The Private Wealth & Private Client Review: Poland
Year by year, Poland becomes a less friendly jurisdiction to individuals of significant wealth. This is because of the introduction, by the Polish legislator, of new provisions that are rather unfavourable to the wealthiest individuals. On the one hand, the lack of a wealth tax and relatively low tax rates make Poland an attractive place to keep personal wealth. On the other hand, Poland conforms with current global trends aimed at closing the remaining loopholes in its tax system through the introduction of various regulations, such as the exit tax and solidarity tax (applicable from 2019) and other more stringently controlled foreign corporation (CFC) rules, general anti-abuse rules (GAAR), new transfer pricing documentation requirements, taxation of joint-stock partnerships and tax-reporting schemes (such as the EU Mandatory Disclosure Regime: MDR). It is significant that Poland participates in the Base Erosion and Profit Shifting (BEPS) project and implements the Council Directive 2014/107/EU of 9 December 2014 amending Directive 2011/16/EU as regards the mandatory automatic exchange of information in the field of taxation. Poland has signed many double tax treaties (90 conventions) and international agreements on the exchange of information on tax matters. These act as a deterrent to individuals who intend to keep their wealth in Poland.
There are two types of tax obligation in Poland: unlimited and limited. Unlimited tax obligation is constituted when individuals with their place of residence in Poland are taxed on their worldwide income, regardless of where the income is earned. The limited tax obligation arises when individuals do not have a place of residence in Poland, and they are taxed solely on their income derived from Polish sources. It should be stressed that, from 2017 and by further amendments in 2018 and 2019, the Polish legislator has extended a list of circumstances in which the income of non-residents is deemed to be generated in Poland. The extended list includes:
- work carried out in Poland by service relationship, employment relationship, work under contract and cooperative employment relations, regardless of where the remuneration is paid;
- any kind of operation undertaken personally in Poland, regardless of where the remuneration is paid;
- any kinds of operation undertaken in Poland, including operation of a foreign facility located in Poland;
- a property located in Poland or rights to such a property, including sales thereof in its entirety or part, or sales of any rights to such a property;
- securities and derivative financial instruments not being securities allowed for public trading in Poland in the regulated stock exchange market, including those obtained through sales of such securities or instruments and exercising rights stemming from them;
- the deed of ownership transfer of shares in a company, the whole of entitlements and obligations in a company not being a legal person, or deeds of participation in an investment fund or a collective investment scheme or other legal person, or the deed that is due resulting from holding shares where at least 50 per cent of the value of assets, directly or indirectly, constitute properties located in Poland or rights to such properties;
- regulated titles due, including left for disposal, paid or deducted by natural persons, legal persons or organisational units not having a legal entity, with residence, registered office or management in Poland, irrespective of the place where the agreement was concluded or where the service is delivered; and
- unrealised capital gains, referred to in Article 30da of the Personal Income Tax Act (exit tax).
A progressive income tax scale that is widely used in other EU countries, such as France, Sweden and the Netherlands, is applied to individuals in Poland. Tax rates vary depending on income earned, defined as: 'the total revenue minus tax deductible costs, earned in a given taxable year'. The Polish tax bands are relatively low: 17 per cent (the personal income tax (PIT) rate for 2019 was reduced from 18 per cent to 17.75 per cent and from 2020 there is a new fixed rate of 17 per cent applicable) and 32 per cent. Nevertheless, according to statistics, only approximately 3 per cent of taxpayers pay the higher tax band of 32 per cent.2 Most wealthy taxpayers optimise their profits using regulations intended for natural persons conducting business activity. These individuals are taxed according to the tax scale; however, at their request, they may tax their income at a 19 per cent flat rate, which is dedicated to natural persons conducting a business activity. It may be assumed that the most affluent Polish taxpayers are self-employed in Poland for tax purposes.
The richest Poles often derive their income from capital gains (dividends, interests, profit on the sale of shares) that are not covered by social security contributions, and are taxed with a 19 per cent flat-rate tax (whereas in Germany and Ireland it is 25 per cent and in Scandinavian countries it is more than 30 per cent). Income from capital gains is not counted in the overall income.
In many countries, high tax rates are connected with a high tax-free personal allowance; however, this is not the case in Poland, where the tax-free amount was for many years the lowest of all EU countries (approximately €750).3 It was worth stressing that the Polish Constitutional Tribunal issued a judgment (Case No. K 21/14) in which it stated that the level of this tax-free amount was unconstitutional insofar as it did not provide a correction mechanism for the tax-free amount to ensure a minimum standard for living. Hence, from 2018 the tax-free allowance for low earners has been increased to 8,000 zlotys. In cases of earnings higher than 8,000 zlotys, the allowance decreases depending on the income. Where yearly earnings exceed 127,000 zlotys, the personal allowance is not applicable at all.
A taxpayer's personal and family situation may be taken into account in the tax system, especially in relation to income tax, in the form of reliefs and tax exemptions4.
