NEWSLETTER No. 65, November 2016

30.11.2016 Publications

Yesterday evening, the lower chamber of Poland’s parliament, the Sejm, adopted the legislative Act regarding amendment of the legislative Act regarding personal income tax and the legislative Act regarding corporate income tax as well as amendment of the Tax Ordinance and of certain other laws. This new statute was promptly signed into law by the President. The new rules thus enacted introduce corporate income tax on the income (revenues) of closed-end investment funds and specialised open-end investment funds which follow the investment rules and restrictions applicable to closed-end investment funds associated with such funds’ participation in Polish as well as foreign partnerships (organisational entities) which do not have legal personality, including the société en commandite spéciale (SCSp) form familiar from Luxemburg law. To date, such funds benefited from a subject-related CIT exemption on the basis of art. 6.1 items 10 and 10a of the CIT Act. Now, as of 1 January 2017 they will be liable for CIT; open-ended investment funds and other specialised open-ended investment funds, however, will continue to benefit from a subject-related exemption.
The Sejm had been working on this piece of legislation since early November. For our part, GESSEL has been closely following the progress of this bill as well as reactions among the business community, issuing regular updates on this matter.

The version of the act finally adopted by the Sejm provides for an object-based tax exemption for income (revenues) of closed-end investment funds and specialised open-end investment funds which follow the investment rules and restrictions applicable to closed-end investment funds, with the exception of:

i. Income (revenue) accruing from stakes in partnerships which do not have legal personality or in organisational entities which do not have legal personality based in Poland or in another jurisdiction, provided that, in accordance with the act or with the tax laws of the jurisdiction in which such partnerships or organisational entities have their registered seat or their management, they are not treated as legal entities and are not subject in such jurisdiction to tax on their global income (irrespectively of where it is achieved);

ii. Income (revenue) accruing from interest on loans extended to the entities referred to under item i above and from interest on other liabilities of such entities vis a vis the fund;

iii. Income (revenue) accruing from interest on equity stakes in the entities referred to under item i above;

iv. Bequests or other gratuitous, or partly gratuitous, benefits extended by the entities referred to under item i above;

v. Income (revenue) accruing from interest (discounts) on securities issued by the entities referred to under item i above;

vi. Income (revenue) accruing from divestment of securities issued by the entities referred to under item i above or of stakes in those entities.

To summarise, tax shall apply only to the income (revenue) categories described above, all of which are associated with participation of closed-end investment funds and specialised open-end investment funds which follow the investment rules and restrictions applicable to closed-end investment funds in partnerships (organisational entities) – domestic as well as foreign – which are not subject to global taxation of all their revenue.

Quite apart from the above, the statute just enacted by the Sejm brings another unfavourable change: loss of the legal protections arising from an individual tax interpretation obtained prior to 15 July 2016 if the tax benefit arising from the factual state or future event referred to in such individual interpretation will actually accrue after 1 January 2017. This change of the law stems from the fact that, in June 2016, the Polish Tax Ordinance was modified by way of insertion of a tax avoidance / evasion clause. Any individual tax interpretations which investment funds may hold will no longer be of avail if it is found that the factual state or future event discussed therein constitutes an element of a transaction covered by a decision issued by the minister competent for public finance matters on authority of the tax evasion clause.

The new tax rules, as described above, give rise to an urgent need to change extant investment structures employing closed-end investment funds (in particular ones focusing on non-public assets) and to replace them with other organisational forms.

Accordingly, we would suggest that you review, as a matter of urgency, your investment structures now in place so that you may adjust them accordingly.

Apart from keeping apace with the legislative developments, GESSEL has been working on relevant solutions; we will be happy to provide you with assistance in this respect.

Contact:

Dr Janusz Fiszer – Partner
Tel. 22 318 69 23, e-mail: j.fiszer@gessel.pl

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