The Polish Ministry of Finance is working on amendments to the corporate income tax (CIT) regime for public consultation. The draft bill, among others, facilitates the creation and operation of the CIT consolidation regime in Poland, referred to as the "Tax Capital Group" (TCG).
The proposed amendments provide for simplified requirements for CIT consolidation (TCG) i.e., no minimum profitability, lower average share capital threshold, possibility to carry forward tax losses, permitted shareholding relations between tax group members other than between a dominant entity and a member.
Key provisions of the draft bill are summarized below.
No minimum profitability
The draft bill proposes terminating the permanent examination of the condition of TCG profitability. The current assumption that the share of income in revenues should be at least 2% in the TCG was certainly one of the elements discouraging tax consolidation in the past. According to the proposed regulations entities will be able to generate losses while operating in the TCG and it will not automatically result in the loss of TCG tax status (as it is under the current CIT regulations).
Lower share capital threshold
The minimum average share capital of the company forming the TCG would be reduced to PLN250,000 from the current threshold of PLN500,000.
Possibility to carry forward tax losses
Under certain conditions, the TCG will be allowed to offset income (from a given source of income) with losses incurred by a company forming the TCG (from the same source of income) in the period before formation of the TCG or in the event of the dissolution of the TCG.
Permitted shareholding relations between tax group members other than between a dominant entity and a member
Pursuant to the draft regulations, the existence of capital ties between the companies forming the TCG would be allowed. To date it has not been allowed for entities within the TCG other than the dominant entity, to hold shares in other participants of the TCG. Therefore, a TCG currently could not be formed between a parent, subsidiary and a subsidiary of the subsidiary.
Possibility for a group member to demerge
Based on the proposed regulations, without breaking the status of TCG, an entity being a TCG member (but not a dominant entity) is allowed to demerge whereby a newly created entity becomes a new member of TCG.
The possibility for Polish entities to consolidate for tax purposes was reduced when limited partnerships became taxpayers as of, as a rule, at the beginning of 2021. The draft regulations, when implemented, may significantly expand the use of tax consolidation through a TCG.
Before the new regulations enter into force, taxpayers should use this time period to check whether this form of taxation would be preferred from a group level, especially for a business which generates tax losses as part of its business lifecycle.
For additional information with respect to this Alert, please contact the following:
EY Doradztwo Podatkowe Krupa sp.k., Warsaw
EY Doradztwo Podatkowe Krupa sp.k., Wroclaw
Ernst & Young LLP (United States), Polish Tax Desk, New York