Poland

Each individual corporate group member is required to submit their own tax return on a stand-alone basis, with the exception of the special rules for grouping available with respect to CIT and VAT (discussed below).

Moreover, extensive rules on transfer pricing in respect of transactions with related parties are in force. In particular, the tax authorities may increase the tax base and re-characterise or even disregard related-party transactions that do not meet the arm’s-length principle. The taxpayers making transactions with related entities or residents of tax havens are also required to comply with local documentation (such as Local File, benchmarking studies, and Master File) and reporting requirements, as well as requirements imposed upon OECD recommendations (i.e. country-by-country [CbC] reporting for multinational corporations).

The Polish CIT Act also provides for specific tax regimes regarding Polish tax residents having a holding position, i.e.: 

• optional, preferential tax exemption on dividends and capital gains on share disposal for the Polish holding companies, and 
• additional tax obligation on the income of the CFCs.

CIT capital group

The CIT law includes provisions on group taxation. If a group of companies meets certain conditions, it can be treated as a single taxpayer. The required conditions are extremely demanding, and not many taxpayers of this type exist (according to data published by the Ministry of Finance, as of August 2023, the number of CIT capital groups in Poland was 71). However, effectively from 2022, conditions for starting and running a tax capital group have been significantly simplified. In particular, the minimum revenue-to-income ratio of the tax capital group at 2% has been eliminated.

A tax capital group can be created if following requirements are jointly met:

• Average share capital of each company is not lower than PLN 250,000.
• A direct share of a parent entity in subsidiaries forming the tax capital group of at least 75%. 
• No tax arrears with respect to the ’state‘ taxes.
• The tax capital group agreement concluded for at least three tax years and was registered by the Head of Tax Office.
• Conditions of transactions concluded between the group’s members and their related parties not being part of the group are at arm’s-length.

There is a possibility to lose the status of taxpayer retroactively in case of breach of above conditions. Should this be the case, companies forming the tax group are required to reconcile, for CIT purposes, as independent taxpayers retroactively for the past three tax years, considering that the day preceding the date of the loss of taxpayer status constitutes the last day of the tax year. 

All entities forming the tax capital group are required to apply the arm’s-length rule to transactions within the tax group. There is no obligation to prepare transfer pricing documentation for such transactions; however, the tax authorities are entitled to examine and, potentially, estimate prices used in transactions between members of the tax group.

VAT group

From 1 January 2023, taxpayers are able to form a VAT group. The main reason for this solution is that the entities creating it become one taxpayer for VAT purposes. Thus, the supply of goods or services performed between entities being members of the same VAT group shall not be subject to VAT. 

A VAT group may be formed by a group of entities related financially, economically, and organisationally, which will conclude an agreement on forming a VAT group. A VAT group may be formed by taxpayers:

• having their registered office in Poland or
• not having the seat in Poland but conducting business activity in Poland through a branch.

One entity can be a member of only one VAT group. A VAT group cannot be a member of another VAT group.

As a consequence of creating the VAT group, the supply of goods or services by an entity being a member of this group to an entity that is not a member of a group is considered to be made by that group to the entity outside of the group. This rule may also be applied in reverse, which means that the supply of goods and services to an entity being a member of a VAT group by an entity that is not a member of this group is considered to be made for this group.

The introduction of the provisions concerning a VAT group may be, therefore, particularly important for the entities conducting VAT-exempt/non-taxable activities and having a limited right to deduct tax. For these entities, intra-group purchases of services that have been taxed so far (in the absence of the right to deduct) will become neutral from the VAT perspective.

Transfer pricing

Transactions between related parties should be conducted in accordance with the arm’s-length principle. The tax authorities may increase the taxable income or decrease tax loss if the pricing method applied between related parties differs from what would have been applied between unrelated parties in a similar business transaction and the difference results in income being understated by a Polish taxpayer. In such a case, the tax authorities are also entitled to impose additional tax liability, amounting to 10% to 30% (depending on the circumstances) of the tax base of the payment for which the tax was not collected.

The regulations apply to domestic transactions as well as cross-border ones. Similar rules also apply to transactions between Polish residents and the residents of tax havens. These transactions may be subject to the transfer pricing principles even if the parties thereto are not related. 

