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).

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. However, as of 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 not lower than PLN 0.25 m;
• 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 3 tax years and 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 obliged to reconcile for CIT purposes as independent taxpayers retroactively for the past 3 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 obliged 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 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 will be able to form a VAT group. The main reason for this solution is that the entities included in 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.

The consequence of the existence of a VAT group is the recognition that the supply of goods or services by an entity being a member of this group to an entity which 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 which 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.

CIT exemption for the Polish holding company

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

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

The scheme may be applied by a holding company defined as a limited liability company, joint stock company or a simple joint-stock company being a Polish tax resident, which holds directly (in the capacity of an owner), for a continuous period of at least 2 years, at least 10% of shares in the capital of a subsidiary company and carries out a genuine business activity. A holding company may not form a tax capital group nor benefit from exemptions in the Special Economic Zone / Polish Investment Zone. Certain restrictions also concern shareholders of a holding company.

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%- 30% (depending on the circumstances) of a 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) shareholding threshold for determining whether parties are related or not. 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 TP regulations.

The biggest Polish capital groups (with consolidated revenues exceeding EUR 750 million) are obligated to provide, in Poland, information on their taxable income, tax paid, and their place of business (i.e. Country-by-country report) unless the Polish consolidating entity is a subsidiary of a foreign party. In this case, the obligation is shifted abroad, but the Polish entity is obliged to submit information on where the report is filled.

However, a Polish taxpayer that is not an ultimate parent company may be obligated 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, or
• 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.

Taxpayers are also obligated to prepare transfer pricing documentation for each uniform transaction 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 (which will, in most cases, require segmentation of the profit and loss account).

Transactional materiality thresholds applicable for transfer pricing documentation (local file) are set at:

• PLN 10,000,000 for transactions concerning tangible assets and financing.
• PLN 2,000,000 for other transactions

Obligation to prepare a group TP documentation (i.e. Master file) applies to the groups of related entities which 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.

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.

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

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 has been published. For the latter, a mark-up of 5% is recommended.

Additionally, beyond safe harbours, there are also exceptions from obligations to prepare transfer pricing documentation and benchmarking studies, some of which are presented in table below:

Reporting responsibilities

Taxpayers are required to submit an electronic form (TPR form) For the financial years starting in 2022, the TPR form must be submitted within eleven months after the end of the financial year and should contain information on the transactions carried out with related entities. Previously the deadline fell nine months after the end of financial years, but was frequently prolonged due to Covid-19 pandemic.

For the financial years starting before a year 2022,  the taxpayers were required to submit a statement to the tax authorities 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. The statement needed to be signed by management board members. In order to streamline a process, the statement was merged with TPR form and now constitutes part of TPR form, and taxpayers no longer need to file a separate document. Submission of false information on a TPR form may lead to personal fines.

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

Indirect tax haven transactions

Taxpayers are obliged 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 value of such transaction exceeds:

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

Since January 2021, there were more broad obligations regarding tax haven transactions in place, concerning the so-called “indirect” tax haven transactions, which assumed preparation of the Local File documentation for each transaction exceeding the threshold PLN 500,000 and made with a counterparty whose beneficial owner is registered in a tax haven and obligation (properly documented) for a taxpayer to verify beneficial owners of their contracting parties.

However, these obligations were retroactively abolished and, in the end, taxpayers are not required to conduct verification of beneficial owners of contractors nor prepare Local File for indirect tax haven transactions, either for previous financial years, or for the upcoming financial years.

Changes introduced in the Polish Deal

The Polish Deal and Polish Deal 3.0 reform packages introduced a series of both major and minor changes to the Polish transfer pricing regulations. The changes affect transactions conducted after 31 December 2021, which means they apply for the first time for the transfer pricing documentation prepared for fiscal year 2022. 

The major changes include: 

• Merger of the statement on the preparation of transfer pricing documentation and TPR form.
• Abolition of regulations regarding the so-called “indirect” tax haven transactions.
• Changes to the deadlines include the following:
  • The deadline for the submission of local documentation by the taxpayer at the request of the tax authority has been extended from 7 days to 14 days.
  • The deadline for the preparation of local transfer pricing documentation was extended from 9 months to 10 months after the end of the fiscal year.
  • The deadline for submitting information on TPR transfer pricing has been extended from 9 months to 11 months after the end of the fiscal year.
• New exemptions from the obligation to prepare documentation were introduced, including the following:
  • Transactions between
    • foreign establishments located in Poland, the parent entities of which are related entities based in EU/EEA countries,
    • a foreign establishment of a non-resident related entity based in an EU/EEA country, and its related entity having tax residence in Poland.
  • Transactions covered by a tax agreement and an investment agreement.
  • Safe harbour transactions for low value added services, loans, credits, and bonds.
  • Transactions regarding settlements in so-called 'clean re-invoicing', assuming that specific conditions are met.

Advance pricing agreement (APA) provisions

Provisions of the Act of 16 October 2019 clarified the current procedure of issuing an APA decision. The regulations also provide new possibilities to apply for an APA:

• by the foreign investor that is planning to start its operations in Poland, and
• for the transactions subject to the tax control, tax proceedings, or administrative proceedings conducted for a period earlier than the last two fiscal years preceding the year of submitting the APA application.

The provisions also introduced change in 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 3m (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.

Country-by-country (CbC) reporting

An additional income tax is imposed on direct and indirect shareholders (Polish tax residents) of a company/PE which meets the definition of a controlled foreign company (CFC). Currently there are five different CFC definitions under Polish provisions, two of which were introduced on 1 January 2022.

These new definitions include completely new conditions (compared to previous years) that must be examined in order to qualify as a CFC. The introduction of new regulations 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 owners of foreign companies located in: 

• countries recognised as applying harmful tax competition or
• countries not participating in exchange of tax information with the European Union or Poland under a certain treaty;

- no other conditions have to be met in these cases for the foreign entity to be considered as 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 CFC if it meets jointly all of the conditions from at least one of the below, so-called, CFC tests:

• passive revenues test;
• passive assets test; or
• operational test.

All of these CFC tests consist of 3 or 4 conditions, among which there are 2 conditions present in 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 foreign company’s income, voting rights, or capital for at least 30 days.
• Income tax actually paid by the foreign entity (not subject to refund or credit in any form) is lower or equal to 75% of the tax that would be paid by this foreign company in Poland (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 January 1, 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);
• the passive assets mentioned above constitute at least 50% of all assets of the foreign entity (however, for the application of this particular condition, shares held directly or indirectly in companies that are not Polish tax residents 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 a balance-sheet value of foreign entity’s assets,

c - are the annual employment costs of a 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 located in the same country as this foreign entity

Since January 1, 2019, the definition of a 'controlled foreign company' has been extended to foundations, trusts, and other fiduciary entities.

Under the CFC regime, income earned by the CFCs is subject to the 19% CIT rate to be paid by the Polish taxpayer. 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. The tax base is to cover 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. The tax base is calculated proportionally to the period in which particular taxpayers were foreign entity’s shareholders. If the CFCs are located in tax havens, the shareholders are to pay the tax on the whole amount of income earned by the CFCs (independently of their actual share in the income).

In certain cases, tax on income from the CFCs will not be levied if the CFC performs significant genuine business activity, defined as below, inter alia:

• 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 the 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, certain administrative and reporting obligations have been introduced with CFC rules (e.g. obligation of the Polish taxpayer to maintain a register of the CFCs, filing separate tax returns presenting the amount of income generated through the CFC on CIT-CFC or PIT-CFC form).