- Possibility of taking into account tax losses in the case of a reverse takeover
- Planned amendments to PIT, CIT and other tax legislation
- No more working foreigners on a contract basis – the draft law requires employment based on an employment contract
- International supplies in VAT – announcement of another CJEU ruling in a Polish case
- Tax on unrealised profits of partners upon change of residence – important judgment
1. Possibility of taking into account tax losses in the case of a reverse takeover
In a judgment of 1st August 2024 (ref. no. II FSK 1262/23), the Supreme Administrative Court (hereinafter: „SAC”) held that a situation in which, as a result of a reverse takeover, the structure of the company’s shareholders has not changed and its previous indirect shareholder has become a direct shareholder does not meet the prerequisites set out in Article 7(3)(7) of the CIT Act.
SAC, while dismissing the cassation appeal of the Director of the National Fiscal Information, shared the view of the Voivodship Administrative Court in Warsaw (case ref. III SA/Wa 2397/22) that as a result of the takeover, the structure of the Company’s shareholders did not change – its previous indirect shareholder, i.e. the Investor, became a direct shareholder of the Company.
As a result, no new external shareholder appeared in the structure of the Acquiring Company. The Acquiring Company may therefore, when determining the income constituting the tax base for CIT for 2021 and subsequent tax years, under the principles set out in Article 7(5) of the CIT Act, take into account the tax losses incurred in 2017-2018 which it incurred prior to the reverse merger.
The SAC held that Article 7(3)(7) of the CIT Act would not be applicable in such a situation. In a downstream merger, when the majority shareholder changes from indirect to direct, the ownership structure of the company remains unchanged. According to the law, the acquiring company may therefore carry forward tax losses in 2017-2018 when calculating taxable income for 2021 and subsequent years.
This ruling is an important ruling for taxpayers planning similar restructurings. It is therefore worth contacting our experts at Nexia Advicero to discuss the details of such operations from both a tax and legal perspective.
2. Planned amendments to PIT, CIT and other tax legislation
On 12th August 2024, the assumptions of the draft act amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts (printout UD116) appeared on the website of the Government Legislation Centre.
As the Ministry of Finance writes in the explanatory memorandum to the proposed amendments, they are aimed at tidying up tax regulations, eliminating interpretation doubts and tightening the tax system.
The most important changes will concern areas such as:
- Taxation of foreign controlled companies (CFCs) – clarification of regulations and amendment of certain provisions on the scope of CFC taxation;
- Reorganisations of companies – rules for determining income and expenses in mergers of companies without the allocation of shares (stocks);
- Family foundations – tightening up the tax treatment of family foundations;
- IP Box relief – introduction of an employment requirement to qualify for the relief;
- Solidarity levy – unambiguous indication that taxpayers will be able to deduct income constituting the basis for calculating the solidarity levy from previous years‘ losses and extension of the basis for calculating the solidarity levy to include qualified income taxed on IP Box and beneficiaries’ benefits from family foundations;
- Concerning restructuring activities – changes concerning the transformation of companies, the exchange of shares and the reduction of the value of shares (stocks);
- Taxation of general partners – amendments concerning the deduction of lump-sum income tax from the income of a general partner of a limited partnership and a limited joint-stock partnership;
- Clarification of certain transfer pricing provisions
- Lump-sum tax on companies‘ income – introduction of regulations clarifying the rules of lump-sum taxation on companies’ income in order to improve the application of taxation according to this form.
These are only some of the proposed changes, but they are worth bearing in mind in the context of future tax settlements of our companies. In accordance with the assumptions of the draft act, it is possible that they will enter into force as early as 1st January 2025.
3. No more working foreigners on a contract basis – the draft law requires employment based on an employment contract
In order to obtain a work permit, it will be necessary to employ a foreigner on the basis of an employment contract. It will no longer be possible to employ them on the basis of a civil law contract, such as a contract of mandate.
