Newsletter Tax News | May 2018 r.

1. The Ministry of Finance’s statement on tax consequences of trading cryptocurrencies
2. Changes in the minimum income tax on commercial real estate
3. The Ministry of Finance’s report on the first year of National Treasury Administration functioning
4. The Ministry of Finance plans to limit the abuse of individual interpretations
5. General interpretations of the Ministry of Finance regarding transfer pricing
6. The Polish government will ask the European Commission for permission to introduce a compulsory split payment in VAT in some industries

1. The Ministry of Finance’s statement on tax consequences of trading cryptocurrencies

The Ministry of Finance has published a statement regarding taxation of transactions with the use of cryptocurrencies in the area of personal income tax, tax on goods and services and tax on civil law transactions.

PIT

Income derived from possession of bitcoins is subject to PIT taxation under general rules. Income should be classified as revenue from property rights or from non-agricultural business activity. The way of settling and documenting the tax-deductible costs associated with trading cryptocurrencies depends on whether the taxpayer maintains a revenues and expenses ledger or accounting books.

VAT

As a rule, the sale and exchange of cryptocurrencies into traditional currency and vice versa, as well as the exchange of one cryptocurrency for another, if it is subject to VAT, is exempted from VAT.

TCLT

The contract for the sale and conversion of cryptocurrencies, being property rights, is subject to tax on civil law transactions (at the rate of 1%). Excluded from the tax on civil law transactions is the contract for the sale or exchange of cryptocurrencies subject to VAT – in so far as it is subject to VAT, or if at least one of the parties to the transaction is exempt from VAT for doing so.

It is worth mentioning that – shortly after publishing the above information – the MF unofficially withdrew from this interpretation and announced introducing regulations dealing with taxation of cryptocurrencies.

1. Changes in the minimum income tax on commercial real estate

On April 6, 2018, the Ministry of Finance published a statement regarding plans to amend the CIT Act and the PIT Act with respect to the minimum income tax on commercial real estates. The content of the changes has been worked out in consultation with the European Commission. The aim of the changes is to eliminate aggressive tax optimization. The proposed amendments concern:

• minimum income tax levied only on those buildings (parts of them) that are put into payable use on the basis of a lease, tenancy, etc.;
• change of the manner of applying the threshold of PLN 10 million in the value of the building, to which the minimal tax does not apply;
• application of a minimum income tax to all buildings, with the simultaneous introduction of an exemption for residential buildings put into use as part of governmental and local government programs relating to social housing;
• introduction of the taxpayer’s possibility to apply to the tax authority for refunding the overpaid minimum tax (over CIT or PIT due);
• introduction of a special anti-avoidance clause relating to the minimum tax.

1. The Ministry of Finance’s report on the first year of National Treasury Administration’s functioning

The Ministry of Finance has published a report summarizing the first year of functioning of the National Treasury Administration (further: “NTS”). The report shows that:

• in 2017 the State budget revenues increased by PLN 42.5 billion compared to 2016 (the highest increase in the scope of VAT – PLN 30 billion per year);
• in the opinion of the Ministry of Finance, higher budget revenues from VAT are the result of inter alia legislative changes and their effective enforcement by NTS (for example fuel package);
• the number of tax inspections was reduced but their efficiency improved;
• NTS builds a system of tax analyzes aimed at preventing fraud;
• NTS conducts intensive control activities in the field of transfer pricing;
• The Working Team for Entrepreneurs Support was established – the aim of which is to develop constructive solutions in difficult matters for entrepreneurs.

1. The Ministry of Finance plans to limit the abuse of individual interpretations

The Ministry of Finance has published a draft of amendments to the Tax Ordinance, which aims to prevent misuse of individual interpretations, especially by taxpayers using aggressive tax optimization.

The draft amendment assumes, among others:

• entering the institution of individual interpretation issued on a group request – within 6 months from receiving the application. This form of application will be applied to transactions in which related entities participate. In such a situation, they will be obliged to jointly submit an application. The draft provides for specific elements of the facts / future events, which should be included in such a form of request for interpretation;
• possibility of applying for an individual interpretation by an entity providing co-financing from public funds, to the extent that the interpretation of tax law provisions in the individual case of an entity receiving co-financing affects the amount of this co-financing;
• introducing the institution of a securing opinion issued on a group request – in relation to transactions in which related entities participate. The opinion is to be issued at the joint request of these entities.

What is worth noting, the project assumes that the amendments should also apply to applications submitted and pending before its entry into force.

1. General interpretations of the Ministry of Finance regarding transfer pricing

The Ministry of Finance has published two general interpretations regarding transfer pricing, referring to the issue of:

• the obligation to prepare tax documentation, as well as the obligation to review and update tax documentation, in particular in relation to financial transactions (for example loans, credits, bond issues, guarantees, sureties);
• establishing documentary thresholds and the scope of the documentary obligation for taxpayers who are non-residents and who run a permanent establishment on the territory of the Republic of Poland.

In the first interpretation, MF indicated that financial transactions (for example loans, credits, bond issue, guarantees, sureties) – as a rule – are transactions continued in subsequent tax years, and therefore in such cases tax documentation prepared for such transactions in a tax year of their commencement should be subject to periodic review and update, not less frequently than once every tax year. The taxpayer is obliged to update the documentation at least once a year, regardless of whether there has been any significant change in the parameters of the concluded transaction. The obligation to update the tax documentation concerns the entire period of implementation of a given contract.

In the second interpretation, MF explained that the threshold of EUR 2 million, which excess triggers an obligation to prepare transfer pricing documentation, in relation to permanent establishment should only be applied to the extent to which revenues or costs are assigned to a permanent establishment located on the territory of the Republic of Poland. The statutory thresholds do not therefore apply to revenues or costs generated by the whole non-resident taxpayer (i.e. the parent entity together
with all its foreign permanent establishment located in different countries), but only to those generated by the taxpayer as a result of operations of its permanent establishment located on the territory of the Republic of Poland.

1. The Polish government will ask the European Commission for permission to introduce a compulsory split payment in VAT in some industries

On May 7, the Polish government accepted the application prepared by the Ministry of Finance in this matter. The compulsory split payment is supposed to be an exception to the rule regulating the VAT settlement method, and the use of such exceptions demands a consent of the European Commission. Poland will ask for this possibility for selected industries, i.e. those that apply today:

• reverse charge mechanism or
• joint and several liability

in their VAT reconciliations.

If the European Commission accepts the application, Poland will be able to apply this solution as early as in 2019.