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On November 15, 2024 President of Poland signed Polish Globe Act, an act implementing to Polish legal order provisions of Council Directive (EU) 2022/2523 of December 14, 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union.
The concept of minimum taxation results from a decrease in effective taxation in corporate groups in recent years. This decrease is resulting from tax optimization by such entities and the treatment of taxes and tax incentives by individual jurisdictions as competitive advantages. The presumed effect of the implementation of a global minimum tax is to achieve a reality, where non-tax factors (i.e. level of public services, access to skilled workers, infrastructure, etc.) will be of key importance when choosing where to invest.
Under the Globe framework, the Income Inclusion Rule (hereafter: ‘IIR’) will be introduced, which implies the obligation to pay a top-up tax on the insufficiently taxed profits of an entity from a low-tax jurisdiction. It is easy to imagine an attempt to avoid the minimum tax by locating the headquarters of the group’s parent entity in a jurisdiction that has not implemented IIR regulations. To address this possibility, the Undertaxed Profits Rule (hereafter: ‘UTPR’) has been developed. According to this rule, if the parent entity does not implement IIR, then other entity/entities within the group, whose jurisdictions have implemented IIR, will apply the top-up tax. It seems that in such a situation, low-tax countries should have a natural incentive to increase their domestic tax levels, since the income generated in their jurisdiction will be taxed anyway, but the tax will go to another jurisdiction. This rule reflects the Qualified Domestic Minimum Top-Up Tax (hereafter: ‘QDMTT’) principle, according to which a low-tax jurisdiction will impose additional taxation on profits to bring the level up to 15%.
The effective tax rate (hereinafter: ‘ETR’) is calculated as the ratio of qualified tax to qualified income. In Poland, it has been clarified that the qualified taxes will be CIT, withholding tax, tax on income from the disposal of virtual currencies, tax on foreign controlled entities (CFCs), tax on flipped income, income tax on income from buildings, Polish minimum tax, tax on qualified income from qualified intellectual property rights, tax on income from unrealized profits.
Qualified income is the result of an entity’s adjusted accounting income. Adjustments include dividend payments, refundable tax credits and certain equity transactions. In our view, upon determination of qualified income, taxpayers will face practical questions.
In addition, the tax base will be reduced by the so-called substance, i.e. a certain percentage of expenditure on fixed assets and wages (the target is 5%).
The provisions of the Polish Globe Act will apply to capital groups whose total consolidated annual revenue, as shown in the group’s consolidated statement, amounts to a minimum of EUR 750 million, in at least two of the four tax years immediately preceding the tax year.
It should be emphasized that top-up taxation will be levied on both the parent companies of these capital groups and the component units of the international groups, i.e. the subsidiaries operating in Poland.
Based on the above, Polish group entities with consolidated revenues in excess of the statutory amount should undertake a number of adjustments to the requirements in connection with the Polish Globe Act, including, inter alia, updating their tax strategies, internal procedures relating to the collection and presentation of data necessary for the calculation of the top-up tax and adjusting their financial (accounting) systems so that the conditions for its calculation and reporting are met.
Polish Globe Act implements three taxes.:
The Act also provides the possibility of temporary and permanent safe harbours which exclude certain entities from top-up taxation, which could have a significant impact on simplifying the processes for calculating and reporting the top-up taxes.
Introduction of Polish Globe Act New introduces new reporting obligations for taxpayers.
Taxpayers obliged to pay taxes jointly constituting the so-called ‘top-up taxation’ will be obliged to submit to the Head of the Kujawsko-Pomorskie Tax Office in Bydgoszcz a statement, according to established models, on the amount of tax due, by the end of the 15th month following the end of the tax year, and by that date pay the tax resulting from the submitted statement to the account of the appropriate tax office.
In a situation where at least two constituent units of the same group are taxpayers of the same tax, it will be possible for them to choose which of the units will be obliged to report the amount of calculated tax, for a period not exceeding 5 years.
According to Polish Globe Act provisions will be in force as of January 1, 2025. Based on grandfathering clauses entities can choose taxation with retrospective effect from January 1, 2024.
If you have any doubts about the global minimum tax regulations in Poland or you wish to analyse your own company’s situation our Polish experts would be pleased to help.
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