New rules for additional taxation of foreign controlled companies

The Polish government recently announced a revised draft with new provisions for the additional taxation of foreign controlled companies in the Corporation Tax Act and the Income Tax Act, in respect of taxes on corporations and individuals respectively.

The definition of “real economic activity” or “real business”

In contrast to the Government’s proposals published in May, the new design includes the requirements for tax exemptions for foreign controlled companies, by defining the real economic activity.

According to the rules proposed, tax on the profits of foreign controlled companies are only payable if the controlled company exercise real economic activities, namely:

• The company must correspond to the actual company whose goal is to have actual economic activity. The controlled company must therefore demonstrate its facilities, has personnel and have equipment that physically exist;
• The controlled company is not an artificial structure, having no relation to economic reality;
• There is a relationship between the economic activity of the foreign controlled company and the extent to which it uses the premises, staff and equipment.

Other objectives of the project remain unchanged. According to the draft legislation on foreign controlled companies changes can take effect in January 2015.