Indirect haven transactions to be amended - draft legislation

Indirect haven transactions to be amended - draft legislation

9/8/2022
Indirect haven transactions to be amended - draft legislation
The Council of Ministers has adopted a draft bill amending CIT regulations, including regulations on the documentation obligation for the so-called indirect haven transactions.

On 25 August 2022, the Polish Sejm received a bill adopted by the Council of Ministers amending the Corporate Income Tax Act and certain other acts. One of the assumptions of the draft is to improve the corporate tax provisions, including a change in the provisions on the documentation obligation for the so-called indirect haven transactions (Article 11o of the CIT Act and Article 23za of the PIT Act), and an increase in the documentation thresholds for direct haven transactions.

Indirect haven transactions - reduced documentation obligations

Under the amendments to the provisions, the legislator abandons the obligation to apply the market price principle and the documentation obligation to indirect haven transactions, regulated in Article 11i(2) and Article 11o(1a) and (1b) of the CIT Act and in Article 23u(2) and Article 23za(1a) and (1b) of the PIT Act.

At present, a taxpayer, in order to comply with the documentation obligation for indirect haven transactions, examines the actual owner of the receivable arising from each transaction, including those between unrelated parties, exceeding the documentation thresholds. The amendment to the legislation is intended to relieve the burden on entities carrying out the aforementioned transactions.

Higher documentation thresholds for direct haven transactions

The proposed bill at the same time includes a plan to raise the documentary materiality threshold for direct non-controlled haven transactions. The basic materiality threshold is to be PLN 500 000 and for financial transactions it is to be five times higher at PLN 2.5 million.

With this solution, the number of documentation obligations, particularly for financial transactions, is to be reduced.

Documentation of haven transactions - transitional provision

An important solution proposed in the CIT bill is the introduction of a transitional provision. This provision would allow the choice of retroactive application of the proposed solutions, to transactions initiated and not completed before 1 January 2021 and transactions concluded after 31 December 2020.

Changes to haven transactions - from when?

The bill has now reached the Sejm and has been referred to the first reading. The proposed legislation is scheduled to enter into force on 1 January 2023, with the exception of the part of the provisions on the application of the market price principle and documentation obligations in respect of haven transactions, which is to apply retroactively from 1 January 2021, in order to allow entities to benefit from more favourable solutions.

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Agata Nie┼╝ychowska
Agata Nie┼╝ychowska
Tax Director
Crowe