Limited partnerships under government scrutiny – CIT tax and reporting obligations.

According to information published on the website of the Ministry of Finance, the government is planning to introduce “regulations aimed at tightening the income tax system by, inter alia, bringing limited partnerships and those general partnerships with income tax payers participating in profits who are not disclosed, within the scope of the CIT Act”. This is intended as a response to “tax structures created by taxpayers using limited partnerships by granting them the status of income tax payers”. The changes are expected to be adopted by the end of the third quarter of the current year.

From the content of the document presented by the government, it can be seen that the proposed amendments to the CIT Act include:
• increasing the annual revenue threshold for the current tax year from EUR 1.2 million to EUR 2 million, entitling taxpayers to apply the reduced 9% CIT rate;
• tightening the tax system and addressing tax optimisation structures involving limited partnerships by granting such entities the status of income tax payers;
• ensuring the possibility of verifying the correctness of income tax settlements by general partnership partners who are income tax payers;
• aligning domestic regulations concerning sources of income earned by non-residents in the territory of the Republic of Poland with the standards of double taxation agreements amended under the MLI;
• restricting the ability to offset losses in cases where the taxpayer has taken over another entity, or a contribution in kind was made to the taxpayer in the form of an enterprise or an organised part thereof, or a cash contribution for which the taxpayer acquired such an enterprise or its organised part;
• clarifying the provision of Article 14a by explicitly stating that it also covers the transfer of tangible assets by a liquidated company (cooperative) to its partners (shareholders, cooperative members) as part of the division of the liquidated legal entity’s assets;
• preventing artificial depreciation of fixed assets by reducing the discrepancy between the income declared by the taxpayer in a tax year before income tax and the gross profit (profit before tax) for the same period (tax/financial year), through aligning depreciation rules in the CIT Act with those in the Accounting Act;
• clarifying the name and calculation method of the indicator used to determine the maximum allowable amount of debt financing costs that may reduce the taxpayer’s tax result (profit/loss) in connection with their business activities in a given tax year;
• eliminating interpretative doubts regarding the limitation of excess debt financing costs;
• limiting the possibility of manipulating depreciation rates when the taxpayer benefits from tax exemptions;
• shifting the obligation to account for tax on the sale of shares in so-called real estate companies from the seller to the real estate company itself;
• extending the scope of transactions subject to arm’s length principle verification, particularly where the beneficial owner is based in a so-called “tax haven”, and increasing documentation requirements for such transactions (transfer pricing);
• introducing an obligation for CIT taxpayers to prepare and publicly disclose their tax policy for the tax year;
• introducing a solution entitling taxpayers to benefit from the exemption from tax on income from buildings also if, after 31 December 2020 (the current expiry date of the exemption), a state of epidemic related to the spread of the SARS-CoV-2 virus remains in force in the Republic of Poland. According to the draft, in such circumstances, the exemption will also apply after 31 December 2020.

In addition, changes are planned to the PIT Act. These include one of the most controversial proposals in the amendment, namely the abolition of the relief referred to in Article 27g of the PIT Act (so-called abolition relief), as well as:
• aligning the regulations with changes introduced to the CIT Act;
• limiting the possibility of manipulating depreciation rates when the taxpayer benefits from exemptions;
• preventing artificial depreciation of fixed assets by reducing the discrepancy between the income declared by the taxpayer in a tax year before income tax and the gross profit (profit before tax) for the same period (tax/financial year), through aligning depreciation rules in the PIT Act with those in the Accounting Act;
• introducing a solution entitling taxpayers to benefit from the exemption from tax on income from buildings – analogous to the CIT Act.

The final segment of changes to be introduced as part of the amendment relates to flat-rate taxation. The draft provides for:
• increasing the revenue limit entitling taxpayers to choose the lump-sum tax on recorded revenues and the limit allowing quarterly payments of this tax;
• eliminating most cases in which certain types of activity exclude the application of lump-sum tax on recorded revenues, including by amending the definition of liberal professions;
• reducing certain flat-rate tax rates on recorded revenues;
• unifying the flat-rate tax rate for rental and accommodation-related services;
• removing the exclusion from taxation using a tax card in cases where a spouse conducts the same type of business activity;
• allowing temporary increases in employment levels by entrepreneurs using the tax card system;
• abolishing the abolition relief (repeal of Article 13a);
• extending the scope of transactions subject to verification for compliance with the arm’s length principle, particularly where the beneficial owner is based in a so-called “tax haven”, and increasing documentation requirements for such transactions (transfer pricing).