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13-07-2017
CFC in Poland – expected changes

Draft of changes to Polish income taxes published in July 2017 provides for many revolutionary amendments, including these applying to so-called controlled foreign companies (CFC), including:

 

1.    A foreign company will be considered as controlled, when the possession of shares in capital or the possession of voting rights in controlling/decisive organs or when being in possession of shares associated with the right to profit participation are over 50%. This looks positive as currently the limit is 25%.

 

2.    The condition of 50%  will be also fulfilled, if a taxpayer holds the shares together with so called related party/associated entity. Associated entity will be defined as legal person, partnership or individual, with whom taxpayer is related by capital (25% threshold).

 

3.    Changes may apply to list of passive profits, determining the company making the shareholder subject to tax, in the way, that also profits from interest from financial leasing, profits from insurance, banking and (what is more tough in interpretation) other financial activities will be included.

 

4.    Passive profits ratio which makes a controlled foreign company as CFC taxable  will be reduced to 33%, whereas current is 50%.

 

5.    Currently companies taxable with tax rates above 14,25% in country of its tax residency  are not considered as CFC. According to planned amendments, it will be enough, if the tax paid by such foreign company is lower than tax, which foreign company would have paid, if the company was taxed with Polish tax.

 

6.    Partnership will also be qualified as CFC.

 

7.    A circumstance excluding taxation of a Polish shareholder on CFC profits being  that the foreign company performs so called real business activity will be modified, that it will be required that it runs an essential real business activity. No definition of “essential” is provided.

 

8.    A turnover  threshold, below which foreign company is not considered as CFC tax liable will be cancelled. Currently, if a foreign company makes a turnover  below 250.000 EUR annually, there is no need to pay CFC tax at all. That means that in the future also foreign companies with very low annual income may make their Polish shareholder CFC taxable.

 

According to the draft, amendments will come into force from 1st January 2018.

 

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

 

Monika Dziedzic     tel. + 48 22 322 68 88

 

or your advisor at MDDP.

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