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03-10-2017
ANOTHER DRAFT OF AMENDMENTS TO THE CIT ACT

On 26th September, 2017 the new draft of changes to income taxes acts has been published on the website of the Government Center of Legislation. Below we present the most important proposals in underlying respect:

1.     Separation of capital gains from operating profits on the CIT ground

Separation of the new source of revenueshas been maintained. As a separate source of revenues will be considered the capital gains, which will include revenues from: dividends, sale of receivables, interest, in-kind contribution and all revenues of banks, cooperative credit and saving unions and financial institutions. Losses from that source of profits will not reduce operating incomes.

2.     The new rules of the thin capitalization

The regulations concerning the thin capitalization are to be changed. The costs of debt financing(intra-group but also external financing) will be excluded from tax deductible costs in the part in which the surplus of debt financing exceeds 30% of EBITDA. However, this rule will not apply in case of the the taxpayers whose surplus of debt financing costs in a given tax year will not exceed PLN 3 mln (increase in the threshold comparing to the previous amount of PLN 120k). Additionally, the interest expenses attributable to the taxpayer for participation in a partnership will also be subject to restrictions resulting from the thin capitalization rules.

3.     Limits on expenditures on intangible services purchased from related parties

The regulations on recognizing intangible services expendituresas tax deductible costs are to be modified – the latest draft of changes sets limits for these costs if services are provided by related entity (not as before – all costs of intangible services) and its value exceeds 5% EBITDA. The value limit was also increased to PLN 3 mln(previously it was the amount of PLN 120k).

4.     New rate of minimum tax on the commercial properties

It is still planned to introduce minimum tax on commercial properties (including  shopping malls and precincts, markets and boutiques) which initial value exceeds PLN 10 mln. The planned monthly ratewas reduced from 0,042% to 0,035%. The tax will not cover the office buildings used exclusively or mainly for the needs of the taxpayer or for which the depreciation write-offs are not made.

5.     New regulations on CFC taxation

The regulations concerning Controlled Foreign Corporation (CFC) are to be changed. The participation in other entity should amount to at least 50%(compared to the current 25%), to be considered as CFC. The threshold of the passive incomes taken into account for determining CFC status will be reduced from the current 50% to 33%. In addition, the catalogue of the above passive incomes will be extended to related party transactions, where CFC company does not generate economic value added or this value is negligible. The effective tax rate will also be taken into account instead of the nominal tax rate, as it is now.

6.     Limits of tax costs related to depreciation write-offs and fees for the use of property rights which value was stepped-up as a result of restructuring

Excluded from the tax deductible costs will be depreciation write-offs, fees and charges for the use of intangible assets such as property rights, licenses and know-how, which were first produced by the taxpayer, subsequently were transferred to another entity and again are used by this first taxpayer as a result of restructuring, if underlying value exceeds the revenue from the sale of such rights. These regulations may decrease tax deductible costs resulting from the restructuring undertaken in previous years.

The draft of changes introduces also other modifications – it is worth to analyze their impact on your business.

 

Should you be interested in obtaining further information, or would like to discuss the impact of the above changes please contact:

Justyna Bauta-Szostak tel. (+48) (22) 322 68 88     

Karolina Łupińska tel. (+48) (22) 322 68 76 

or your tax advisor in MDDP.

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