CIT 2023 under construction

July 26, 2022

The Ministry of Finance is currently working on changes in the field of CIT that will modify the structure of this tax. In other words, the changes in 2023 might be important. They will also apply to hidden dividends, transfer pricing, cost of debt financing, profits shifted and Estonian CIT. The proposed amendments are to become effective on 1 January 2023. However, provisions regarding documentation for “tax haven” transactions are to enter into force on the day of their announcement.

Minimum CIT

The most important change at the “Minimum CIT” area is suspension these regulations till 2023. Additionally, Polish Ministry of Finance plans modify the structure of this tax, by:

1. Increasing the profitability ratio to 2% while modifying its calculation methodology, e.g. through the exclusion from the tax-deductible cost, while making the profitability ration calculation, of lease payments associated with fixed assets, revenues from trade receivables sold to factoring companies;
2. Introducing an alternative method of determining the tax base for Minimum CIT;
3. Extending the list of taxable persons eligible for the Minimum CIT, to include for example: municipal companies, taxpayers that generate their revenues mainly in the healthcare sector, small taxpayers, those whose profitability in one of the past three years exceeded the ratio of 2% and those, who declared bankrupt or were in liquidation

More about the minimum CIT:

Hidden dividend

Provisions called “hidden dividend” are planned to be repealed.

More about the hidden dividend:

TP documentation for transactions with “tax havens”

The changes planned in this regard are aimed to:

1. Modify the scope of the documentation for indirect tax haven transactions
2. Eliminate of the presumption that the beneficial owner has its place of residence in a “tax haven”
3. Increase materiality thresholds for direct and indirect “tax haven” transaction

Cost of debt financing

Cost of debt financing provisions:

1. Specify precisely the debt financing cost limit is the higher of PLN 3 million or 30% of the tax EBITDA;
2. Provide an exemption from the provisions setting the limit on debt financing costs for equity transactions in situations where a bank or a credit union having its registered seat in a EU member state or in an EEA country is the financing institution.

Profits shifted

Polish Ministry of Finance plans following changes to shifted profits provision.

2. Ensure that only incurred costs classified as tax deductible expenses will be subject to this tax;
3. Clarify that the related party, for which costs regarded as shifted taxable profits are incurred, is a non-resident entity;
4. Clarify the condition regarding 50% revenue generated by the related party and the condition regarding revenue shifting to another entity (at least 10%);
5. Simplify the condition regarding preferential taxation in the related party’s country.

Estonian CIT

Amendments to the provisions to the Estonian CIT:

1. Modification the rules for determination of income from expenditures which are not related to business activities where the assets are used for purposes of conducting business activities and for other purposes;
2. Change the time limit for the notification of Estonian CIT selection
3. Clarification that tax liabilities arising from the initial adjustment expire in whole after the end of at least one full flat-rate taxation period (four fiscal years);
4. Specify precisely the due date of payment of tax on “income from transformation”.

More about the Estonian CIT:

Author: Agnieszka Ryms, Doradca Podatkowy

Tags cit 2023