Poland introduces CFC and GAAR
By Artur Plutowski, EFS Group Sp.z.o.o.
The Polish Minister of Finance announced a package of tax reforms to be implemented in the coming years, covering CIT, PIT and VAT among others. The aim is to significantly reduce tax planning opportunities through the introduction of both the Controlled Foreign Corporations (CFC) concept and the General Anti-Avoidance Rule (GAAR), as well as others including changes to thin capitalisation and transfer pricing. The following presents brief comments on CFC, GAAR and thin capitalisation.
Generally, the CFC regime will be applicable if the following conditions are (cumulatively) met:
(i) Polish resident (legal entity or individual) directly or indirectly holds 25% of the share capital or the voting rights or the profit rights for a minimum of 30 days;
(ii) 50% of profit earned comes from passive sources (e.g. dividends, disposal of shares/stocks, interest, IPR);
(iii) Any type of the passive income is either exempt or excluded from taxation or is taxed at rate which is 25% lower than in Poland.
Generally, the CFC regime will not apply to entities established in the EU Member States or EEA countries and conducting “factual business activities”, of which there is an extensive list.
This is the second attempt to implement the GAAR in Poland. Previous wording was deemed unconstitutional. Precise wording of the GAAR has not yet been released. However, the Ministry of Finance is determined to introduce it from 2015.
The main change will concern the indebtedness ratio. The current 3:1 ratio will be replaced by 1:1. Most of the changes announced will enter into force from January 2015, with the exception of the CFC, which might be binding earlier.
EFS Group Sp.z.o.o., Lodz, Warsaw, Poland
T: +48 22 828 48 75
EFS Group provides Polish and international tax and legal services to companies and HNWI both considering Polish investment opportunities and doing business in Poland. We work closely with our clients and provide added value that makes real difference.
Artur gained his experience over 15 years of continuous support to a wide range of clients, starting from large multinational groups, ending to family owned businesses and HNWI. The focus is on local and international structuring and restructuring, M&A, litigation and transfer pricing.
publlished: June 2014