- Solidarity tax for 2024 – make sure you don’t pay it!
- The VAT ratio – what determines it?
- NSA Resolution – How to interpret foreign language texts?
- Administrative cooperation in the field of taxation – draft amendments to the Directive (DAC9)
- Deducting old tax deductible costs for intangible services – response to press enquiry
- The end of the financial year is approaching for most Commercial Companies, so it is time to verify the thresholds and select an auditor for the audit of the financial statements for 2024
1. Solidarity tax for 2024 – make sure you don’t pay it!
Solidarity tax is a benefit regulated by the Personal Income Tax Act (hereinafter: PIT Act). It applies to the income (revenue) of natural persons (from 1st January 2019) whose income exceeds PLN 1,000,000. Foreigners who earn income in Poland from certain sources are also obliged to pay the tax (subject to certain conditions).
The solidarity tax is calculated at the rate of 4% of the excess income over the above amount. The obligation to pay the solidarity tax lasts until 30th April of the following calendar year (30th April 2025 for 2024). By the same date, the taxpayer is obliged to submit a declaration on the amount of the solidarity tax – DSF-1.
An important issue regarding the obligation to pay this tax is the question of the deductibility of losses. The legislation does not clearly state whether losses from previous years can be deducted when calculating the solidarity tax base. Initially, the tax authorities generally excluded this possibility in their individual tax interpretations. The administrative courts, in turn, disagreed with this approach, pointing out that if the legislator had intended to exclude the possibility of deducting losses, the regulations would have expressly provided for it (e.g., judgment of the Supreme Administrative Court of 14th February 2002, ref. II FSK 1099/22, the judgment of the WSA in Gliwice of 17th October 2024, ref. I SA/Gl 575/24).
Therefore, the position of the tax authorities has now changed and allows the deduction of losses from the same source when determining the basis for the solidarity tax. It is therefore important to note that also taxpayers who paid the solidarity tax in previous years and did not take into account the loss from previous years when calculating the surcharge can consider submitting a corresponding adjustment of their accounts.
In addition, the calculation of the solidarity tax base excludes certain statutory income of the taxpayer, which is not taken into account when determining whether the solidarity tax threshold has been exceeded. These include: income from a sole proprietorship if it is subject to the flat-rate tax on registered income (PIT-28), or income from the sale of real estate if it is not part of a business activity.
Foreign income is also not taken into account when determining the basis for the solidarity tax if the exemption with progression method is applied (e.g. in the case of income from Germany or France). On the other hand, foreign income to which the proportional deduction method, the so-called tax credit, is applied is included in the basis for this contribution (e.g. in the case of income from the Netherlands or Austria).
The calculation of the solidarity tax base is not straightforward, if only because of the various inclusions. It is also problematic to determine whether a given PIT taxpayer is subject to such a tax, and if so, there are serious consequences for taxpayers if the tax is not paid. In this regard, we recommend that you contact our experts at Nexia Advicero, who will assist you throughout the entire process, including settlements for previous years.
2. The VAT ratio – what determines it?
In a judgment of 25th July 2024 (ref. I FSK 1268/20), the Supreme Administrative Court ruled that when calculating the VAT proportion, a company operating in Poland should not take into account turnover from activities conducted abroad, even if the company is registered there for VAT purposes.
The case concerned the question of whether the turnover generated by a company’s foreign branches in other EU Member States should be taken into account when calculating the VAT proportion in Poland.
The company, which is an active VAT taxpayer, carried out its activities both in Poland and in several other EU countries, accounting for VAT using various models:
A) – activity in other EU countries where the company is registered for VAT purposes.
B) – Activity in Spain, where the company is registered for VAT, but is exempt from the obligation to submit a VAT return.
C) – Activity in Finland through a branch (fixed establishment for VAT purposes) with a local VAT number. It currently remains registered for VAT in Finland and accounts for its turnover on a similar basis to model A.
