Tax on shifted profits - upcoming deadline for 2022 tax return

According to Article 24aa(3) of the CIT Act, the catalogue of costs representing shifted profits includes the following costs:

• advisory services, market research, advertising services, management and control, data processing, insurance, guarantees and warranties and services of a similar nature;
• all kinds of fees and charges for exercising a right or the right to use intellectual property rights (so-called royalties);
• transfer of the risk of insolvency of a debtor;
• debt financing related to obtaining and using the funds (including interest, fees, commissions, premiums, the interest portion of the lease instalment, fines and late payment charges);
• fees and remuneration for the transfer of functions, assets or risks (so-called exit fees)

if their total amount incurred during the tax year for related and unrelated parties is at least 3% of the sum of deductible expenses (including depreciation of tangible and intangible assets) incurred in that year in any form.

We deal with shifted profits if the following conditions are met:

• the Polish entity has incurred the costs of the above services to a related party (directly or indirectly), the rate of tax applied by that related party for the year in which it received the
• payment from us is lower than 14.25%,
• that tax was not refundable or deductible in any form (including to another entity),
• the costs were subject to recognition as a tax deductible cost (including as depreciation write-offs), a deduction from income, a deduction from the tax base, or a deduction from tax of that related party, or were further paid by that related party in the form of dividends or other income from participation in the profits of legal persons for the year in which it received the receivable, if they represented at least 50% of the value of the income generated by that related party.

The provisions on the tax on shifted profits do not apply if the above-mentioned costs were incurred for the benefit of a related party subject to taxation in respect of all its income in an EU or European Economic Area country, with the proviso that the entity concerned has to carry out substantial real economic activity in that country.

Tax rate

If the conditions for considering expenses as shifted profits are met, the entity making the payment acts as a taxpayer and is obliged to pay 19% tax on these shifted profits.

The tax base is the sum of the shifted profits in the tax year.

Deadline for the tax on shifted profits

The tax on shifted profits shall be calculated for the tax year in a tax return and it shall be paid to the account of the tax office within the deadline for submitting the annual tax return. The shifted profits shall not be combined with other income (revenue) of the taxpayer.

For the first time, tax on shifted profits is to be settled in the CIT return for 2022.

How can we help?

Determining whether the expenses incurred for the services listed above will indeed qualify for tax on shifted costs is going to be a tremendous challenge for taxpayers making group settlements on these expenses.

We can help you:

• analyse the costs which may meet the definition of "shifted profits"
• verify the ratio of such expenses to total tax costs in a given year
• analyse the conditions at the level of the recipient of the dues, together with an analysis of the source documentation
• analyse the status of the receiver of the dues as conducting a substantial real economic activity in the country of its residency (EU/EEA)