such financing from tax deductible costs.
The regulations outlined above came into force on 22 May 2023.
5. The issue of overdue contributions – General interpretation by the Minister of Finance
The Minister of Finance, in a general interpretation of 30 March 2023 no. DD3.8203.1.2023, held that the payment of overdue ZUS contributions by the payer from its own funds is a tax-neutral activity.
The position taken to date in numerous individual interpretations of tax law provisions indicates that the outstanding ZUS contributions and health care contribution paid – from the funds of the payer of the contributions – on the basis of the provisions of the PIT Act, are, for taxpayers (employees, contractors, former employees or contractors), income within the meaning of Art. 11(1) of the PIT Act, classified accordingly as revenue from an employment relationship (Article 12(1) of the PIT Act), other sources (Article 20(1) of the PIT Act) or revenue from a mandate contract (Article 13(8) of the PIT Act).
The consequence of such qualification is the obligation of a PIT payer under Article 32 of the PIT Act (in the case of revenue from an employment relationship and related relationships referred to in Article 12(1) of the PIT Act) or under Article 41(1) of the PIT Act (in the case of revenue from a mandate contract referred to in Article 13(8) of the PIT Act).
In the general interpretation, the MF held that the payer of contributions, by paying overdue contributions, performs a public law obligation incumbent upon it, which it cannot cede to taxpayers. Therefore, the payment of contributions by the payer cannot be considered as a benefit performed “for the insured”. Therefore, it does not result in an increase in the taxpayer’s wealth and, as such, cannot be considered a gratuitous benefit subject to PIT. No taxable income will arise for the employees and the costs incurred for the payment of the premiums, in the part in which they should be financed by the insured, will not constitute a tax deductible cost.
It is worth noting that the general interpretation of the Ministry of Finance is only informative. It is not a law, but only an interpretation of tax and insurance regulations. However, compliance with the general interpretation cannot harm the one who has complied with it.
6. Reverse charge mechanism in domestic trade
From 1 April 2023 until 28 February 2025, a reverse charge mechanism was introduced for the supply of gas through the gas system, the supply of electricity through the electricity system and the supply of services for the transfer of greenhouse gas emission allowances.
The reverse charge involves shifting the obligation to account for VAT from the seller to the buyer of the goods or services. In such a situation, the seller does not show the VAT on the sales invoice, but applies the annotation ‘reverse charge’. The purchaser, on the other hand, shows output and input VAT in his VAT return.
The periodically introduced mechanism will apply to transactions involving trade in the listed energies and allowances provided that certain conditions are cumulatively met:
- in the case of the supply of this gas or this energy – the customer is a taxable person registered in accordance with Article 96(4) of the VAT Act, whose main activity with regard to the purchase of gas or electricity consists in their resale and whose own consumption of these goods is insignificant;
- in the case of the supply of these services, the customer is a taxable person registered in accordance with Article 96(4) of the VAT Act;
- the supply of these goods (i.e. gas/electricity) or the provision of these services (i.e. the transfer of greenhouse gas emission allowances) is made as part of a transaction concluded directly or through an authorised entity on a commodity exchange within the meaning of the Act on Commodity Exchanges, a regulated market or an OTF within the meaning of the Act on Trading in Financial Instruments of 29 July 2005;
- the supplier or service provider is a taxpayer registered in accordance with Article 96(4) of the VAT Act, whose sales are not exempt from tax under Article 113(1) and (9) of the VAT Act.
In addition, prior to the first transaction, the supplier or service provider and the buyer or customer shall submit an appropriate notification to the head of the tax office. Failure to comply with this obligation or to comply with it after the deadline is punishable by a fine for a fiscal offence.