Changes in CFC regulations

We would like to bring your attention to new CFC (Controlled Foreign Companies) regulations which were passed by the parliament and will probably take effect as of 2022 CFC reconciliations:

• Extension of the definition of a foreign entity for CFC purposes (earlier: share in equity, profit or participation in company’s bodies of related parties of a taxpayer was included when calculating taxpayer’s share / participation of the foreign entity; according to the new regulations also share / participation of other taxpayers being Polish tax residents with at least 25% share / participation should be taken into account);
• Analogous change of a definition of Controlled Foreign Company (share / participation of other taxpayers being Polish tax residents with at least 25% share / participation should be taken into account);
• Extension of a catalogue of passive revenues (33% threshold of passive revenues in total revenues triggering CFC obligation) with revenues from: (i) sale of rights in tax transparent entity, titles in investment fund or joint investment institution, advisory services, accounting services, market research services, legal services, advertising services, management and supervision services, data processing services, recruitment services, lease and similar services;
• Introduction of a threshold of tax actually paid – within new regulations is should be at least 25% lower than CIT which would be due in Poland according to 19% CIT rate; earlier any difference in tax was triggering CFC obligation;
• Introduction of new categories of CFC entities:
  • entity which, instead of 33% passive revenues threshold, meets the condition under which passive revenues are lower than 30% of the sum of the following assets: shares in another company, rights in tax transparent entity, titles in investment fund or joint investment institution, receivables connected with ownership of these shares, titles or similar rights, real estate and movables owned by a taxpayer or used by him under a lease agreement, intangible assets, receivables from passive revenues, provided that these assets amount at least to 50% of total assets of this entity; in case of such an entity CFC income is calculated alternatively, as 8% of value of the above assets;
  • entity, in the case of which: (i) less than 75% revenues stems from transactions with unrelated parties being tax residents of the same country as this entity; (ii) income exceeds income calculated according to the following formula: 20% x (balance value of assets of the company plus annual employment costs plus accumulated value of amortization / depreciation write-offs according to the accounting provisions).

Should you wish to discuss this, please feel free to contact us: