On 17 September 2014 the bill on the amendment of the corporate income tax act was signed by the President of the Republic of Poland and was promulgated on 3 October 2014. The bill includes in particular changes specifically designed to tax the income generated by controlled foreign corporations (CFC) at the level of the Polish taxpayer owning the foreign subsidiary.
Key facts and objectives.
The new CFC rules provide for 19% Polish corporate income tax on the income generated by the so-called controlled foreign corporations at the level of the Polish taxpayer. The amendment is aimed to counteract the shifting of assets that generate passive revenues, such as revenues from dividends, licenses and interest, to countries with preferential tax regimes.
Definition of a CFC.
The new CFC rules are to apply if the following criteria are satisfied:
- The subsidiary is considered as CFC if its registered seat or place of management is located in a “black-listed” country (a country applying harmful tax competition) or in a country with which Poland/ the European Union has not concluded an agreement containing an exchange of information clause (e.g. a double tax treaty).
- At least 50% of the revenues of the foreign subsidiary derive from passive income.
- At least one kind of passive income generated by the foreign subsidiary is subject to a CIT rate lower than 14.25% or is CIT-exempt or falls out of scope of CIT.
- The Polish taxpayer holds at least a 25% direct or indirect shareholding in the foreign subsidiary for the period not shorter than 30 days.
De minimis rule and entry into force.
Please note that the CFC rules will not be applicable in case the foreign subsidiary carries out genuine business activity or its annual revenues are lower than EUR 250.000. The CFC regulations will enter into force on 1 February 2015 and will be applicable to foreign companies starting from the tax year beginning after this date.
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