The Minister of Finance has presented a draft amendment to the CIT Act that repeals the so-called hidden dividend regulations. The provisions, aimed to counteract aggressive tax optimisation, were due to come into force on 1 January 2023. However, according to the MF’s draft, they will repealed from the CIT Act before they came into force. The proposed amendment is beneficial for taxpayers, especially those operating within capital groups.
WHAT IS A “HIDDEN DIVIDEND”
“Hidden dividend” was intended by the legislator to be a tax avoidance mechanism, which:
- is the distribution of profit to shareholders in such a way that it results in a reduction of the taxpayer’s income by including certain expenses as tax deductible costs,
- consists in artificially generating a flow of funds within a group,
- relates to payments of a non-marketable nature to related parties,
- includes costs indicated in the CIT Act, in particular costs that a rational taxpayer would not incur or could incur otherwise if a comparable performance were made by an unrelated party.
The identification of the payment as a so-called “hidden dividend” was intended to exclude certain expenses from tax deductible costs.
CONSEQUENCES OF THE INTRODUCTION OF THE SO-CALLED “HIDDEN DIVIDEND” REGULATIONS
- The exclusion from tax deductible costs of expenses arising from transactions with related parties – even of a legitimate economic nature and not aimed at artificial optimisation,
- Making it more difficult for capital groups providing support services to subsidiaries that depend on the profitability of those companies,
- Negative impact on the provision of licensing services.
IMPACT OF THE AMENDMENT ON TAXPAYERS
The proposed amendment is beneficial for taxpayers. Minister of Finance has listened to the voices of entrepreneurs who raised numerous doubts related to the interpretation of the regulations, in particular with regard to the wide margin of interpretation of the new regulations and the relationship between the regulations on hidden dividend and the transfer pricing.
The proposed CIT amendment may still be subject to further developments. We will keep you informed about further changes to the draft Act.
Should you have any questions or wish to take advantage of ASB Tax’s support, please do not hesitate to contact our experts:
Paweł Jóźwik
Senior Manager
E: pjozwik@asbgroup.eu
Paulina Malendowicz
Senior Tax Consultant
E: pmalendowicz@asbgroup.eu
Krystian Skrzypiński
Tax Consultant
E: kskrzypinski@asbgroup.eu
