Most important tax changes effective 1st January, 2015

Private use of company cars from January 2015

From the start of 2015 the private use of a company car up to and including an engine size of 1,600cc (cylinder capacity) will be taxed on the basis of a assumed cash benefit of 250.00 PLN. The tax rate will be 18%, so an employee must pay 45.00 PLN taxes (PIT) each month.

‘The flat-rate taxation scheme is a simple solution to facilitate employee taxation of privately used company cars and the tax treatment’ – the government stated when announcing this legislation amendment. Importantly, and given the Polish lawmakers’ approach, also surprisingly, the changes are very favourable to BOTH the employers and employees.

Due to this fringe benefit, an employer should increase the salary of an employee using a company car for private purposes, for example if he/she uses the company car to get to work. The salary increase will be calculated using market prices for car rentals. However, the relevant provisions are very vaguely formulated. The employer is supposed to determine the conditions for the use of a company car for private purposes by themselves. Consequently, there are on the one hand employees paying no taxes for shopping and vacation trips, while on the other hand, there are employees who are concerned that the tax authority will not recognise the taxation calculated by them.

When a company car with a cylinder capacity exceeding 1,600cc, the value of the private use will be 400.00 PLN, so the taxation amount will be 72.00 PLN.

If the employee only uses the company car only part of the month for private purposes, then the value of compensation for each day of the private use needs to be calculated. Therefore, the amount of tax calculated by the employee can in fact be lower than the amount established by law. In such a case, the internal rules of the company are crucial in calculating the amount of fringe benefits for the private use of company cars.

Moreover, the value of the employee benefit, in the form of the collective transportation to work, organised by the employer for his employees will be exempt from tax, starting from the start of 2015. As a pre-condition, the vehicle used for this purpose must be designed to carry more than 9 people including the driver.

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New special procedure for the VAT rules on telecommunications, radio and television, as well as on electronic services

Effective from 1^st January, 2015 there is a new VAT procedure for telecommunications, radio and television, as well as electronic services supplied to non-taxable persons. This will include all services to private consumers supplied by entities/persons which are established in the EU and which are not located in the country of consumption (EU), according to Article 130a-130d of VAT Act. All previous provisions defining the place of performance of these services (Article 28m of VAT Act) are lifted with effect from 1^st January, 2015.

According to these amendments the place of performance will always be the legal domicile, the place of residence or habitual residence of the non-taxable consumer (Article 28k of VAT Act) of telecommunications, radio and television, as well as electronic services. This shall apply regardless of supplier’s status and the location of his business activities.

Changes will also be made in relation to foreign entities (entities not resident or have a permanent place of business within the territory of the EU).

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The consequences of settlement of liabilities by type of transferring (Corporate Income Tax {CIT}, VAT & Private Income Tax {PIT})

From 1^st January, 2015, the settlement of liabilities through non-cash contributions will generate taxable income by the debtor. The taxable income is defined as the amount of debts, which shall be settled through non-cash contributions. If the market value of the non-cash contribution exceeds the nominal amount of the debt, this may be applied with the restriction that in these cases the market value of the non-cash contribution is taxable.

If payables are settled through non-cash contributions, the amount of the claim is tax deductible, but reduced by:

1. the VAT payable for the non-cash contribution, as well as;
2. the sum of the depreciation carried out.

A provision will be added, according to which the value of the received non-cash contribution is the same amount as the repaid loan (credit), will not be considered as taxable income.

Another regulation added, which states that the purchase value of properties, as well as the intangible and tangible assets, which have been received as non-cash contributions for the settlement of payables, are defined by the value of the settled debt.

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Acquisition value of fixed assets for a European company, within a European co-operative, as well as a foreign permanent established in the territory of the Republic of Poland

From 1^st January, 2015, new legislation will be added, which will govern the determination of the purchase value of property, plant and equipment, as well as intangible and tangible assets will be defined in the following cases:

1. Foreign business operations of limited taxable persons (non-residents) within the territory of the Republic of Poland;
2. legal residence, or the board of management of a European company, or co-operative moved to Poland.

In such cases, the purchase value of property, plant and equipment, as well as intangible and tangible assets will be defined in the amount determined, in which it was recognised under tax law and that is evident from the bookkeeping records of the taxpayer. This is the case regardless of the nature of costs. The purchase value shall not exceed the market value of the assets.

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The taxation of transformed companies with profits that have been transferred to other types of capital than share capital

In the case of converting a company, that is an income taxpayer, into a company that is not such a taxpayer, the taxable income from shared profits and non-distributed profits will be increased by profits that are transferred into other types of capital stock.

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Amendments to the rules on thin capitalisation (including the replacement of the coefficient level of debt to capital a ratio of 3:1 by a factor of 1:1)

From the 1^st January, 2015, there are important changes to the legislation of the Corporation Tax Act relating to the so-called thin-capitalisation. According to the new legislation:

• the restrictions on tax deductible costs will also affect the lending rates of economic entities;
• the debt amount affiliated against a contractor in terms of the net equity of the debtor (and no longer, as before, three times the share capital of the debtor);
• the manner of calculation of the interest portion, that does not belong to the tax deductible costs, will be clarified;
• it will be determined that the term ‘debt’ as defined in the legislation, will not only be limited to the debts of the borrower’s loan agreements;
• it introduces an alternative method for calculating the under-capitalisation. This method will allow interest tax deductible costs to be added, within certain limits, without evaluating who is the lender. The application of this method for under-capitalisation will be approved after a written notification has been submitted to the relevant tax office.