The company wanted to include the turnover realised under these three models in the VAT share in Poland in order to increase the amount of deductible tax, which would result in the company’s right to reduce the amount of output tax in Poland.
However, the Director of the National Fiscal Information Office, the Provincial Administrative Court in Krakow and then the NSA disagreed with this position. It was stressed that, in accordance with the principle of territoriality, the VAT proportion should be calculated on the basis of domestic turnover only, without taking into account foreign operations – even if the company is registered for VAT there.
The NSA ruling means that branches and units located abroad are treated as separate taxpayers. This excludes the possibility of including foreign turnover in the Polish VAT share, which has a direct impact on the amount of the VAT deduction in Poland and limits the possibility of increasing the VAT share through turnover generated abroad.
Therefore, it is very important to correctly calculate the VAT proportion when using it. It should also be noted that both the tax ruling and a ruling of the Supreme Administrative Court constitute a decision in a particular case. With proper argumentation, there is a possibility of a more favourable decision by the tax authority – therefore, we encourage you to apply for a tax ruling, in which we at Nexia Advicero of course assist many taxpayers – please contact us.
3. NSA Resolution – How to interpret foreign language texts?
On 28th October 2024 (ref. II FPS 1/24), the Supreme Administrative Court issued a decision stating that in the case of errors in the translation of international treaties concerning the avoidance of double taxation, the English version shall prevail.
The court also confirmed that international treaties take precedence over Polish laws in accordance with Article 91 of the Constitution, which states that a ratified international treaty, once promulgated, is part of the domestic legal order and is directly applicable.
The case concerned the obligations of taxpayers under the Polish-Swedish double taxation treaty signed in 2004. The court considered whether a Polish taxpayer operating under the Polish version of the convention should comply with the English version of the convention in the event of its incompatibility with the Polish version. The provision in question was Article 11(1) and (2) of the Convention, which, according to the Court, was incorrectly translated in the Polish version. This error caused the taxpayer to incur costs in excess of PLN 10 million.
The NSA ruling confirms the importance of international agreements as a source of law superior to domestic regulations in Poland, which is in line with the hierarchy established by the Constitution. However, the ruling may increase the burden on taxpayers by requiring them to know and apply international regulations in their original language.
The NSA’s resolution therefore emphasises the importance of care in translating international tax treaties and the key role played by the content of the treaty in its English version. The NSA’s decision also means that other double tax treaties containing similar clauses may also require Polish taxpayers to take a close look at the English versions of the provisions. It is therefore worth seeking the professional assistance of Nexia Advicero’s advisors in order to minimise such risks.
4. Administrative cooperation in the field of taxation – draft amendments to the Directive (DAC9)
The European Commission adopted on 28th October a draft amendment to the Directive on administrative cooperation in the field of taxation (Directive 2011/16/EU – DAC9). The amendments aim to streamline the reporting process and increase tax transparency in the EU.
The amendment to the Directive, known as the DAC Project9, is designed to help multinational groups comply with the reporting requirements of the Pillar 2 Directive. Under the legislation, each member of a group is required to file a compensating tax return in its country of residence.
However, where a system of information exchange between tax administrations is in place, it will be possible to file a single omnibus return on behalf of the entire group, which will require data transfer arrangements between the jurisdictions involved.
The enhanced system of information exchange between Member State tax administrations is expected to allow for a more efficient application of the requirements of the Pillar 2 Directive.
The amendment introduces a system for the exchange of compensatory tax data between tax administrations and a single model form, in line with OECD and G20 standards, on the basis of which multinational and large national groups will provide detailed tax information.
The amendment introduces a system for the exchange of compensatory tax data between tax authorities and a single model form, in line with OECD and G20 standards, on the basis of which multinational and large national groups will report detailed tax information.
