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Benefits of the Tax Capital Group in the light of the anti-crisis shield 2.0

In mid-April, the provisions of the Act of 16 April 2020 on special support instruments in connection with the spread of the SARS-CoV-2 virus (the so-called anti-crisis shield 2.0) entered into force, modifying and expanding the proposals for supporting taxpayers provided for in the 1.0 anti-crisis shield. New solutions concern, among others the issue of maintaining the status of the Tax Capital Group (hereinafter: TCG) in the light of the current economic situation.

In Poland, the Tax Capital Group institution is not very popular among taxpayers. The reason may be strictly defined requirements that the legislator places on such entities, conditioning their stay. Pursuant to the provisions of the CIT Act, TCG may establish at least two capital companies (sp.z o.o. or S.A.) having their registered office in the territory of the Republic of Poland.

Detailed requirements regarding TCG are included in art. 1a of the CIT Act, according to which:

  • the average share capital of each company included in the PGK is not lower than PLN 500,000,
  • the parent company has a direct 75% share in the share capital of individual group companies,
  • subsidiaries do not hold shares in the share capital of other companies forming this group,
  • in companies there are no arrears in payments of taxes constituting the state budget income,
  • the tax capital group will achieve a revenue share of at least 2% for each tax year.

The condition for establishing and continuing TCG’s operations is meeting all of the conditions together, otherwise the group ends its legal existence.

In the context of an existing pandemic, the last two premises deserve special attention. The first of these is the need for no arrears in tax payments by companies within the group. One should be aware that in the current situation problems with timely payments of taxes flowing into the state budget may be inevitable. The profitability of entities may also be a problem – the two-month freezing of the economy as well as the uncertainty as to the functioning of many sectors in the near future contributes to a decline in the income of many entities.

The legislator faces the difficulties that TCG may face, introducing an appropriate solution to the CIT Act. According to the newly added art. 38n, a taxpayer who is a tax capital group and will suffer negative economic consequences in 2020 due to COVID-19 and will not meet the condition of profitability and no tax arrears, will retain TCG status.

These circumstances must be assessed on a case-by-case basis for each taxpayer, but some guidance can be given as to such assessment.

It is important that the provision applies for a tax year that began before January 1, 2020 and will end after December 31, 2019 or began after December 31, 2019, and before January 1, 2021. Considering the above, after meeting the criteria, this provision will apply, inter alia to taxpayers who:

  • have a shifted tax year (starting in 2019 and ending in 2020, for example, August 1, 2019 – July 31, 2020);
  • have a tax year in accordance with the calendar (starting in 2020, January 1, 2020 – December 31, 2020);

The introduction of the provision supporting the TCG to the CIT Act should be considered positively. However, the way in which the authorities qualify for negative economic consequences due to Covid-19 remains uncertain. This is a key element that determines the existence or non-existence of TCG. Unfortunately at the moment it is hard to predict anything. Relevant information will probably bring the first decisions of the authorities in this regard.