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Clarification of the directory for affiliated business entities

The rules governing personal income tax of the directory is specific relating to business entities and through highlighting of organisational entities requirements to be examined whether they are affiliated with other business units.

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So-called equity loans

From 1^st January, 2015, Article 20, Paragraph 16 of the Corporate Income Tax law (CIT) introduced that it will exclude tax exemptions for dividends or other income from profit shares of legal persons, payable between associated enterprises. However, this only applies to dividends, which are in another country, or other income-paying company, which may thus be deducted from the taxable income or tax base by the paying company.

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Specified procedure to be applied for the withdrawal of shareholders of a company which are not income taxpayers

With effect from 1^st January, 2015, non-taxable income as part of the credit balance which exists after withdrawal of shareholders the company, that are no personal income taxpayers, must not be recognised for tax deductible purposes.

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Determining the consequences of claims received by shareholders after their withdrawal from companies, which are non-personal income taxpayers or after the liquidation of such companies>

From 1^st January, 2015, the amendment of Article 12, Paragraph 4, Ref. 3b of the Corporate Income Tax law (CIT) defines exactly, that claims which are received by shareholders after their withdrawal from a company, which do not pay Personal Income Tax (PIT), or which arose in connection with the liquidation of such a company, will not be treated as taxable income. However, it will become taxable in the case of payment.

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Determining the time at which taxable income results from the exercise of rights in connection with derivative financial instruments
From 1^st January, 2015, the Personal Income Tax (PIT) regulations will be complemented by provisions, saying that the time at which taxable income results from the exercise of rights with derivative financial instruments, is defined as the point of time at which these rights have been executed.

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Extending the obligation to withhold a flat-rate of Personal Income Tax (PIT) by business entities managing security accounts or consolidated accounts

From 1^st January, 2015, business entities managing security accounts or consolidated accounts are obliged to withhold a flat-rate of income tax, if they are arranging the payment. The deduction will be made at the date of payment in favour of the holder of the security account or the consolidated account.

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Determination of tax expenses recognised upon redemption of units or shares, which have been obtained by an exchange

From 1^st January, 2015, changed provisions to the Personal Income Tax law (PIT) will clarify, that costs or expenditures related to the redemption of shares, to the acquiring company in connection with the conversion of shares, are tax deductible costs.

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Specifying regulations on the taxation of income from the sale of assets used for the purposes of business

From 1^st January, 2015, income from the sale of assets – tangible or intangible – are taxable as income from commercial operations, according to Personal Income Tax regulation (PIT).

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Taxation of so-called ‘cashbacks’ received from banks, co-operatives or other financial institutions will receive a flat-rate of an income tax rate of 19%

From 1^st January, 2015, Article 30, Paragraph 1, Ref. 4b will be added to the Personal Income Tax act (PIT), regulating that cashbacks received from banks, co-operatives or other financial institutions are taxable with a flat-rate of 19%. This tax will be withdrawn by banks, co-operatives and other financial institutions who are obliged to pay cashbacks.

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Specifications when interest is received for credit balances on payment transaction accounts from business activities

From the new wording of Article 14, Paragraph 2, Ref. 5 of the Personal Income Tax act (PIT), that will become operational from 1^st January, 2015, will clarify that this regulation shall not apply to interests from fixed-term deposits and other credit balances (savings etc.), existing on payment transaction accounts used for commercial operations. The new wording of the provision therefore corresponds to the current interpretation by the tax authorities and administrative courts.

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Exceptions to the principle that a Saturday or a statutory holiday extends legislative deadlines
From 1^st January, 2015, Article 12, Paragraph 5 of the Tax Code (Ordynacja podatkowa) will have a new wording. If the last day of a statutory deadline is a Saturday or a public holiday, the last day of the prescribed period shall be the day following the holiday(s), unless tax provisions are specifying something else. With effect from 1^st January, 2015, the following provisions can eliminate this rule of Article 12, Paragraph 5 tax code:

• Article 130c, Paragraph 3 of the VAT Act (special procedures of VAT return)
• Article 133, Paragraph 2a of the VAT Act (foreign business entities with a special procedure of VAT return).

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New regulations regarding the validity of Certificates of Residence (CoR)

From the beginning of the year 2015, the Polish tax authorities will change the principles concerning the acknowledgement of the Certificates of Residence (CoR), which means confirming the place of the seat or the residence of foreign business partners for tax purposes.

The presentation of a valid CoR will allow entrepreneurs to apply the provisions concerning the avoidance of double taxation in the case of payments for foreign business partners (e.g. dividends or royalties). The absence of a valid CoR, at the moment in which the payments are executed, this will allow the Polish entrepreneur to be charged and pay the withheld tax according to the rates settled in Polish income tax acts, without any tax credits or exemptions from withholding the tax.

According to the current practices, the CoR without an expiration date remains valid, until there is a change of status or tax residence of the business partner. Generally, it was sufficient to renew the CoR every few years or immediately after the tax status of the payment’s receiver has been changed.

This new introduced amendment will have the impact on the CoR without an expiry date, which shall become invalid automatically 12 months after the issue date. These certificates after the expiration date will become invalid from the date indicated on the document.

For precautionary reasons getsix^® would like to recommend, that if required, you obtain a new CoR for the purpose of confirming the tax residence of foreign business partners. Even from the beginning of January 2015 there are certain doubts that might arise on the validity of certificates issued in 2014 and in the previous years, due to this Polish entrepreneurs may be sent a charge for the withholding of tax inline with the higher rates.