Poland: Proposals will not allow investment cost deductions from operational revenue

Magdalena Zamoyska

From 2018 Polish companies will not be allowed to deduct costs of their capital investment activity from operational revenue.

Currently, the Polish Corporate Income Tax Act does not provide for the obligation to calculate tax results separately on different forms of the taxpayers' operations. This means that, while defining taxable profit or loss, a given company should take into account all revenues and decrease them by the tax deductible cost of different types of its activity.

Planned changes to the Polish CIT Act introduce an obligation for the separate calculation of the tax result from capital gains. Capital gains are defined mainly as dividends, or dividends-like income, interest on profits from participating loans, revenues on the contributions in kind, disposal of shares and financial instruments but also the sale of receivables, even if receivables come from the operational activity.

The main motive to introduce separation of the tax result from capital gains is to prevail the unjustified decrease of operational profit by the cost of investment activity and financial operations, which according to the Polish Ministry of Development and Finance, may sometimes result from the non-genuine transactions aimed solely to decrease the taxable profit on the core business operations.

Starting from 2018, if a company earns profits on capital gains and operational activity, 19% CIT should be calculated on the sum of above profits (with exception to payment of dividends and dividends-like income, as in this case, tax is usually remitted by the distributor). If the company generates a loss on a given source of revenue in a tax year, this loss can only decrease profit from this source earned in the following years according to the rules outlined in CIT law.

At the date of writing this article, changes to the Polish CIT law are still a draft regulation subject to consultation. The amendments have been criticised because it is expected that they may discourage entrepreneurs from investment activity. On the other hand, the obligation to calculate the tax result for different types of revenue sources exists for many years in the Polish PIT Law. Additionally, this rule has been introduced to tax systems of numerous countries. However in Poland, the amendments are being introduced rapidly, without giving the companies sufficient time to adjust their operations and plans to the modified regulations.

Magdalena Zamoyska (magdalena.zamoyska@mddp.pl)

MDDP

Tel: +48 (22) 322 68 88

Website: www.mddp.pl