Baker Tilly Poland Tax Alert

Currently, principally in domestic transactions, when the supply of goods or services is subject to invoicing, the point of taxation is the invoice day but not later than the 7th day after the supply.
According to the new rules the point of taxation will arise only upon the supply of goods or services regardless of the invoice date. As a consequence, the point of taxation will be during the settlement period when a supply was carried out without the possibility of postponing the VAT settlement until the next month, as it is possible now (e.g., when the supply is on 30 April, invoice 4 May).

Point of taxation – continuous sales

A more specific point of taxation will be introduced for continuous sales (both for supplies of services and goods). Now the point of taxation is when such activities are carried out. It is planned that the point of taxation will be expiry of each settlement period (i.e., a month or a quarter of a year, whichever is applicable).

Point of taxation – pre-payments

In the existing VAT framework, receiving part of a payment before the supply of goods or services triggers a point of taxation. This is planned to be extended also to instances when the total payment is received prior to the supply. This extension will not apply to intra-community supplies and acquisitions of goods.

Invoices

Considerable changes are also foreseen in respect of issuing invoices.

Simplified invoices

“Simplified invoices” will be introduced. These will be invoices for total receivables below PLN 450 (EUR 100). Simplification would translate into requiring fewer details regarding the parties and the transaction on the invoice.

No more internal invoices

Moreover, no internal invoices will be required. The internal-invoices requirement is inconsistent with the EU VAT directive.

New electronic invoices rules

Electronic invoice definition will be introduced in the VAT Act itself (now it is in the regulation of the Minister of Finance). It will be defined as an invoice in electronic form issued and received in any electronic format. The consent to receive electronic invoices only via email will be repealed and, hence, it will be possible to give consent in any way as agreed by the parties.

All VAT-taxable transactions to grant right to deduct

The requirement to invoice activities will be extended from “active VAT payers” (as it is now) to all entities conducting VAT-taxable supplies of goods and services. This will also confirm the right of a purchaser to deduct input VAT resulting from an invoice issued by an unregistered VAT taxpayer.

Taxation base

The planned provisions are to implement the EU provisions more accurately with regard to determining the taxation base. Specifically, the general taxation base would cover all payments received or to be received by the service provided from the purchaser, service recipient or a third party in respect of sale, including received grants, subsidies and other supporting payments of a similar nature relating directly to the price for the goods or services supplied by the VAT-taxpayer.

Free of charge supplies of goods rules extended

The Ministry of Finance withdrew from increasing the cap for supplies of so-called minor value gifts. These are supplies where the VAT-taxpayer can deduct input VAT from purchase invoices and supply the goods free of charge without triggering VAT. In the initial version of the bill, the cap was to be increased from PLN 100 to PLN 160 for a single identified person annual gift value and from PLN 10 to PLN 20 per one gift to an unidentified person.

The rules on minor-value gifts will be extended to gifts manufactured by the VAT-taxpayer himself to ensure that all free-of-charge supplies which do not qualify as minor-value gifts trigger VAT.

Input VAT deduction rules simplified

A general rule that the right to deduct input VAT from output VAT will be available upon the point of taxation for goods and services acquired or imported by the taxpayer. This will also apply to pre-payments. Currently, the existing additional right to deduct requirements will be cancelled, including the need to make VAT-taxable transactions to be able to make the deduction.

2. Changes to the Personal Income Tax (PIT Act)

Limitation of the copyright tax deductible costs

Author’s copyright sales income will have fixed tax deductible costs introduced – it will amount to PLN 42,764 (1/2 of the tax assessment basis falling in the first tax scale). In practice, this means that the tax deductible costs of 50% that currently indiscriminately applies to any author’s copyright sale income regardless of its amount will become limited to income not exceeding PLN 85,528.
If a taxpayer proves that the actual tax deductible expenditures were higher than the fixed costs, he will be able to deduct these higher costs.

Child tax relief eligibility limited

Taxpayers with annual income exceeding PLN 112,000 who have one child, will not be entitled to the child tax relief. The annual income will be computed jointly for marriages.
Nothing will change for persons who have two children, they will still be entitled to the relief regardless of their annual income, and the relief will continue to amount to PLN 92,67 per each month per child (namely PLN 1112.04 for 12 months per child).
Persons having three or more children will be entitled to a higher relief.

The internet relief limited

Only new internet users will be entitled to deduct the costs borne for internet and only for first two consecutive years. The maximum deduction will be PLN 760 per year.

New rules on taxation of income of partnerships limited by shares [spółki komandytowo-akcyjne]

A fundamental change in the rules for taxation of income generated by partnerships limited by shares is planned.

Today, partnerships limited by shares – similarly as other partnerships – are tax transparent for the purposes of income taxes, i.e. are not taxpayers of income tax themselves. The partners in such partnerships are income taxpayers and point of taxation for that income is, in general, the moment it is received by the partnership. This income is subject to either CIT or PIT, depending whether a partner is a CIT or PIT taxpayer. This has been altered by the Superior Administrative Court in January 2012 that ruled that the point of taxation for shareholders of partnerships limited by shares is receipt of dividends. This has been since considered a major tax incentive for using partnerships limited by shares as tax optimizing vehicles as not only enabling a substantial tax deferral but also opening other optimizing options.
It is planned to make partnerships limited by shares non-transparent for tax purpose, with their income subject to CIT, effectively discontinuing the aforementioned optimizing opportunities.
Disbursements between partnerships limited by shares and partners would be similar to limited liability ones, i.e., usually in the framework of the dividends distribution subject to general rules on the taxation of dividends.
There is a heated debate to what extent the new provisions would apply to existing partnerships limited by shares and it is possible that due to criticism the initial proposal will be softened or its introduction postponed.

3. Changes to the Corporate Income Tax (CIT Act)

A partnership limited by shares as a taxpayer of corporate income tax

Pursuant to the planned changes, a partnership limited by shares will become a taxpayer of corporate income tax. Two-stage (two-level) taxation will apply to such a partnership similarly to limited liability companies and companies limited by shares:

1) taxation on the partnership’s income,
2) taxation on the income gained from a share in the partnership’s profits (e.g., dividend income).

Exclusion of a permit – so-called participation loan

Participation exemption of dividend income from taxation will not apply if in the source state the dividend is included in tax deductible costs, is deducted from income, from tax assessment basis or from the tax of the paying company.

Changes regarding transfer pricing and underlying tax documentation

As per the bill, the documentation obligation will be extended to cover:

a) concluding articles of association (status) of a company/partnership other than a company in organisation and all type of joint ventures
b) internal transfers between the taxpayer and a foreign or Polish fixed establishment, where such transfers affect income attributable to such an establishment (in case of a taxpayer with a limited tax obligation) or affecting the income generated in Poland (in case of a taxpayer with an unlimited tax obligation).

Please contact us if you would like to receive more details on any points outlined above. We would be delighted to meet with you to discuss how these changes can impact your business or provide you with additional and more focused information.