According to the draft act on the conditions of permissibility of entrusting work to foreigners in the territory of the Republic of Poland (draft UC46), presented by the Ministry of Family, Labour and Social Policy (hereinafter: ‘MRPIPS’), companies will have to conclude an employment contract with a foreigner. This will be an obligatory condition for the issuance of a work permit or a declaration of entrustment. From the draft law, it appears that the government wants to more strongly counteract the illegal employment of foreigners.
A new obligation incumbent on employers will be the need to provide a copy of the concluded employment contract with the foreigner to the voivode or district labour office. In the current version of the draft law, MRPIPS did not specify the deadline within which the employer will have to make the employment contract available to the relevant authority.
The presented draft provides for higher penalties for employers for illegal employment of foreigners. The basic offence of illegally entrusting work to a foreigner will be punishable by a fine from PLN 1,000 to PLN 30,000. This means an increase in the lower limit of the penalty by PLN 500. The penalty shall be imposed in an amount of not less than PLN 1 000 per foreigner – also increased by PLN 500.
According to the draft of this Act, the planned changes are to enter into force as early as 1 January 2025. It is therefore worth preparing for the changes now, especially if you employ or plan to employ foreigners in your company.
4. International supplies in VAT – announcement of another CJEU ruling in a Polish case
On 12th July 2024, the Voivodship Administrative Court (hereinafter: ‘VAC’) in Warsaw referred three questions for a preliminary ruling to the Court of Justice of the European Union (hereinafter: ‘CJEU’) in a case (ref. III SA/Wa 1231/24). They all concern Article 146(1)(b) of the VAT Directive, i.e. the provision which provides for exemption from VAT on exports.
In the present case, the questions concern the situation where goods declared as an Intra-Community Supply of Goods (ITA) are ultimately exported outside the EU.
It will be very important to distinguish between ITA and export in the context of the supplier’s knowledge of what happens to the goods (and its due diligence) on the actual course of the transaction.
The ruling may also bring clarification on the reporting of VAT in ITA and the proof requirements for the 0% rate – which in turn will affect companies’ documentation and verification processes.
We will inform you of the content of the ruling as soon as it is issued. However, it is worth remembering that documentation practices and processes should be adjusted to the current standards and requirements of the Polish tax authorities. If you have additional questions in this regard – please feel free to contact our experts at Nexia Advicero.
5. Tax on unrealised profits of partners upon change of residence – important judgment
In a verdict of the Supreme Administrative Court (hereinafter: „SAC”) of 14th August 2024 (ref. no II FSK 1445/21), the court resolved the issue of taxation on income from unrealised profits in the situation of a partner’s change of residence.
The SAC held that Article 30da(2) of the PIT Act is of key importance in this matter. This provision excludes taxation if Poland loses the right to tax income from the disposal of an asset. The key element is to determine whether such a loss has occurred.
In the case at hand, Article 13(2) of the Polish-Dutch double taxation treaty was also applicable, which gives the possibility to tax profits from the disposal of a permanent establishment at the place of its registered office (in the present case, Poland).
The court further held that being a partner in a partnership implies the existence of a permanent establishment and this circumstance is confirmed by rulings of administrative courts. Therefore, the taxpayer’s view should be shared that, in this case, the transfer of the entirety of rights and obligations as an inseparable property right results in the fact that there is, in fact, a transfer of ownership of an establishment.
Consequently, the Court held that since the disposal of all rights and obligations is considered a transfer of ownership of a permanent establishment – the profits arising from the change of residence of the Company’s partner should be taxed in Poland.
There is no written justification for the ruling yet, but the ruling itself should be borne in mind that similar tax consequences may arise in similar cases, which often occur in practice. Particularly as the jurisprudence/tax interpretations on the issue of establishment in Poland are not uniform. Often the tax consequences of entrepreneurs, as in the present case, depend on it. At Nexia Advicero, we have extensive experience relating to this issue – please do not hesitate to contact us.