Once adopted by the EU Council, Member States will have until 31st December 2025 to implement the DAC9 into national law. The first tax returns under the new rules will be filed by multinational groups by 30th June 2026. Thereafter, the relevant tax authorities will be required to exchange the data from these returns by the end of 2026 in order to ensure the consistent application of minimum taxation rules across the European Union.
It is therefore advisable to prepare your companies now for these changes. For more detailed information, please contact our advisors at Nexia Advicero, who will help you take full advantage of the benefits of these changes and provide support in adapting your reporting processes.
5. Deducting old tax deductible costs for intangible services – response to press enquiry
On 24th October 2024, the Minister of Finance responded to a press enquiry regarding the accounting for costs of intangible services incurred before 2022 by unequivocally stating that they do not apply to current costs of such services. It also announced an amendment to a tax ruling by the Director of National Tax Information (Hein after: “KIS”) dated 14th February 2024 (sign: 0111-KDIB2-14010.592.2023.2.MM), presenting a different position.
Prior to 2022, the costs of certain intangible services provided by related parties were capped under Article 15e of the CIT Act. The limit was PLN 3 million plus 5% of tax EBITDA per year.
Under the transitional provision of the Polish Deal, taxpayers were to retain the right to deduct unused costs in 2018-2021 under the rules of the repealed Article 15e, including on the basis of the so-called ‘hypothetical limit.’
Doubts have arisen as to whether current costs for intangible services (incurred after 1st January 2022) should be taken into account when calculating the limit for the deduction of old costs. In previous tax rulings, such as that of 23th January 2024 (sign: 0114-KDIP2-2.4010.633.2023.1.SP), the KIS confirmed that they should not be included in the limit. However, in the aforementioned interpretation of 14th February 2024, the KIS considered that old costs should be included in current costs.
In his reply of 24th October, the Minister of Finance clearly stated that the current costs of intangible services should not affect the limit for the deduction of old costs and that the interpretation of 14th February this year will be reviewed. Therefore, once the revised interpretation is issued, it will mean an obligation for the taxpayer to make an adjustment in the accounting of such costs and to pay a CIT surcharge.
Although the response of the Minister of Finance is not binding, it may form the basis for the issuance of a general interpretation to be followed by all taxpayers, or even for the amendment of the provisions of the Act. It is therefore worth reviewing the existing regulations in this respect, as well as the entire corporate income tax regulations – please contact us.
6. The end of the financial year is approaching for most Commercial Companies, so it is time to verify the thresholds and select an auditor for the audit of the financial statements for 2024
The mandatory audit of the 2024 financial statements covers entities that meet the criteria listed in Article 64(1) of the Accounting Act. Let us therefore remind you which entities are obliged to comply with this obligation and what to bear in mind.
For going concern companies, the thresholds are defined as follows:
For other entities that, in the preceding financial year (here for 2023) for which financial statements are prepared, have met at least two of the following conditions:
a) the average annual full-time equivalent employment was at least 50 persons,
b) the total assets of the balance sheet at the end of the financial year were the equivalent in Polish currency of at least EUR 2,500,000,
c) net revenue from sales of goods and products and financial operations for the financial year was the equivalent in the Polish currency of at least EUR 5,000,000.
Pursuant to Article 66 of the Accounting Act, the audit firm is selected by the body that approves the company’s financial statements, unless the articles of association, statutes or other legal provisions provide otherwise. The head of the company cannot make such a choice. However, it is the head of the entity that enters into an agreement with the audit firm and allows it to participate in the annual inventory of significant assets. The starting date of the inventory can be set as early as 1st October 2024.
It is worth mentioning that the draft amendment to the Accounting Act of 17th April 2024 provides for an increase in the thresholds for mandatory audits, but the first financial year for which this change is provided for is the year beginning after 31st December 2024.
Therefore, we encourage you to use the services of our experts at Nexia Advicero, who will help you with the limits of the mandatory audit as well as with the preparation of financial statements in accordance with the applicable regulations.