Poland, like most other EU countries, provides various tax credits, such as an internet tax credit, research and development tax credit, a tax credit for an individual retirement security account and a tax credit for charitable donations. Because the Polish tax system is in favour of families in many tax respects, a large part of tax credits concerns a taxpayer's personal situation. Therefore, Polish income tax provides a child tax credit, joint taxation (with children) of single parents and joint taxation of spouses, the aim of which is to ensure a family has a reduced financial burden. At this point, the preferential treatment of families also appears in gift and inheritance tax, where the immediate family members of the testator are exempted from tax.
Owing to the fact that the Ministry of Finance's aim for 2019 was to increase the collection of income taxes and tighten the tax system, as of 2019, the following changes to the Polish Personal Income Tax Act entered into force:
- exit tax (the tax on transfer of assets abroad or change of tax residency of the taxpayer), not only for individuals but also for legal entities;
- a completely new mechanism of settlement of withholding tax in relation to payments exceeding 2 million zlotys;
- a 4 per cent additional tax for wealthy individuals – the 'solidarity tax';
- a 5 per cent preferential PIT and corporate income tax (CIT) rate on incomes or gains from intellectual property rights resulting from research and development works (Innovation Box);
- further changes to CFC regulations;
- taxation of profits from virtual currencies (cryptocurrencies);
- tax schemes reporting (mandatory disclosure);
- people under 26 years are exempt from PIT; and
- limiting costs of cars in business activity.
In 2020, because of the covid-19 pandemic, the attention of the Polish authorities is focused on fighting the pandemic. Hence, recent changes in the tax legislation were concerned mainly with supporting taxpayers bearing negative consequences caused by the coronavirus. The Polish government introduced the 'anti-crisis shield', which aims to help Polish businesses struggling with the effects of covid-19. Therefore, in 2020, there are no breakthrough changes introduced in the Polish tax law.
From an individual taxpayer's perspective, the most crucial change from 2019 was the introduction of exit taxation, which is a form of tax charged on unrealised income when a resident of Poland or a Polish asset leaves the country, as a consequence of Poland implementing EU Directive 2016/1164 (ATAD). The scope of the exit tax in Poland is wider than the scope required by ATAD, as the latter, in principle, applies only to corporate taxpayers, whereas Polish law will also include natural persons if they move assets with a value exceeding 4 million zlotys abroad or change their tax residency by moving to another country. According to the new regulations, exit taxation applies in the case of any change in tax residency, or any asset movement from Poland to another country, provided that such actions result in the loss of Polish right to tax any potential capital gains that would have been realised if the transfer had not taken place. Exit tax also applies in the case of: (1) free-of-charge transfers of assets located in Poland; or (2) contributions of assets to an entity other than a company or a cooperative.
The tax rate of the exit tax for natural persons is: (1) 3 per cent of the market value of an asset if there are no tax costs to deduct; and (2) 19 per cent of the market value after tax cost deduction.
However, exit tax is not applicable if the market value of transferred assets is less than 4 million zlotys, or the transfer is made for a period of up to 12 months for liquidity management reasons or to secure claims.
Examples of exit tax application are as follows:
- a Polish tax resident moves out of Poland to, for example, France, and consequently, loses Polish tax residency;
- a taxpayer transfers assets (e.g., shares, other securities, derivative financial instruments, shares in capital funds) out of Poland, to his or her permanent establishment abroad;
- a Polish tax resident donates assets (e.g., rights and obligations in partnerships, shares, etc.) to, for example, his or her family who are non-Polish tax residents; or
- a Polish taxpayer contributes assets to a family foundation or a trust abroad.
Besides the introduction of exit tax, the Polish government regulated solidarity tax. The provisions related to solidarity tax have been in force since 1 January 2019. The tax must be paid by taxpayers earning over 1 million zlotys a year and the rate is 4 per cent from the surplus over this amount. The solidarity tax, together with a part of the Labour Fund contribution (amounting to 0.15 per cent of its base), is credited to the Solidarity Support Fund for the disabled. In this way, the Polish government wants to raise funds to support the disabled. The solidarity tax was paid for the first time on income obtained in 2019, which the taxpayer settled by making a statement in 2020.
As regards CFC rules, it should be stressed that the introduction of this regulation revolutionised international tax planning and optimisation. The Polish legislator's aim was to tax income derived by Polish tax residents from foreign companies when such income is not taxed in the company's country of residence or the tax is too low (lower than 14.25 per cent). From 2018, the Polish legislator introduced the effective tax rate instead of a nominal rate. This means that a subsidiary company will be considered as CFC, when the income tax actually paid by the company is lower than the tax that it would pay in Poland. Under new provisions, an additional income tax (19 per cent) is imposed on shareholders holding at least a 50 per cent (25 per cent until 2017) direct or indirect holding in entities deriving their revenues mainly (more than 33 per cent) from passive income (i.e., dividends, interests, royalties, share disposals). CFC rules also affect taxpayers who are shareholders of entities that have a seat or place of management in a tax haven. Polish taxpayers who own CFCs will also need to keep a register of qualifying foreign entities and a record of transactions occurring in the foreign entities, and file a special annual return in Poland. Starting from 2019, the list of entities recognised as CFC are extended. Namely, trusts, family foundations and other entities with a trust character are treated as CFC.