For the purpose of transfer pricing regulations, there is a 25% (direct or indirect) participation threshold for determining whether parties are related or not (including shareholding, voting rights, or participation in profits, losses, or property). Note that legal, not economic, ownership should be taken into consideration. Additionally, certain personal/management links may also create relationships between two entities under the transfer pricing regulations.

Country-by-country (CbC) reporting

As required from members of the OECD Inclusive Framework within Base Erosion and Profit Shifting (BEPS) minimum standards, Poland has implemented the CbC reporting requirements (i.e. information on the capital groups’ taxable income, tax paid, and their place of business). Pursuant to the domestic rules, the largest capital groups (with consolidated revenues exceeding PLN 3.250 billion if the consolidated financial statement is prepared in PLN, EUR 750 million, or the equivalent amount converted in accordance with statutory rules) are required to submit, in Poland, the CbC report, provided the ultimate parent is a Polish entity. In case the Polish consolidating entity is a subsidiary of a foreign capital group, the obligation is shifted abroad, but the Polish entity is required to submit information on where the report is filled.

However, a Polish entity that is not an ultimate parent company may be required to submit a CbC report if:

• the ultimate parent company is not under such obligation in the state in which its registered office or seat of management is located
• the authorities of the state in which the ultimate parent company’s registered office or seat of management is located did not conclude an agreement on the exchange of information with Poland within 12 months from the end of the reporting year or suspended the automatic exchange of information, or

• no other group entity has been designated to prepare such information.

The CbC report should be submitted within 12 months after the end of the financial year of the group, while the information on the entity required to submit the CbC report (whether it is the entity itself or the obligation is shifted) should be submitted within three months after the end of the financial year.

Local File

Taxpayers are also required to prepare transfer pricing documentation for each uniform transaction (separately for income and cost transactions) exceeding the threshold in an extended format covering not only the description of a transaction but also ‘other events included in the accounting books’ if they were agreed to by related parties and influence the taxpayer’s taxable income or loss. In particular, taxpayers must present the actual result achieved on a specific related-party transaction.

Transactional materiality thresholds applicable for transfer pricing documentation (Local File) are set at:

• PLN 10 million for transactions concerning tangible assets and financing.
• PLN 2 million for other transactions.

Master File

Obligation to prepare group transfer pricing documentation (i.e. Master File) applies to the groups of related entities that prepare consolidated financial statements or excess materiality threshold set at PLN 200 million of consolidated revenue. The Master File may be prepared in English; however, the tax authorities may request for the translated version to be provided within 30 days from the receipt of such a request.

Benchmarking study

A benchmarking study is a compulsory element of the documentation for each transaction described in a Local File, except for those to which safe harbours apply. If conducting such analysis is impossible, a taxpayer is required to prepare an analysis justifying compliance of the related-party transaction with the conditions that would have been set by unrelated entities.　

Taxpayers are also required to explain any discrepancy between the actual results achieved on related-party transactions and results of relevant benchmarking studies.

The benchmarking studies are required to be updated at least every three years, unless a change in the economic environment that significantly affects the analysis prepared justifies an update in the year in which such a change occurred. 

Non-recognition and re-characterisation

The law, which entered into force as of 1 January 2019, granted the tax authorities additional tools. They are able to re-characterise or even disregard related-party transactions if they conclude that unrelated entities would not enter into transaction declared by the taxpayer or would conclude different transactions. Consequently, when assessing the arm’s-length level of remuneration in a given transaction, they could refer to other transactions or terms that, in their opinion, could have been applied by unrelated parties.

Safe harbours and other exceptions 

As of 1 January 2019, safe harbours have been introduced for two transaction types, i.e. loans meeting specific requirements and low-value-adding services. In the case of the former, an official announcement on the arm’s-length level interest rates is published once a year for the following financial year. For the latter, a mark-up limit of 5% is provided by the law. 

The table below presents some of exceptions from obligations to prepare transfer pricing documentation and benchmarking studies (including safe harbours):

Reporting responsibilities

Taxpayers are required to submit an electronic form (TPR form). For the financial years starting in 2023, the TPR form must be submitted within 11 months after the end of the financial year and should contain information on the transactions carried out with related entities. The form includes a statement confirming that the transfer pricing documentation had been prepared and related-party transactions described therein had been conducted according to the arm’s-length principle. 

