Minimum CIT

The most important change concerning the minimum tax is the exemption of taxpayers from this tax in 2022 and 2023. For taxpayers whose fiscal year is different from the calendar year and starts before 1 January 2024 and ends after 31 December 2023, the exemption will apply until the end of that fiscal year. The minimum tax was introduced under the provisions of the so-called Polish Deal and was intended to tax those entrepreneurs who report a tax loss and do not pay corporate income tax (CIT) under the general rules. The economic and geopolitical situation, as well as criticism of the legislative solutions, prompted the legislator to suspend this tax for two years and to introduce changes in its construction¹. To help the reader analyse whether this tax is applicable to the activities of their company, we will use the elimination method. Thus, it is first necessary to check whether a CIT payer will (from 2024) be obliged to pay the minimum tax, as the Amendment provides for a number of additional inclusions for:

• CIT taxpayers whose annual gross revenue does not exceed EUR 2,000,000 (i.e. so-called small taxpayers),
• taxpayers that are companies conducting municipal management activities, referred to in Chapter 3 of the Act of 20 December 1996 on Municipal Economy,
• taxpayers, the majority of whose revenue is generated in connection with the provision of health care services,
• taxpayers whose profitability in one of the last three fiscal years was above 2%, or
• taxpayers in bankruptcy, liquidation or restructuring proceedings.

One should remember that under the original version of the legislation, the following are already exempt from the minimum tax:

• taxpayers commencing their activities – in the year of commencement and in the following 2 fiscal years.
• taxpayers affected by a minimum 30% decrease in revenue compared to the previous year.
• taxpayers that are financial enterprises within the meaning of Article 15c(16) of the CIT Act, as well as taxpayers engaged in the operation in international transport of sea-going vessels or aircraft or in the extraction of minerals listed in the appendix to the Act of 9 June 2011 – Geological and Mining Law,
• taxpayers whose prices depend directly or indirectly on quotations on world markets, or transactions whose price or method of price determination results from laws or other normative acts^[2].
• taxpayers whose shareholder are exclusively natural persons and who do not hold shares in other companies or other entities.
• taxpayers forming a group of companies where the parent company directly holds a minimum of 75 per cent in the capital of the subsidiary for the entire fiscal year if the fiscal year of these companies is the same and these companies together achieve a share of income other than from capital gains in income from that source of more than 2 per cent (as amended by the Amendment).

Then, based on the tax performance of the entity in question, it is necessary to check whether the taxpayer is subject to the minimum tax.  The legislator has increased the expected proportion of income in revenue to 2%. The tax will be due if a CIT taxpayer that is a company or a tax capital group, as well as a permanent establishment of a foreign entrepreneur in Poland, shows a tax loss from a source of income other than capital gains or shows a share of income in revenue from that source of no more than 2%. The amendment also introduces changes to the methodology of calculating the loss and the share of income in revenue through:

• additional exclusion of payments under a leasing agreement, including depreciation write-offs on a fixed asset used on the basis of a so-called finance lease agreement (Article 17a (1) of the CIT Act, i.e. if depreciation write-offs are made by the lessee) from tax-deductible costs – in addition to the previously excluded costs related to the acquisition, production or improvement of fixed assets (such as tax depreciation),
• additional exclusion of the value of trade receivables sold to factoring companies from income and tax-deductible costs,
• additional exclusion of 20% of the costs of wages and social security contributions and contributions to Employee Capital Plan from tax-deductible costs,
• additional exclusion of the increase in the value of electricity, heat and line gas at annual intervals from tax-deductible costs, or
• additional exclusion of the value of excise duty (also taking into account the turnover of excise goods), retail sales tax, gaming tax, fuel duty and emission tax.

In the next step, the tax base should be determined. Pursuant to the Amendment, the manner of calculating the tax base will change with the simultaneous introduction of an alternative tax base (point b below), i.e.:

1. the tax base is the sum of: 5%^[3] of operating revenue^[4] and excess passive costs, i.e. debt financing costs^[5] and excess intangible service costs^[6], or
2. the tax base is 3% of the value of the revenue earned by the taxpayer in the tax year from a source of revenue other than capital gains, whereby the taxpayer shall inform the taxpayer of its choice of such method of determining the tax base in the return filed for the fiscal year for which it has made such choice.

It will be up to the taxpayer to decide whether the taxpayer chooses to calculate the tax base in accordance with point a) or b). It is also important to note that the reference to deferred tax, which was highly imprecise, has been deleted from the calculation of the tax base. The above commentary is of a general nature. Taxpayers accounting in a special manner should verify whether any special rules apply to them. For example, taxpayers taking advantage of special economic zone exemptions make certain deductions from the tax base. Revenues that are taken into account when calculating the income exempted in connection with a zone exemption or support decision will be deducted from the tax base for the minimum tax. Special economic zone entrepreneurs will still have to verify whether they are subject to the minimum tax and calculate the tax base. However, a conclusion can be drawn from the amended regulations that, in the case of special economic zone taxpayers, the minimum tax will, in practice, be calculated exclusively on the basis of revenues and tax-deductible costs of taxable activities. Similarly, special rules apply to tax capital groups. In the last step, we calculate the minimum tax at a rate of 10% – here the Amendment does not introduce any changes. The minimum tax will be deductible from CIT due under general rules in three consecutive years. This is because CIT is still due and calculated on a general basis, as well as taking into account special regulations (e.g. on tax on revenue from buildings under Article 24b of the CIT Act). Therefore, it is difficult to determine in advance whether a given taxpayer has benefited or not as a result of the above-described changes, including exclusions from the minimum tax. _{[1]The amendments are introduced by the Act of 7 October 2022 amending the Corporate Income Tax Act and certain other acts, hereinafter referred to as the Amendment. ^[2] and the taxpayer has, in the fiscal year, incurred a loss from a source of revenue other than capital gains from a transaction referred to in point a), or has achieved a share of income from a source of revenue other than capital gains in revenue other than capital gains arising from such a transaction of not more than 2%, with the calculation of the loss and the share of income in the revenue being made separately for transactions of the same kind. [3] The rate has been reduced from 4% to 1.5% [4] That is, revenue other than revenue of a capital nature. [5] These are expenses for debt financing costs incurred for the benefit of related parties (except where the relationship arises exclusively from a connection with the State Treasury or local government units or their associations) in excess of an amount of 30% of the result corresponding to EBITDA calculated on the basis of tax data (revenues and costs). [6] This applies to the costs of intangible services and licence fees and fees for the transfer of the debtor’s insolvency risk in respect of loans, other than those granted by banks and cooperative savings and loan associations, for instance under liabilities arising from derivative financial instruments and benefits of a similar nature incurred directly or indirectly for the benefit of related parties or entities from tax havens – to the extent that the amount of such costs exceeds by PLN 3 million the equivalent of 5% of the result corresponding to EBITDA calculated on the basis of data (revenues and tax costs).}