As for transfer pricing, new provisions impose new requirements on taxpayers conducting related-party transactions, which means more comprehensive information on related-party transactions should be disclosed to the tax authorities. Under these new provisions, taxpayers are obliged to prepare more extensive transfer pricing documentation (in particular, local files are expanded). From 1 January 2019, new higher thresholds apply for significant transaction values, and must be documented. The threshold for transactions on goods and for financial transactions is 10 million zlotys, but is 2 million zlotys for service and other transactions. According to the new provisions, master file documentation is limited to entities subject to full or proportional consolidation; however, the master file documentation threshold has increased from €20 million to 200 million zlotys.
Additionally, the biggest Polish capital group is obliged to provide country-by-country reporting to the Head of the National Revenue Administration. It should be stressed that some changes in transfer pricing provisions are favourable for taxpayers whose revenues and expenses do not exceed 2 million zlotys or 10 million zlotys in a given year, as they do not need to prepare transfer pricing documentation.
The Polish law of succession is mainly regulated in the Polish Civil Code. However, specified provisions regarding the law of succession are also found in other statutory laws (e.g., banking law, labour law and the Code of Commercial Companies). The right to inherit is protected by the Polish Constitution, which states that everyone has the right of succession and this right is equally protected by the law.
The law of succession is based on legal principles, namely testamentary freedom and the protection of relationships between family members.5
The right to succession may result from two sources: the will or the statute (the Polish Civil Code). A will takes precedence over the statutory inheritance. A testate succession occurs when a testator (a person with full legal capacity) expresses his or her last will through one of three forms of will. The first is the simplest: the will should be written entirely by the hand of the testator, who must sign and date it. The second may be made in the form of a notarial deed. The third is to make a will by declaring its content orally before a local government officer in the presence of two witnesses.
Statutory succession should be applied when no (valid) testament exists or the persons who were appointed as heirs in the testament disclaimed the testament or are unable to become heirs. There are four groups of heirs under Polish succession law. The range of these entities is determined by family ties, such as blood ties, marriage or adoption.
In the first group, the surviving spouse and descendants will inherit. Here, the principle that children and a spouse inherit in equal parts applies; however, the spouse's share cannot be less than a quarter of the entire estate. In the second group, in the absence of descendants, the spouse and deceased's parents will inherit. In this case, the inheritance attributable to the spouse must correspond to half of the deceased's estate. If the deceased's parents have died, the inheritance attributable to this parent goes to the testator's siblings or, if the deceased's siblings have died, their children. The third group of heirs is entitled to the succession solely when there are no heirs in the first two groups. This category includes the deceased's grandparents or, if they are also deceased, their children. The fourth group consists of children of the deceased person's spouse whose parents were not alive when the estate was opened. Last of all, the municipality in which the decedent last resided will inherit, or, if the deceased's residence cannot be determined or is located abroad, the State Treasury.
Here, it should be indicated that the sequence of the inheritance and the range of the entities entitled to the succession presented above is a result of amendments to Polish succession law from 2009. So far, provisions in scope of statutory succession have been rigorous and have prevented grandparents and their descendants from succession. Another key change is the testator's stepchildren's entitlement to the succession; however, they inherit only when their parents have passed away. The amendment was designed to strengthen family ties and limit the municipality's and State Treasury's access to the succession in a situation where a member of the testator's family is still alive.
It is noteworthy that heirs may either accept succession without the limitation of liability for debts (simple acceptance) or accept succession with the limitation of such liability (acceptance with benefit of inventory). Alternatively, heirs may reject the inheritance within a time limit of six months from the day when they became aware of their title to inherit. Until 2015, when no statement of intent was submitted within the prescribed time limit, heirs were deemed to have accepted the inheritance and were liable for debts without any limit. Such a state of affairs was deemed socially unfair. Therefore, since 18 October 2015, provisions concerning liability for debts under succession have been changed to be analogous with the latest European codifications. According to the new regulation, if heirs do not do anything within a time limit of six months from the day they become aware of their title to inherit, their liability for debts will be limited to the assets of inheritance (acceptance with benefit of inventory).
A testator may appoint an executor to ensure that all the testamentary provisions will be properly conducted; however, the executor cannot be treated as a fiduciary or a trustee.
Polish law forbids mutual wills and contracts of inheritance, with the only exception to this rule being a contract of renunciation of inheritance, in which a person who belongs to one of the classes of statutory heirs renounces his or her statutory inheritance after the testator's death.
There have been no changes affecting personal property, such as developments on prenuptial agreements and same-sex marriages. Same-sex marriages are illegal in Poland; therefore, people in a same-sex relationship are not subject to intestate succession. However, there are no obstacles to prevent either party in such a relationship from drawing up a will that decides who will receive a party's estate. Polish succession law protects the closest relatives of a deceased person by forced share. Only descendants, a surviving spouse, and the deceased's parents have the right to a statutory portion.