Taxpayers are required to submit the TPR form to the competent Head of the Tax Office and not to the Head of the National Tax Administration, as was the case before. The TPR form should be completed or uploaded on the government web portal for electronic forms (eFormularz) and signed using the qualified electronic signature by the designated board member that possesses the power of attorney to sign electronic tax returns (UPL-1). Submission of false information on a TPR form may lead to personal fines.

Tax haven transactions

Taxpayers are required to prepare transfer pricing documentation for transactions with both unrelated and related entities that are based in territories/countries applying harmful tax competition (tax havens) if the value of such transactions exceed:

• PLN 2,500,000 for transactions concerning financing,
• PLN 500,000 million for other transactions.

In addition, the Polish legislators pursued the law in force as of January 2021 requiring taxpayers to prepare a Local File for so-called ’indirect‘ tax haven transactions (i.e. made with a counterparty whose beneficial owner is registered in a tax haven) exceeding the threshold PLN 500,000; however, these rules were ultimately withdrawn.

Advance pricing agreement (APA) provisions

Taxpayers can mitigate the transfer pricing risk by applying for an APA. The tax authorities may not challenge the methodology agreed therein but may verify whether the methodology is followed in practice.

Provisions adopted in 2019 clarified the current procedure of issuing an APA decision. The regulations also provided new possibilities to apply for an APA by the foreign investor that is planning to start its operations in Poland.

The provisions also introduced changes to the rules regarding ensuring compliance with the issued APA decision. According to the regulations, possible audits will be carried out by the authorities as verifying activities.

Mutual agreement procedure (MAP)

In 2019, a MAP was implemented, which is the result of implementing the Council Directive (EU) 2017/1852 on the tax dispute resolution mechanisms in the European Union. In Poland, the regulations on the matter are provided in the Act of 16 October 2019 on the settlement of disputes regarding double taxation and the conclusion of APAs.

This procedure is intended to protect a taxpayer operating in two or more membership countries from the potential effects of double taxation.

Thin capitalisation

Currently, there are no thin capitalisation rules on intra-group loans as such; instead, there is interest deductibility limitation to, basically, 30% of EBITDA or PLN 3 million (whichever is higher). 

In addition, as part of the Polish Deal, at the beginning of 2022, a restriction was added to the CIT Act to deduct costs of debt financing granted by a related entity to finance restructuring activities or acquisitions of other related entities.

CIT exemption for the Polish holding company

As of 1 January 2022, regulations establishing a preferential holding company tax regime were introduced under the Polish Deal legislative package. After further amendments in force from 2023, this tax scheme provides for the following tax benefits:

• exemption from taxation of capital gain from the sale of shares in subsidiaries (not real estate-rich companies) to an unrelated entity, and 
• exemption from taxation of dividends paid to this holding company by subsidiaries.

The scheme may be applied by a Polish capital company being a Polish tax resident, which holds directly (in the capacity of an owner), for a continuous period of at least two years (to the day preceding the receipt of income) at least 10% of shares in the capital of a subsidiary company and carries out a genuine business activity (within the meaning provided in CFC rules). A holding company may not form a tax capital group nor benefit from exemptions in the SEZ/PIZ.

In addition, shares in this company may not be held, directly or indirectly, by an entity seated in a country applying harmful tax competition (included in the Polish or EU’s lists) or with which Poland/EU have not ratified any treaty (e.g. DTTs) allowing for exchange of tax information. In practice, this condition seems extremely challenging to be fulfilled in case of many mid-level companies owned by multinational groups or listed companies due to not fully traceable ownership. 

As of 2023, the following solutions were, inter alia, implemented in the way that allows a larger group of holding companies to benefit from these regulations:

• Extension to multi-level structures below the holding company.
• Extension of the period of this ownership from one to two years.
• Allowing a holding company to benefit from the WHT exemption for dividends implemented upon the Parent Subsidiary Directive.
• Possibility for a domestic subsidiary entity to benefit from an exemption in the SEZ/PIZ.
• Full dividend exemption (replacing initial 95% dividend exemption).
• Clarifying that the domestic subsidiary is not required to withhold tax on tax-exempt dividends.

Controlled foreign companies (CFCs)

An additional income tax may be imposed in Poland on direct and indirect shareholders (Polish tax residents) of a company/PE that meets the definition of a CFC, i.e. passes at least one out of five so-called ’CFC tests‘ (two of which were introduced on 1 January 2022).

