Domestic top-up tax and qualified domestic minimum top-up tax

The introduction of the domestic minimum top-up tax into Polish legal system is associated with the entry into force of the Act of 6 November 2024 (GloBE Act) on the top-up taxation for constituent entities of multinational and domestic groups.

The GloBE Act introduces a regime for top-up taxation (at a minimum rate of 15%) for entities within multinational and domestic groups with consolidated revenues exceeding €750 million in at least 2 of 4 years preceding the tax year. These entities are required to calculate the effective tax rate and any top-up tax (including the domestic top-up tax), submit specific data (including filing GloBE declarations) and pay the top-up tax.

The introduction of the Polish domestic top-up tax (Polish DMTT) is one of the key components of the GloBE system (alongside the global minimum top-up tax and the top-up tax on under-taxed profits). From Poland’s perspective, this tax will be the main burden for entrepreneurs.

The GloBE Act refers not only to the concept of the domestic top-up tax (i.e. Polish DMTT) but also the qualified domestic top-up tax. Directive 2523/2022, on the other hand, uses the term qualified domestic minimum top-up tax (QDMTT).

What is the difference between the polish DMTT and the qualified domestic top-up tax?

The Polish DMTT and the qualified domestic top-up tax are not the same. Article 2.1.26 of the GloBE Act defines the term qualified domestic top-up tax as a tax applicable in a jurisdiction other than Poland, resulting from the application of a Qualified Income Inclusion Rule. Consequently, from Poland’s perspective, the qualified domestic top-up tax is the top-up tax applicable outside of Poland, while the domestic top-up tax (i.e. Polish DMTT) will apply to Polish entities.

Who is liable for the domestic top-up tax (Polish DMTT)?

According to Article 24 of the GloBE Act, Polish DMTT taxpayers are – inter alia – entities located in Poland that are constituent entities belonging to multinational or domestic groups (including Polish Joint Venture companies and subsidiaries dependent from Joint Venture companies). Therefore, to be considered a Polish DMTT taxpayer, it is sufficient for a Polish entity to be part of an multinational or domestic group whose consolidated revenues exceed €750 million in at least 2 of 4 tax years.

How is the domestic top-up tax (Polish DMTT) calculated?

Polish DMTT is calculated by a taxpayer that is a low-taxed constituent entity (also known as a low-taxed constituent entity). A Polish entity belonging to multinational group will be considered a low-taxed constituent entity if Poland is a low-taxed jurisdiction for the group to which the entity belongs.

To determine whether Poland is a low-taxed jurisdiction for a given group, the following calculations are made for the tax year:

• the qualified income (or loss) and adjusted qualified taxes for each taxpayer (subject to Articles 29 and 30 of the GloBE Act);
• the jurisdictional qualified income (or loss) net;
• the effective tax rate [ETR] of the group for Poland.

If Poland is a low-taxed jurisdiction, the jurisdictional domestic top-up tax for the tax year is calculated using the following formula:

(Individual tax rate x profit excess) + additional top-up tax, where:

• the individual tax rate is the difference between the minimum tax rate (15%) and the ETR;
• the profit excess is the difference between the jurisdictional qualified income and the tax base (as detailed in Section VII of the GloBE Act);
• the top-up tax is the tax calculated in Article 16 of the GloBE Act (as it applies to Polish DMTT).

Polish DMTT is calculated using the formula:
(jurisdictional domestic top-up tax x qualified income of the taxpayer) / sum of the qualified income of all taxpayers.

Importantly:

1. Polish DMTT is not calculated for a taxpayer who has incurred a qualified loss for the tax year.
2. Polish DMTT is calculated regardless of the ownership interest held by the parent entities of the group in the constituent entity that is the taxpayer.

It is also important to note that Polish DMTT taxpayers (belonging to multinational groups where parent entities are located outside of Poland) should pay particular attention to Article 29 of the GloBE Act (related to local accounting standards).

According to Article 29.1 of the GloBE Act, for calculating Polish DMTT, taxpayers should consider the positions in the books kept in accordance with the Accounting Act and financial statements prepared based on the Accounting Act, excluding IFRS/IAS. However, Article 29.2 of the GloBE Act stipulates that if at least one Polish DMTT taxpayer in the group is obligated to apply IFRS/IAS, then Polish DMTT taxpayers in that group will use the positions in the books kept based on IFRS/IAS – for calculating Polish DMTT.

Furthermore, Article 29.3 of the GloBE Act clarifies that for the purposes of applying paragraphs 1 and 2, Polish DMTT taxpayers within the same group:

• must use the same acceptable accounting standard applied for preparing the financial statement according to the provisions of the Accounting Act or IFRS/IAS (this applies to Polish taxpayers only, not the entire group);
• must use the fiscal year based on the accounting provisions of the ultimate parent entity of the group.

What is the safe harbor for qualified domestic minimum top-up tax (QDMTT)?

According to Article 125 of the GloBE Act, QDMTT paid in a jurisdiction other than Poland will exempt the Polish parent entity from the obligation to calculate the global top-up tax, provided that the following conditions are met:

• all constituent entities located in that jurisdiction (other than Poland), for which the Polish parent entity would calculate the ETR, are subject to qualified domestic minimum top-up tax, and the tax is fully payable (in accordance with Article 13.2 of the GloBE Act);
• the jurisdiction has been designated by the Minister of Finance (under Article 2.7 of the GloBE Act) as a jurisdiction that meets the requirements for a safe harbor for the qualified domestic minimum top-up tax.

As a general rule – according to the GloBE rules – if Polish DMTT paid in Poland (and recognized as QDMTT abroad) is paid, it may be deducted from the global top-up tax owed in another country where the foreign parent entity is located, as part of a mechanism that can be called the QDMTT credit. However, in certain circumstances, a simplified approach is provided through the use of a safe harbor. This means that if an entity belonging to a multinational group is subject to Polish DMTT (which is recognized as QDMTT), the group’s parent entity, located outside Poland, may be exempt from calculating the global top-up tax for this entity (under the regulations in the jurisdiction of the parent entity).