Nevertheless, a person in a same-sex relationship can receive the right to a tenancy from the deceased partner. This was confirmed by the Supreme Court in its resolution (Case No. III CZP 65/12) of 28 November 2012, in which it was held that the person of the same sex who is connected through emotional, physical and economic ties with the tenant may receive the right to the tenancy from the deceased partner just as a wife or a cohabiting partner.
Prenuptial agreements do not change the rules for passing on inheritance, including the intestate succession rules, which are binding when the testator does not draw up a will. This means that spouses who have concluded a prenuptial agreement inherit from each other according to succession law principles. This agreement may affect the seizure of assets of the inherited wealth only (there is no succession of the couple's property, only the individual property of the deceased spouse).
Natural persons are the only taxpayers of inheritance tax. Inheritance tax is imposed on acquisitions as a result of inheritance of property (movable and immovable) located in Poland, and property rights exercised in Poland, including money. Tax is also applied to the acquisition of property located outside Poland and rights exercised abroad if at the time of the deceased's death, the beneficiary was a Polish national or had a permanent place of residence in Poland. If neither the deceased nor the beneficiary were Polish citizens or had permanent residence in Poland at the moment of death, inheritance tax is not levied.
Payers of inheritance tax are grouped into three categories depending on their relationship with the testator. The first group consists of the spouse, descendants (children, grandchildren, etc.), ascendants (parents, grandparents, etc.), sons-in-law, daughters-in-law, siblings, stepfathers, stepmothers and parents-in-law. The second includes descendants of siblings (nieces, nephews, etc.), siblings' spouses, siblings of spouses, the spouse's siblings' spouses, other descendants' spouses' siblings of parents (aunts, uncles, etc.) and stepchildren's descendants and spouses. Finally, the third group includes other acquiring parties, including unrelated parties.
Determining the base and rate of Polish inheritance tax depends on the specific tax group the testator belongs to and on the minimum tax-exempt amount. Currently, tax-exempt amounts are as follows:
- for acquirers from tax group 1: 9,637 zlotys;
- for tax group 2: 7,276 zlotys; and
- for tax group 3: 4,902 zlotys.
Tax on inheritance applies to the acquisition of ownership of assets over the tax-free amount.
The table below presents the rates of Polish inheritance tax:
|Taxable base||Tax scale|
|(1) from acquirers in group I|
|10,278 zlotys||20,556 zlotys||308.30 zlotys plus 5% of the surplus over 10,278 zlotys|
|20,556 zlotys||–||822.20 zlotys plus 7% of the surplus over 20,556 zlotys|
|(2) from acquirers in group II|
|10,278 zlotys||20,556 zlotys||719.50 zlotys plus 9% of the surplus over 10,278 zlotys|
|20,556 zlotys||–||1,644.50 zlotys plus 12% of the surplus over 20,556 zlotys|
|(3) from acquirers in group III|
|10,278 zlotys||20,556 zlotys||1,233.40 zlotys plus 16% of the surplus over 10,278 zlotys|
|20,556 zlotys||–||2,877.90 zlotys plus 20% of the surplus over PLN 20,556 zlotys|
The taxpayer has 14 days from the day the decision of the revenue office determining the tax rate (unless it was collected earlier by the notary) has been delivered to pay the inheritance tax.
Poland is unique among tax jurisdictions across the world for exempting the testator's immediate family members from inheritance tax. This is aimed at accumulating the family's wealth across generations, and therefore the provisions of inheritance tax give preference to the family. The beneficiaries need to report the acquisition to the competent head of their tax office within six months of the day the tax obligation has arisen.
On 6 June 2018, the Supreme Administrative Court issued a precedential judgment that may revolutionise the taxation of donations (Case No. II FSK 1525/16 and II FSK 1526/16). In this ruling it is stated that a taxpayer who, by executing the order of a testator or donor, purchased a thing for himself or herself for money from the inheritance or donation, will not pay tax on the part of the estate issued in accordance with this order.
In practice, this means that with the appropriate order in the donation, all taxpayers – particularly from the third tax group, who settle with the tax authorities according to the highest tax rates – could avoid paying the tax. Moreover, the testator or donor's immediate family would be released from the obligation to report the acquisition of the gift or inheritance to the tax authorities.
Starting from 2019, there is no PIT on the sale of certain types of inherited property. Sale of inherited real estate is tax-exempt from PIT if it occurs five years from the end of the year in which the property was acquired or built by the testator (and not the heirs – as it was before). Also, the costs of revenues from the sale of inherited real estate is increased by the costs related to the inheritance incurred by the heir (as the taxpayer), and documented costs of acquisition or construction of the real estate are borne by the testator.
On 5 July 2018, the Polish government enacted an Act on the management of the succession of the individual enterprise. The main assumption of the Act is to enable a smooth continuation of a company's operation after the death of its owner.
Sole proprietorship is the most popular form of conducting business activity in Poland. The vast majority of Polish entrepreneurs (80 per cent) operate on the basis of an entry into the Central Register and Information on Business (CEIDG). Currently, when the owner of a company entered into CEIDG dies, his or her heirs may continue running the business.
