Recently, the Council of Ministers' legislative and programmatic agenda included information about a draft law on equalization taxation of entities belonging to international and domestic groups. The law is intended to implement into Polish law the provisions of Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation of international groups of enterprises and large domestic groups in the European Union, the so-called Pillar 2 Directive.
The purpose of this directive is to prevent tax base erosion. One tool to prevent this is the establishment of a minimum income tax. However, as we reported in our series from November 20, 2023, a minimum income tax is already in force in Poland. So will we have two minimum taxes? The Ministry of Finance has not yet commented on the relationship between Pillar 2 and the existing minimum tax. However, there are fundamental differences between them.
The current minimum tax applies to all corporate income tax payers with their registered office or management board in Poland, as well as tax capital groups. It applies in two cases:
- Incurring a loss from a source other than capital gains,
- The share of income other than capital gains in income other than capital gains is less than 2%.
This tax amounts to 10% of the tax base specified in the Act.
Pillar 2 will not apply to all companies, but only to the largest domestic and international business groups, meaning those generating global revenues exceeding €750 million annually. Furthermore, the condition for paying this tax is that income tax be paid at an effective rate below 15%. It will be paid in the country where the parent company is headquartered, unless that country has not implemented the directive. The tax does not assume a fixed tax rate, but rather is intended to be a compensatory tax. Taxpayers will be required to pay it in an amount that brings the combined effective income tax and compensatory tax rate to 15%.
Implementing Pillar 2 will require an extensive reporting system to determine the effective tax rate for the entire group and its individual members. Some EU member states that have already begun work on implementing the directive are testing IT tools that will allow for electronic reporting. Meanwhile, in Poland, the planned date for adoption of the bill by the Council of Ministers is the third quarter of 2024. However, according to the Ministry of Finance, the bill is expected to be presented in March. The bill's provisions would apply from 2025.
We will keep you updated on the process of implementing Pillar 2 into the Polish legal system.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of March 11, 2024
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