The introduction of two new CFC tests (i.e. the passive assets test and the operational test) requires Polish taxpayers to constantly monitor not only revenues but also foreign balance sheets and revenue streams of their foreign subsidiaries.

The CFC tax regime affects taxpayers that are shareholders of foreign entities (defined in the CIT Act; since 1 January 2019, the definition has been extended to foundations, trusts, and other fiduciary entities) located (i.e. seated or having a place of management or being registered or situated) in: 

• countries recognised as applying harmful tax competition (tax haven test) or
• countries with which Poland/EU have not ratified any treaty (e.g. DTTs) allowing for exchange of tax information (tax treaty test).

No other conditions have to be met in these cases for the foreign entity to be considered as a CFC.

If the foreign entity is not located in one of the countries mentioned above, the CFC analysis should still be conducted. A foreign entity is considered to be a CFC if it meets jointly all of the conditions provided for in at least one of the below CFC tests:

• Passive revenues test.
• Passive assets test.
• Operational test.

All of these CFC tests consist of three or four conditions, among which the following two conditions are the same for all of the CFC tests, i.e.:

• Polish tax residents have directly/indirectly, solely or jointly with related entities or with non-related entities being Polish tax residents, over 50% participation in the foreign company’s income, voting rights, or capital, or exercise actual control over the foreign entity.
• Income tax actually paid by the foreign entity (not subject to refund or credit in any form, including the refund or credit for the benefit of another entity) is lower by at least 25% than the income tax that would be paid by this foreign company in Poland at the application of the 19% tax rate (if it was a Polish tax resident).

The remaining conditions are as follows:

• For the passive revenues test:
  • At least 33% of foreign company revenues is derived from passive sources (since 1 January 2022 it has been clarified that passive revenues achieved through entities not having legal personality should also be taken into account).
• For the passive assets test:
  • The sum of the passive revenues of this foreign entity is lower than 30% of the sum of the value of passive assets (i.e. shares in other companies, real estate, movable property, intangible assets, receivables from passive sources towards related entities).
  • The passive assets mentioned above constitute at least 50% of all assets of the foreign entity (however, for the application of this particular condition, when assessing the value of passive assets, the shares held in companies that are not Polish tax residents or not holding [directly or indirectly] shares in a company that has its seat or management in Poland should not be taken into account).
• For the operational test:
  • The income of the entity exceeds the income calculated using the following formula: (b + c + d) × 20%, where:
    • b is the balance-sheet value of the foreign entity’s assets
    • c is the annual employment costs of the foreign entity, and
    • d is the accumulated value of depreciation write-offs within the meaning of the accounting regulations.
  • Less than 75% of the foreign entity’s revenues come from transactions with unrelated entities having their place of residence, seat, place of management, registration, or location in the same country as this foreign entity.

Under the CFC regime, income earned by the CFCs is subject to the 19% CIT rate to be paid by the Polish taxpayer. The tax base covers the whole amount of income earned by the CFCs (including the passive income and the income earned on the actual business) that can be allocated to the Polish shareholders (however, If the CFCs are located in tax havens, the reduction by the actual share in the CFC’s income is not considered), calculated proportionally to the period in which shareholding connection existed. The tax base may be reduced by the amount of dividend received from a CFC and/or the income from disposal of a share in a CFC by the Polish taxpayers, in part included in their tax base.

As a general rule, taxpayers are allowed to decrease the tax due in Poland by the amount of income tax already paid by the CFCs. 

Tax on income from the CFCs is not levied if the CFC is liable to taxation on their total income in an EU/EEA member state and performs significant genuine business activity. The later condition shall be assessed by considering, inter alia, the following circumstances:

• Incorporation must correspond with an actual establishment intended to carry on genuine economic activities. In particular, the CFC should physically exist in terms of premises, staff, and equipment.
• The CFC does not create an artificial arrangement without a link with economic reality.
• There is proportionality between the actual economic activities carried out by the CFC and the extent to which the CFC exists in terms of premises, staff, and equipment.
• Agreements concluded by the CFC have business justification and are in line with its economic interest.

Furthermore, holding shares in foreign entities and/or CFCs is correlated with certain administrative and reporting obligations (e.g. obligation of the Polish taxpayer to maintain a register of the CFCs and/or separate accounting books, filing separate tax returns presenting the amount of income generated through the CFC on the CIT-CFC or PIT-CFC form).