Last call for taxpayers in Poland to review ATAD 2
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Last call for taxpayers in Poland to review ATAD 2

Sponsored by

sponsored-firms-mddp.png
megaphone-1725694-1280-1.jpg

Łukasz Kupień of MDDP explains why taxpayers should verify their shareholding structure and transactions from the perspective of hybrid mismatches.

Poland has implemented European Council Anti-Tax Avoidance Directive (ATAD 2) by introducing anti-hybrid provisions into its domestic law. 

The provisions apply starting from January 2021 and the taxpayers should take them into account in their 2021 CIT settlements and onwards. The deadline for the 2021 CIT return and CIT payment elapses on  June 30 2022, so there is still time to review and include hybrid mismatch position.

When does hybrid mismatches arise?

Hybrid mismatches arise if the same entity, instrument or transfer is treated differently for the tax purposes in different countries. As a result of the hybrid mismatches double non-taxation may arise in the form of: double deduction, deduction without inclusion and non-taxation without inclusion.

Anti-hybrid mismatches provisions neutralise such situations by excluding the right to recognise tax-deductible costs or by excluding right to tax exemption.  

To whom do the rules apply?

In Poland, the rules apply to all CIT taxpayers, without any materiality threshold. By its very nature the provisions concern entities who have foreign shareholders or who do transactions with foreign entities. This also applies to indirect foreign shareholders and indirect foreign parties to the transactions. Hybrid mismatches may also arise for typical taxpayers doing plain vanilla settlements and who do not engage in any optimisation arrangements – depending on the decision of its shareholders or contractors. 

From our experience, hybrid mismatches often arise for Polish taxpayers with the US (indirect) shareholders or with financing from the related parties from the US. Moreover, so-called ‘imported hybrid mismatch’ may arise in transactions with non-Polish entities inter alia from the Netherlands, Luxembourg or the UK. Lastly, transactions with entities from tax havens or shareholding from tax havens may give rise to hybrid mismatches. 

Imported hybrid mismatches

An imported hybrid mismatch is a specific hybrid mismatch, which arises when a payment from Poland directly or indirectly finances an expenditure giving rise to a hybrid mismatch through a transaction or series of transactions between the related parties or as part of a structured arrangement. 

In practice, this means that Polish taxpayers should verify if their payments (e.g. interest) were used by the recipient to finance hybrid mismatches in Poland or abroad. This may be the case when the lender is financed via hybrid instruments (e.g. equity certificates, which are treated in one country as loan/interest and in other country as equity/dividends). 

Practical implications

The occurrence of hybrid mismatches may lead to an obligation to exclude particular expenditures from the tax-deductible costs. This may apply to interest or service fees, for example. 

In certain cases, when the Polish company is a hybrid entity, it may be not entitled to report tax losses in Poland or even be obliged to exclude all its expenses from the tax-deductible costs. Such a situation may arise when a Polish company (a taxpayer) is at the same time treated in the country of its shareholder (i.e. the US via check-the-box election mechanism) as a transparent entity (not a taxpayer). In such a case double deduction takes place and in order to recognise tax-deductible costs, the Polish company should be able to prove that at the same revenue inclusion in the US took place (double inclusion).

For this reason, anti-hybrid mismatch provisions may have a material impact on tax settlements of certain taxpayers. 

How to address it

Taxpayers should verify their shareholding structure and transactions from the perspective of hybrid mismatches. Such verification should also include information about tax treatment in jurisdictions of their shareholders and how the payments from the Polish entities were used. With respect to imported hybrid mismatches, Polish taxpayers may verify if one of the countries in the transaction chain has already made an equivalent hybrid adjustment. 

One should also collect supporting documentation regarding the hybrid mismatches position. Such documentation may be needed for the purpose of the tax audit or disposal of shares, when the hybrid mismatch position may be verified. 

 

Łukasz Kupień

Senior manager, MDDP

E: lukasz.kupien@mddp.pl

 

 

 

 

 

 



more across site & bottom lb ros

More from across our site

The ‘big four’ firm has threatened to legally pursue those behind the letter, which has been circulating on social media
The guidelines have been established in the wake of multiple tax scandals and controversies that have rocked the accounting profession
KPMG Netherlands’ former head of assurance also received a permanent bar and $150,000 fine; in other news, asset management firm BlackRock lost a $13.5bn UK tax appeal
The new, fully integrated office will also offer M&A, dispute resolution, IP and corporate tax services
The new guidance concerns a recent 1% excise tax on the repurchases of corporate stock for both US and certain foreign companies
Interpath has hired a managing partner from rival accounting firm BDO to lead the new operation
Survey results of over 28,000 in-house lawyers reveal that American in-house counsel place a higher value on the reputation of external advisers than their peers elsewhere
In an exclusive interview with ITR, Andrew Leigh also endorsed new legislation designed to prevent multinationals using complex corporate structures to reduce taxes
Nick Crama and Parwesh Bissumbhar, senior director and manager respectively at Alvarez & Marsal, outline practical advice for real estate managers to comply with DAC6 regulations
The finalists for the 13th annual awards revealed
Gift this article