Acquisition of Polish companies used to be structured via an
acquiring Polish entity (limited liability company or a joint
stock company) which was debt financed. Both before and after
the merger of the acquisition and the target the interest on
debt was tax deductible. It was limited with debt to equity
thin capitalisation that applied only to selected related party
debt. Interest on non-related party debt (bank loans) was fully
tax deductible.
If the draft becomes law, from 2018 interest on debt
financing for the acquisition of shares of the merged company
will no longer be tax deductible against the profits of the
merged company.
No transition period regulations have been provided, so the
restriction will also apply to debt from previous years/past
acquisitions and mergers.
Another type of cost that is expected to be non-tax
deductible is any interest that exceeds approx. €680,000
($806,000) per year and exceeds 30% of the company earnings
before interest, taxes, and amortisation (EBITA). It will apply
to both related and non-related party interest on a very
broadly understood debt. Debt to equity ratio will not matter
any longer. However, loans received before the end of 2017 will
continue to benefit from the previous treatment for one more
year. Companies with a tax year different from the calendar
year can continue the previous approach until the end of the
tax year which starts before the end of 2017.
Interest on profit participating loans will be never tax
deductible for the borrower.
The €680,000 threshold is expected to apply to fees for
intangible services (like advisory services, market research
services, advertising services, management services and
controlling, data processing as well as insurance, guarantees,
and similar) but also payments for intellectual property rights
acquired from related parties. Any such fees exceeding that
threshold will be non-tax deductible for the part that exceeds
5% of EBITDA. What is important is that such costs will be
fully tax deductible if they constitute a direct production
cost of product/service or are recharged.
Some types of services (even if required from related
parties, like accounting) are expected to be excluded from the
limitations, but one should wait for the final version of the
law and its formal interpretation.
Payments (royalties) for the intangible assets (like
trademarks) will be not tax deductible if in the past the
taxpayer was the owner of these assets, if part the royalties
exceed the income achieved in the past from the disposal of the
assets. This would mean that popular past structures of keeping
intangibles separately from the operations may appear very
inefficient for the company paying the royalties. Moreover, the
owner of the intellectual property asset (if it is a Polish
taxpayer) will not be allowed to treat as tax deductible the
depreciation deductions from such value of the intellectual
property assets that were previously owned by the taxpayer or
the entity in which the taxpayer participated and which were
disposed, in the part which exceeds the income from the
disposal of the intellectual property assets.
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Monika Dziedzic |
Monika Dziedzic (monika.dziedzic@mddp.pl)
MDDP
Tel. +48 22 322 68 88
Website: www.mddp.pl