The new law assumes that, after the death of the owner of the enterprise, the company will be able to retain employees, tax identification number and continuity of tax settlements; it is also possible to execute concessions or permits and tax rulings obtained by the entrepreneur, as well as commercial contracts concluded by him or her. The new regulations are also aimed at enabling entrepreneurs to set up the succession manager who will take over the running of the company after the owner's death.
According to the Act, the succession manager will manage the company from the death of the person running the company until such time as the inheritance is divided between the heirs. The succession manager will be appointed by a business owner or a spouse or the people inheriting the enterprise – after the death of the business owner – and may be a natural person who has full legal capacity, regardless of whether he or she is related to the entrepreneur or not, and regardless of whether he or she professionally deals with property management. The Polish legislator intends to introduce an incentive to take over and run family businesses.
The Polish legislator provides a new taxpayer type for certain taxes (PIT, VAT, excise, game tax, tonnage tax and ship tax) – the 'enterprise in inheritance'. The introduction of regulations ensures continuity of tax settlements. The enterprise in inheritance is able to use the taxpayer identification number of the deceased entrepreneur.
The incentive takes the form of an exemption from inheritance tax on the acquisition of an enterprise. At present, the tax exemption is applicable not only to the testator's immediate family, but also to the people who run the business, regardless of the relationship with the deceased entrepreneur. The condition for obtaining the exemption is the notification of the purchase of the enterprise to the head of the tax office and running the acquired company for at least two years.
The new regulation should encourage the continuation of the company, even if the immediate family of the deceased entrepreneur does not have relatives who will undertake to continue the business.
Wealth structuring and regulation
For wealth structuring, Polish taxpayers commonly use regulations and structures available in Poland as well as in foreign countries. So far, trusts and private foundations are unknown to the Polish legal system, and therefore they are not widely exercised in Poland. However, it is increasingly being argued that it is necessary to introduce the institution of the family foundation into the Polish legal system. Nevertheless, the wealthiest taxpayers willingly benefit from foreign foundations and trusts located in countries that provide these regulations, such as Austria, Liechtenstein, the United Kingdom and the Netherlands.
Until 2017, optimisation structures in Poland were established by using closed-end funds. However, in January 2017, the taxation of investment funds was changed. The new provisions have repealed the existing regulations constituting a basis for exemption from corporate income tax for Polish closed-end investments funds (CIF) and foreign collective investment institution of a closed type.
In practice, this means that profits of these funds derived from participation in Polish or foreign tax partnership; from interest on loans granted to such entities; from interest on equity contributions to such entities; from donations and fully and partially free-of-charge performances of such entities; from securities issued by these entities and from the sale of participation in such entities are subject to the standard income tax of 19 per cent.
Above-mentioned exclusions from the CIT exemption aim at the elimination of tax-optimisation schemes involving Polish CIF, which has been a part of the chain of tax transparent vehicles, including Luxembourg special limited partnership.
However, some types of CIF income are still exempt within specific exemption and considering the above exclusions (e.g., income from real property directly owned by CIF).
Polish open-end funds and special open-end funds (not applying the policies of closed-end funds) may benefit from full tax exemption without any limitations.
As for funds from the European Union or European Economic Area, there is CIT exemption for them when:
- they are subject to income tax in the state where they have their registered office on all of their income, wherever obtained;
- the only subject of their activity is collective investment of funds raised through a public offering of participation units in securities and money-market instruments;
- they operate pursuant to a licence from the competent financial market regulator in the state where they have their registered office;
- their activity is subject to direct supervision by the competent financial market regulator of the state where they have their registered office;
- they have a depository holding the fund's assets; and
- they are managed by entities operating pursuant to a licence from the competent financial market regulator of the state where such entities have their registered office.
The above eligibility for CIT exemption will only be applicable in cases when foreign funds operate in a country with which Poland has concluded a double tax treaty or other international agreement allowing Polish tax authorities to receive tax information from the tax authorities of the investment funds.
The CIT exemption is not applicable to collective investment undertakings when:
- they operate in the form of a closed-type collective investment undertaking or are an open-type collective investment undertaking operating under the investment rules and restrictions applicable to closed-type collective investment undertakings; and
- under their founding documents their participation units are not offered through a public offering or admitted to regulated trading or an alternative trading system and can also be acquired by natural persons only if they make a one-time acquisition of participation units of no less than €40,000.
Until 2014, the use of a joint-stock partnership was possible for tax optimisation purposes; however, the Polish legislator became aware of this well-known trend and decided that joint-stock partnerships are subject to corporate income tax. Imposing corporate income tax on joint-stock partnerships that were tax-transparent forced taxpayers to find other ways to find tax optimisations. Limited partnerships (LPs) turned out to be an effective alternative. An LP is a very popular form of conducting business as it enables the partners' liability to be limited and is not subject to CIT. It should be clarified that LPs are entities without a legal personality and they are created by two types of partner: a partner whose liability for the company's obligations is unlimited and who conducts the company's affairs and represents it in all issues before third parties; or a partner with limited liability who is obliged to a fixed amount, which does not need to reflect the partner's contribution to the LP.
