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CIT - most important changes in 2016

Since the beginning of 2016, a number of amendments have been made to the CIT Act. There are changes to the moment of recognition of corrections to income and expense items, a new relief for R&D activities has been introduced and certain provisions on the adjustment of expenses in the case of late payment have been repealed. Also, new transfer pricing rules will become effective on January 1, 2017.

Adjustment of revenues and expenses

According to the new regulations effective from 1 January 2016, corrective invoices affecting the amount of taxable income or deductible expenses issued as a result of circumstances that occurred after the given accounting period must be recognised in the current accounting period. The new adjustment rules only apply to situations where the corrective invoice is not issued as a result of an accounting error or other obvious mistake.

R&D relief

The Innovation Promotion Act of 25 September 2015 has introduced a relief, whereby a certain amount of R&D costs can be credited against the taxable amount. Deductible is part of the so-called "eligible costs" - from 30% of salary costs for all taxpayers, 20% of the remaining costs for micro, small or medium-sized enterprises and 10% of the remaining costs for all taxpayers. Deductible are also eligible costs incurred for research and development, (development,  applied and industrial research, and in the case of fundamental research when such research is carried out under a contract with the research institution.

Repealing of regulation on adjustment of costs in case of late payment

Under the Act of 5 August 2015, amending the Tax Code Act and some other acts, regulations arising from Article 15b of the CIT Act and art 24d of the PIT Act from 1 January 2016 have been repealed, whereby taxpayers claiming the amounts arising from invoices as tax deductible and failing to pay them within 30 (90) days following the payment term, were obliged to reduce the deductible costs by the amount indicated in these documents.

New rules on transfer pricing documentation from 1 January 2017

On October 9, 2015, Polish Parliament passed regulations under the PIT, CIT and some other acts have been amended. These regulations have fundamentally changed transfer pricing rules.
From 2017, related parties are defined as entities having equity interests in other entities of no less than 25%, (versus 5% applicable till the end of 2016). As a result, a substantial group of entities with low equity interests will no longer be obliged to prepare transfer pricing documentation. 
Taxpayers who exceeded the revenues or expenses threshold of EUR 2 million and a transactions threshold of EUR 50 thousand. 
New regulations provide specific requirements about what information is to be included in the transfer pricing reporting depending on the revenues/expenses brackets.  For example, if taxpayer’s revenues/expenses exceed  a EUR 10 million mark, in addition to basic documentation (applicable to EUR 2-10 million brackets), taxpayer must also provide a benchmarking study with the indication of the sources of information used.
Companies with revenues or costs exceeding a EUR 20 million mark, are additionally obliged to provide a detailed documentation on the group of related parties/entities. Another important change is that, starting from 2017, the tax authorities may require the companies to prepare transfer pricing documentation even if they do not exceed the statutory revenues/expenses or transactions threshold where the authorities suspect that their value might have been understated.

Thin Capitalization Rules

The most important change to the CIP Act is the amendment of thin capitalization rules where the circle of entities covered by thin capitalization rules was extended to include indirectly related entities holding at least 25% of a given company’s shares.
  • According to Article 16 subparagraph 1 section 60 of the Act dated August 29, 2014 amending the CIP Act, PIT Act and some Acts, as deductible expenses may not be claimed „interest on loans extended to a company by its shareholder holding, directly and indirectly, not less than 25% of that company’s shares or shareholders holding together not less 25% of that company’s shares, if the amount of debt the company has to entities holding, directly or indirectly, 25% of that company’s shares, also including the debt under the loans, exceeds, on an aggregate basis, the value of the company’s equity – in which the value of the debt in excess of the value of that company’s equity remains to the total amount of debt owed to such entities, determined at the date of the month preceding the month in which interest on the loans becomes due”.
  • Capital/debt ratio has been increased to 1:1 whereby the new definition of capital includes equity less revaluation reserve, share capital not paid up and share capital by converting loans or interest into capital.
Note also an alternative method (Article 15c of the CIP Act) may be used. 
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