Tax on shifted income
What is tax on shifted income?
Shifted income is deemed to be the costs incurred by the taxable person for an entity affiliated within, not having its registered office or management in the territory of the Republic of Poland, included in the tax-deductible expenses in the fiscal year, if the following conditions are jointly met:
- according to the provisions of the tax law applicable in the state where that affiliated entity has its registered office or management or where it is registered or located, the income (revenue) of this entity is subject to taxation at an income tax rate lower than 14.25%, or exempt or excluded from taxation with this tax;
- this affiliated entity obtains from the taxable person or other companies, with this taxable person, at least 50% of the total revenues determined in accordance with the provisions on income tax or accounting regulations;
- this affiliated entity transfers, in any form, at least 10% of the revenue referred to in subparagraph (2) to another entity:
- therefore, including expenses in the costs settled for income tax purposes or deducts these expenses or revenues from income, taxable base or tax in any form, or
- if these revenues constitute profits to be paid, irrespective of the date, in the form of a dividend or other revenue from share in profits of legal persons;
The sum of the costs incurred by the taxable person in the fiscal year for the benefit of entities affiliated with the taxable person, included in the fiscal year as tax deductible expenses of that taxable person, constitutes at least 3% of the taxable person’s tax-deductible expenses for that year.
The income tax rate is determined by appropriate reduction of the nominal income tax rate applicable in the state where the entity affiliated with the taxable person has its registered office or management or where it is registered or located, in relation to revenue arising from the reason, by deductions from the taxable base or tax related to this revenue, or tax refunds, with the exception of costs related to this revenue. If an entity affiliated with the taxable person is subject to partial exemption or partial exclusion from income tax, the rate is determined by reducing the nominal income tax rate by the percentage value of the exemption or exclusion from taxation.
Expenses shall include the costs of: consultancy, market research, advertising, management and supervision, data processing and insurance services, guarantees and sureties, and services of a similar nature, all types of fees and payables for exercising or for the right to exercise the rights or values, transferring a debtor’s insolvency risk related to loans other than loans granted by banks and savings and credit unions, including as part of liabilities arising from derivatives and services of a similar nature, debt financing related to obtaining funds and using those funds, in particular interest, fees, commissions, bonuses, the interest part of lease instalments, penalties and charges for delays in the payment of liabilities, and the costs of securing liabilities, including the costs of derivatives, fees and remunerations for the transfer of functions, assets, or risks.
The taxable base is the sum of the shifted income in the fiscal year, and in the case of a tax capital group – the sum of the shifted income in the fiscal year of the companies forming this group. Shifted income shall not be combined with other income (revenue) of the taxable person.
The provisions shall not apply insofar as expenses were borne for an affiliated entity whose entire income is subject to taxation in a Member State of the European Union or in a member state of the European Economic Area that conducts significant, actual economic activity in that state. The assessment whether actual economic activity is significant takes into consideration, in particular, the ratio of revenue earned by the affiliated entity from conducted actual economic activity to its total revenue.
As an experienced team of tax advisors, tax experts and lawyers who deal with tax on shifted income we can help you in the following matters:
Our services
As an experienced team of tax advisors, tax experts and lawyers who deals with CFC, we can help you in the following matters:
- Individual analysis of whether tax on shifted income applies to your company,
- Issues in tax on shifted income matters,
- General tax on shifted income advice,
- An independent audit of the tax function,
- Representation of Clients based on the granted power of attorney, at each stage of the proceedings indicated above: tax proceedings, a tax audit or a customs and tax inspection, before the Voivodeship Administrative Court and the Supreme Administrative Court.