To connect benefits from limited liability (not only for tax arrears purposes) with the tax advantages resulting from the tax transparency of partnerships, it is worth considering the establishment of a hybrid company, such as a limited liability company or limited partnership.6
The general partner in this entity is a limited liability company that conducts the company's affairs and represents it, and, therefore, its liability is unlimited (in practice, it will be limited exclusively to the company's assets because of its legal nature). A limited partner is a natural person who can also be a shareholder of a general partner.
Tax burden optimisation for income tax is carried out through an appropriate profit distribution between general and limited partners. To achieve a measurable benefit in the tax law area, profit distribution should be done in a way that the profit of the general partner is considerably lower than the profit of the limited liability partner (e.g., unlimited liability partner: 1 per cent; and limited liability partner: 99 per cent).
This interesting hybrid is a type of partnership that is neither a taxpayer of CIT nor personal income tax. This means the partners in a limited partnership (natural persons) should pay personal income tax. The taxpayer's income from participating in a partnership is determined proportionally to the right to a share in the partnership's profit. This income is cumulated with general income subject to the progressive tax rate. The taxable person may tax its income from non-agricultural activity according to the linear rate of personal income tax at 19 per cent.
As for a limited liability company, it is a capital company and, therefore, it is double taxed, which means that taxes are paid both by the company (19 per cent on income earned) and the shareholders (19 per cent from dividends); hence, why a general partner's profit should be reduced to the minimum.
While discussing different ways of tax optimisation, issues regarding the general anti-avoidance rule in Poland should not be omitted. The fate of this clause in Poland seemed to be tortuous, but eventually the Polish government enacted a GAAR, which came into force on 15 July 2016.7 The general anti-avoidance rule was created as a new tool that the tax authorities may apply to reclassify business operations where a taxpayer was demonstrated to have obtained substantial tax profits through tax-avoidance strategies. From 2019, one of the significant changes to the GAAR is the removal of the negative premise of the GAAR clause when the tax benefit is less than 100,000 zlotys. This means that from 1 January 2019, tax authorities may verify and challenge any activity regardless of the expected value of the tax benefit. The clause will allow the tax authorities to ignore artificial legal arrangements, which means taxpayers may be obliged to pay the avoided tax with default interest and become exposed to criminal fiscal liability. To protect taxpayers from the tax authorities' discretionary powers, the Council for Tax Avoidance Matters, a collegiate body independent of the tax authorities, was created. The Council issues non-binding opinions on whether the GAAR should be applied in a given case or not, at the request of the taxpayer or the competent authority. Moreover, the taxpayer may apply to the Minister of Finance to issue an opinion, which disallows the application of the GAAR. The cost of this opinion is 20,000 zlotys.
From 2019, any action aimed at obtaining a tax benefit is subject to GAAR unless the tax benefit is non-significant in comparison to other economic benefits resulting from the action. In addition to the above, any action undertaken for non-genuine economic reasons, other than obtaining a tax advantage that in given circumstances defeats the object or purpose of the applicable provision of the tax law, will be deemed artificial. GAAR will be no longer applicable only as a last resort when other measures (i.e., specific anti-avoidance rules) fail. So far, GAAR has been rather used for dissuasive purposes, namely: (1) the Ministry of Finance issued several warning letters in which it was stated that GAAR may be used for certain transactions and structures; or (2) to deny a taxpayer a tax ruling or an opinion that prevents the application of the GAAR.
Since May 2017, the Polish Ministry of Finance published a series of documents, including a warning about the possibility of applying GAAR to certain aggressive tax-optimisation schemes. The Ministry warns in its statements against application of the tax optimisation using closed-end investment funds and bonds purchased as part of a group of affiliates; tax capital groups and the structures with use of foreign companies.
The Polish legal system covers money laundering in criminal law provisions, securities law, banking law and certain provisions of a lex specialis nature (including EU legislation).8 Criminalisation and preventing money laundering is based on the Penal Code (in particular, Article 299), the Act of 1 March 2018 on counteracting money laundering and financing terrorism, the Act of 28 October 2002 on the Acts prohibited under the Punishment Act, and the Act of 31 January 1989 on banking law.
The definition of 'money laundering' in Polish law is broad, as it covers not only funds from an illegal activity but also legal funds that are 'hidden' from taxation.
The Act on counteracting money laundering sets out obliged entities' duties related to preventing money laundering and financing terrorism. This Act implements new Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on preventing money laundering.
In the provisions of the Act, information such as the following may be found: the definitions of 'obliged entities' and 'beneficial owner'; competent authorities responsible for counteracting money laundering and financing terrorism; obliged entities' responsibilities; principles for providing information to the General Inspector; the procedure for suspending transactions and blocking accounts; specific restrictive measures against persons, groups and entities; controlling obliged entities; protecting and disclosing collected data; and pecuniary penalties and penal provisions.
In the Act of 1 November 2000 on counteracting money laundering and financing terrorism, which was in force until 2018 for credit and financial institutions, obliged entities were: auditors, external accountants, tax advisers, notaries, and other independent legal professionals, such as attorneys and legal advisers. The personal scope of this Act also covered an entrepreneur (both natural and legal person) conducting a transaction exceeding the equivalent of €15,000 who was obliged to register such transaction. This obligation also occurred when a transaction was carried out by more than one single operation but the circumstances indicate that they were linked and that they were divided into operations of less value with the intent of avoiding the registration requirement.
