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EXIT TAX IN POLAND – DRAFT AMENDMENTS TO INCOME TAX STATUTES

2018-10-22

The Government Legislative Centre announced on 24 August 2018 draft amendments to inter alia corporate income tax (CIT) and personal income tax (PIT). The aims of the legislative efforts include the introduction to the Polish legal system of certain provisions of the ATAD Council Directive (EU) 2016/1164 of 12 July 2016 providing for the so-called exit tax. The bill has now been introduced to the Sejm.

The term ‘exit tax’ refers to taxation of unrealised capital gains on account of a taxpayer transferring its assets, tax residence or permanent establishment outside the territory of the Republic of Poland. In other words, the levy in question aims to ensure taxation of the capital gains created at the time the taxpayer (whether or not tax resident) was subject to the Polish tax regulations.

According to the bill, PIT taxpayers are to be taxed at 2 rates, i.e. 3% of the taxable base (where the tax value of an asset is not determined) and 19% in other cases. As regards CIT taxpayers the rate will be 19% of the taxable base.  Under the new regulations, the taxable base is to consist of an aggregate income from unrealised capital gains determined for specific assets (in the event of an enterprise or an organised part thereof the income is to regard all assets belonging to them). Income from unrealised gains, on the other hand, is to consist of the surplus of the market value of the transferred asset, including that resulting from the change of tax residence, over its tax value (established as at the date of its transfer).

The ATAD Directive contains provisions aiming at preventing corporate tax avoidance practices. It is designed for discouraging businesses from transferring their head offices or assets to countries in which they could take advantage of additional tax benefits. The regulations aim at preventing situations where undertakings used inter alia tax reliefs, and following the lapse of the preferential tax period decided to transfer their operations abroad.

In contrast to the ATAD Directive, the Polish regulations also provide for taxation of individuals. Therefore, certain amendments have been proposed to the Personal Income Tax Act which allow the taxation of unrealised capital gains made by individuals, whether or not carrying on business, where such taxpayers’ assets or tax residence are transferred outside the territory of the Republic of Poland. However, a threshold has been proposed in the case of individuals at PLN 4 million on the value of assets to be taxable with tax on unrealised gains. The threshold is to apply to all individuals (whether or not carrying on business).

According to the draft, the payment of the tax on unrealised capital gains (calculated in accordance with the guidelines set out in the act) can be, on certain conditions, made in installments over a maximum period of 5 years. It will also be possible for a taxpayer to regain the exit tax paid if the assets that were previously transferred outside Poland are transferred back to Poland within 5 years. The tax will also be capable of being reclaimed by an individual who moves outside the country and returns to Poland within 5 years.

All entities that have been planning on reorganisation of business, in particular where this would involve changing the tax residence or transferring assets outside the territory of the RP should prepare for exit tax.

Paulina Andrzejczyk, Tax Consultant, ATA Tax Sp. z o.o.

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