First amendments to the tax provisions as of 1 July 2020

On 28 May 2020 Polish Parliament passed a bill containing:

• the provisions implementing EU regulations, so-called “Quick Fixes” package (hereinafter referred to as “QF”);
• the CIT system tightening provisions implementing Council Directive (EU) 2017/952 as regards hybrid mismatches with third countries (hereinafter referred to as: “ATAD 2 Directive”);
• completion of the transposition of Council Directive (EU) 2018/822 as regards the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (hereinafter referred to as the “MDR Directive“) and provisions aimed at clarifying the applicable provisions on information on tax arrangements (MDR).

Call-off stock arrangements

The bill includes amendments concerning the intra-Community transfer of goods under the call-off stock procedure, chain transactions, and conditions required to apply the exemption with the right of deduction (0% VAT rate) for the intra-Community supply of goods.

The new regulations change the operating characteristics of consignment warehouses. The bill provides, among others:

• repeal of the current definition of a consignment warehouse;
• extension of the scope of goods which may be subject to simplification by trading activities and introduces the possibility of running a warehouse for trade purposes;
• reduction of the period of storing goods (from 24 to 12 months);
• the possibility to maintain the warehouse by entities other than the purchaser.

The call-off stock procedure shall not be available to entities with a fixed establishment (FE) in the country to which the goods are being moved, i.e. in the place of warehouse activity. About the issue of the FE, we wrote in the previous article here.

Chain transactions

As in the call-off stock procedure, the rules on the taxation of chain transactions required harmonization under EU law.

According to the new amendments, where an intermediary is responsible for the transport of goods between the Member States, a movable transaction constituting an intra-Community Supply of goods taxed with 0% rate should be attributed to the supply performed on his behalf. The only exception is when the supplier and the intermediary use a VAT number from the same country. In this case, only the supply carried out by the intermediary should constitute an intra-Community Supply of goods.

In the case of chain transactions involving more than three entities – these principles should be applied accordingly.

The new rules will not apply to transactions outside the EU (export/import) – the existing provisions will apply to them.

Applying a 0% VAT rate on intra-Community supply of goods

With regard to the implementation of the Directive 2018/1910, the bill provides for material conditions on which the possibility of applying 0% VAT rate to an intra-Community supply of goods shall depend:

• the purchaser’s obligation to provide the supplier’s VAT number for intracommunity transactions;
• the purchaser’s obligation to have a valid VAT number for intracommunity transactions;
• the supplier’s obligation to submit a valid VAT-EU recapitulative statement.

It is also worth noting the amendments to the proving rules that have been in force in Poland since 1 January 2020. Under the Council Implementing Regulation (EU) 2018/1912 rebuttable presumptions have been introduced with regard to the evidence required to apply an exemption with a right of deduction (0% VAT rate) for an intra-Community supply of goods. Failure to fulfill the conditions introduced by the Implementing Regulation 2018/1912 does not, however, deprive the right to apply the 0% VAT rate. In such a situation the supplier should apply the existing regulations and the burden of proof of compliance falls on the supplier.

ATAD and ATAD 2 Directives

The essential aim of amendments to CIT is to dispel doubts regarding the hybrid mismatches, by extending the scope of the ATAD Directive to mismatches relating to third countries. The new provisions are aimed at counteracting hybrid mismatches used by international companies to apply aggressive tax optimization.

Hybrid mismatches occur when there are differences in the tax treatment under the laws of two or more jurisdictions of:

• entity – i.e. a situation where an entity is treated as transparent for tax purposes in one jurisdiction and as non-transparent in another;
• payment – where two jurisdictions treat a payment (financial instrument) differently for tax purposes.

The new regulations specify situations in which, as a rule, a taxpayer will not be entitled to include payments in tax-deductible costs. This applies to the payments that give rise to two deductions in respect of the same payment in two jurisdictions (i.e. double deduction) or to the payments that are considered as tax-deductible in one jurisdiction and are not included in the income statements in the other jurisdiction (i.e. deduction / no inclusion).

The provisions also apply to the situation of dual residence of an entity, where two jurisdictions treat this entity as a taxpayer subject to taxation in that jurisdiction in accordance with the principle of unlimited tax liability. Therefore, a Polish tax resident will not be entitled to recognize as tax-deductible costs or to deduct income (revenues) by losses, if such costs or losses:

• are deductible in at least two jurisdictions in which such an entity is treated as a tax resident, and
• do not correspond to double-counted income (revenue).

The bill also provides for a situation in which a foreign permanent establishment of a Polish tax resident is not recognized as a foreign permanent establishment by the member state in which it is physically located. In this situation, the income (revenues) attributable to this foreign permanent establishment will be subject to taxation in Poland, and not in the member state of its location. This rule will not apply if the obligation to exempt the income (revenue) of the foreign permanent establishment from taxation in Poland results from a ratified double taxation convention concluded with a non-EU member state.

The provisions on hybrid mismatches will come into force on 1 January 2021 and apply to income (revenues) in the tax year starting after 31 December 2020.

MDR reporting rules

The proposed amendments aim to complete the transposition of the MDR Directive. In this respect, new obligations have been imposed on the Head of The National Revenue Administration (NRA) to provide information on cross-border tax arrangements to the tax authorities of Member States (and, to a limited extent, to the European Commission). The scope of the information provided shall include information obtained from entities obliged to report information on cross-border tax arrangements.

An important amendment provided for under the new MDR regulation is also the obligation to re-report cross-border tax arrangements if the first activity related to their implementation was carried out between 26 June 2018 and 31 March 2020. More about the above obligation is described here.

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