Previously applicable acts on counteracting money laundering set out several duties of obliged entities that included registering any transaction exceeding €15,000, keeping specified records, carrying out ongoing analyses of conducted transactions, conducting risk assessment for money laundering, and financing terrorism and applying financial security measures.
A new act on counteracting money laundering came into force on 13 July 2018. The most important changes resulting from this act are lowering of the threshold for reporting cash transactions up to €10,000 and increased penalties for violation of duties from 750,000 zlotys up to a maximum of €5 million or 10 per cent of the turnover shown in the financial statements for the past financial year. New obliged entities, such as entrepreneurs operating in the cryptocurrency and trust sectors, are covered by the anti-money laundering responsibilities and the introduction of an open and publicly available central registry of beneficial owners, effective as of 13 October 2019.
Poland is not a member of the Financial Action Task Force (FATF); however, it is involved in the group's activities. Poland not only replies to the questionnaires sent by FATF's experts, but also participates in the meetings of the working parties (i.e., FATF and Moneyval).9
Outlook and conclusions
It may be assumed that there is a regressive tax regime in Poland, as taxes for the most affluent people are lower than in other Western countries, whereas for the poorest, they are higher. Poland does not have a national tax policy for the richest individuals; most wealthy Poles have their wealth taxed outside the territory of Poland in countries that provide more advantageous tax treatment, such as Luxembourg, Cyprus and the Netherlands.10 Poland has begun its battle to prevent tax avoidance and tax evasion through introducing numerous regulations designed to combat this negative phenomenon. It would not be an exaggeration to say that Poland is becoming a less tax-friendly country, which consciously limits the possibility of tax optimisation.
For several years, there has been a trend in Europe to close remaining loopholes in national tax law to prevent aggressive tax planning, tax avoidance and tax evasion: from the flagship project of the Organisation for Economic Co-operation and Development (OECD) – BEPS – to the work carried out by the Commission in the area of anti-avoidance package and domestic regulations of particular countries.
The Ministry of Finance has not conducted an analysis concerning the estimation of the scale of BEPS from the results of the Supreme Chamber of Control's report.11
Nevertheless, significant changes have been made in Polish tax law recently. As of 1 January 2019, numerous amendments to the Polish Personal Income Tax Act have entered into force. Changes include: further changes to CFC regulations; the introduction of exit tax; a completely new mechanism of settlement of withholding tax in relation to payments exceeding 2 million zlotys; tax scheme reporting; and amendments in transfer pricing documentation requirements. However, only the transfer pricing provisions reflect the OECD's recommendations provided for in the BEPS project and they remain in line with the guidelines included in the Final Report of Action 13.
In contrast, the BEPS project has had a huge impact on Polish tax treaty law. In its answer to the letter of 8 February 2016 concerning the impact of BEPS on treaty policy, the Polish Ministry of Finance stated that the Ministry is actively engaging in the BEPS project, which has been assessed as an important initiative to prevent the loss of tax revenues at national and international levels.12 This approach would seem to be supported by the actions taken by the Polish Ministry of Finance.
During the period from 2012 to 2015, Poland concluded seven new double tax treaties, eight protocols amending double tax conventions and 15 agreements on the exchange of information on tax matters. According to the Polish Ministry of Finance, the main objectives of the above-mentioned are to limit the use of double tax treaties; to reduce opportunities for aggressive tax planning; to strengthen control mechanisms through an effective exchange of tax information; and to extend the list of types of income generated in a state where it will be covered by a credit method and it will be taxable in that state. The Polish Ministry of Finance stated that it recommends implementing selected solutions of the BEPS Action Plan. The Polish Ministry of Finance will propose new BEPS provisions concerning the principal purpose test; permanent establishment with the anti-avoidance rule; the tie-breaker rule; and hybrid entities to its treaty partners. Because of the wide scope of work undertaken in the BEPS project, the analysis evaluating proposed measures that should be introduced into the Polish tax system or in double tax treaties concluded by Poland are still in hand.
The Ministry of Finance explained that Poland is a member of the Developing a Multilateral Instrument to Modify Bilateral Tax Treaties OECD ad hoc group that developed during the course of the BEPS project, and whose objective is to speedily and consistently implement the proposal of new treaty provisions using the multilateral instrument. The Polish Ministry of Finance sees this initiative as an extremely important and effective means of combating tax avoidance and tax fraud and, therefore, Poland volunteered to participate in this group in April 2015. As a result, on 7 June 2017, Poland became a signatory to the Multilateral Convention to implement tax-treaty-related measures to prevent BEPS (MLI). Poland has reported 78 out of 89 double tax treaties to subject to the MLI. Given the fact that the MLI has been recently signed, it may take some time to conclude the final scope of double tax treaties and the scope of their amendments. At this moment, it is too early to see or to predict the effectiveness of the above-mentioned measures.
