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Debt push down no tax deductible any longer and many other disallowed costs from 2018

Acquisition of Polish companies used to be structured via an acquiring Polish entity (limited liability company or a joint stock company) which was debt financed. Both before and after the merger of such acquiring entity with the target the interest on debt was tax deductible. It was limited with debt to equity thin capitalisation which applied only to selected related party debt. Interest on non related party debt (bank loans) was fully tax deductible.

If the draft becomes the law, from 2018 interest on debt financing the acquisition of shares of merged company will not be tax deductible against the profits of the merged company any longer.

No transition period regulations are provided, so the restriction will apply also to debt from previous years/past acquisitions and mergers.

Other type of cost which is expected to be non tax deductible is any interest if it exceeds approx. 680 000 Euro per year in the part which it also exceeds 30% of the company EBITDA. It will apply to both related and non related party interest on a very broadly understood debt. Debt to equity ration will not matter any longer. However loans received before end of 2017 will continue the previous treatment for one more year. Companies with tax year different than calendar year will continue the previous approach till the end of the tax year which starts before end of 2017.

Interest on profit participating loans will be never tax deductible for the borrower.

The 680 000 Euro threshold is expected to apply to fees for intangible services (like “advisory services, market research services, advertising services, management services and controlling, data processing as well as insurance, guarantees, and similar”) but also payments for intellectual property rights,acquired from related parties. Any such fees exceeding that threshold will be non tax deductible in the part they exceed 5% EBITDA. What is important, that such costs will be fully tax deductible if they constitute a direct production cost of product/service or are recharged.


Some types of services even if required from related parties, like hopefully accounting are expected to be excluded from the limitations, but one should wait for the final version of the law and its formal interpretation.


Payments (royalties) for the intangible assets (like trademarks) will be not tax deductible if in the past the taxpayer was the owner of these assets, in the part the royalties exceed the income achieved in the past from the disposal of the assets. This would mean that very popular in the past structures of keeping intangibles separately from the operations may appear very inefficient for the company paying the royalties. However also the owner of the intellectual property asset (if it is a Polish taxpayer) will not be allowed to treat as tax deductible the depreciation deductions from such value of the intellectual property assets which were previously owned by the taxpayer or the entity in which the taxpayer participated and which were deposed, in the part which exceeds the income from the disposal of the intellectual property assets. 


Monika M. Dziedzic


Tel. +48 22 322 68 88




Source: International Tax Review

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