BEPS Action 12 (i.e., mandatory disclosure regimes) cannot be forgotten either. From 2019, Poland introduced the obligation to report tax schemes, which is the result of the implementation of BEPS Action 12 in Polish tax law, and Council Directive (EU) 2018/822 regarding the mandatory disclosure rules (MDR) for cross-border transactions. Polish MDR are applicable to those who develop tax planning schemes, make them available to or support enterprises in their implementation (e.g., tax advisers, attorneys-at-law, employees of financial institutions). MDR apply to both cross-border and domestic transactions. The main reason for introducing MDR is to discourage taxpayers and their advisers from using tax planning schemes.
MDR include a detailed definition of a tax scheme. In principle, a tax scheme involves a specific plan of actions, whose main goal is not to achieve an economic goal, but only to obtain a tax advantage. The examples of a tax scheme are as follows: establishing trusts or foundations; structures involving the creation of artificial holding companies; transfer of income to tax havens; abuse of the dividend exemption; etc.
Information on a tax scheme is to be reported to the Head of the National Revenue Administration using electronic means of communication (i.e., through a computerised system – MDR systems).
The OECD places emphasis not only on the BEPS project, but also on the automatic exchange of tax information between Member States. Poland, as a member of the Early Adopters Group, has started exchanging information about the bank accounts of individuals.13 On 4 April 2017, a new Act on the exchange of tax information with other states came into force, which adapts Polish law to the requirements of the Council Directive 2014/107/EU of 9 December 2014 amending Directive 2011/16/EU as regards the mandatory automatic exchange of information in the field of taxation. The Act's main purpose is to bring together issues concerning the exchange of tax information in a single Act, including the implementation of automatic exchange of information on tax matters, also in respect of individual tax rulings at cross-border level and advance pricing agreements. The Act specifies, among others, the principles of mandatory automatic exchange of information in the field of taxation; the disclosure obligations of financial institutions regarding the exchange of information on bank accounts; the scope of exchanged information; the procedure for the notification; rules concerning reporting obligations; and the principles of due diligence of the financial institutions that are obliged to report.
The Act also provides regulations enabling the automatic exchange of tax information with third countries (outside the EU) under the Common Reporting Standard procedure. It should be stressed that Poland concluded a separate agreement on the exchange of tax information with the United States (the Foreign Account Tax Compliance Act (FATCA)). FATCA entered into force as of 1 December 2015 and its main aim is to impose an obligation on Polish financial institutions to obtain and exchange information with the tax authorities about US residents and citizens in Poland.
1 Sławomir Łuczak is a partner and Karolina Gotfryd is an associate at Sołtysiński Kawecki & Szlęzak.
2 Information provided in the Polish Ministry of Finance statistics: www.finanse.mf.gov.pl/documents/766655/5008832/Informacja.
3 Statistic presented in PWC's Report: www.pwc.pl/pl/media/2016/2016-04-26-poziom-podatku-
4 K Święch, Pozycja rodziny w polskim prawie podatkowym [The position of the family in Polish tax law], Warsaw 2013, p. 133.
5 W Borysiak, Polish law of succession – general information, provided on the website: http://polishprivatelaw.pl/polish-law-of-succession-general-information/.
6 M Jamroży, et al, Spółka osobowa prawa handlowego. Aspekty prawno-podatkowe, optymalizacja podatkowa [Partnership in commercial law. Legal and tax aspects, tax optimization], Warsaw 2012, p. 315.
7 GAAR was originally introduced in the 2003 Tax Ordinance Act and this provision continued to be applied until May 2004 when the Polish Constitutional Court held that the GAAR provision was unlawful because it did not meet the constitutional requirements of appropriate legislation and repealed this rule. Since then, the Polish tax law system did not have a general anti-avoidance rule until 2017; however, some attempts in the past were made to introduce this clause with regard to closing remaining loopholes in Polish tax law.
8 K Nowicki, Ł Woźniak, 'Prawne regulacje dotyczące prania brudnych pieniędzy' [Legal regulations on money laundering] (in:) J Grzywacz, et al, Pranie brudnych pieniędzy [Money laundering], Warsaw 2005, p. 75.
9 Information provided on the Polish Ministry of Finance's website: www.mf.gov.pl/documents/764034/1002265/FATF.notatka.08.08.2014.pdf.
10 Information provided in the article: Czy najbogatsi Polacy odprowadzają dochody do rajów podatkowych?, available on the website: https://www.totalmoney.pl/artykuly/173464,konta-osobiste,czy-
11 Information provided in the Report of the Supreme Chamber of Control: 'Wystąpienie pokontrolne, Nadzór organów podatkowych i organów kontroli skarbowej nad prawidłowością rozliczeń z budżetem państwa podmiotów z udziałem kapitału zagranicznego' [Post-audit summary, supervision of the tax authorities and fiscal control authorities over the correctness of the settlements with the budget state of the entities with foreign capital participation], Warszawa 2015, p. 10. See: www.warszawa.kskarbowa.gov.pl/documents/3864021/4464296/NIK+05092014.pdf.
12 A response to the request for access to the public information lodged by the author to the Polish Ministry of Finance on 8 February 2016 (PK2.824.16.2016).