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In the latest version of the draft decision of the EU Council, allowing the introduction of the obligatory #KSeF in Poland, the consent to introduce the system will apply from January 1, 2024.

It is only a draft, but no further changes to its content should be expected at this stage of the legislative process.

That is why we will probably get 9 extra months for the appropriate adaptation of #ERP systems and processes in enterprises.

 

Link to the project: <click here>

Katarzyna Adamowicz, recently acting as a tax advisory department director at one of the largest accounting companies in Poland, returns to ALTO after years to take the position of Senior Manager in the TAX team.

Katarzyna has been advising clients in the area of ​​both direct and indirect taxes for over 10 years. She deals with ongoing tax consultancy, and also implements projects aimed at minimizing tax risk and achieving tax savings. What is more, Katarzyna managed many complex legal & tax projects and represented her clients before tax authorities or administrative courts. Her experience includes also consulting for international and domestic companies.

At ALTO, Katarzyna will continue advising corporate clients. As part of the TAX team, she will design and develop services in the area of ​​indirect taxes.

“I am very happy that we will be able to cooperate with Kasia again. Only a few know that she started her professional path at ALTO – at the very beginning of the company’s existence. Now, richer with experience and skills, we are joining forces again to strengthen the best client experience in our tax business line. We are convinced that our clients will feel very positively that Kasia, with her professionalism and efficiency, is a significant professional for ALTO team strengthening. “ – says Kamil Lewandowski, Managing Partner at ALTO.

Kasia is a graduate of the Faculty of Journalism and Political Science at the University of Warsaw and the Warsaw School of Economics. She is a licensed tax advisor since 2015, an author of numerous press publications and a co-author of books, incl. “Meritum taxes 2019”, “Accounting and tax instructions 2018”, “Accounting and tax instructions 2019” and “Accounting and tax instructions 2021”.

“I took my first steps in consulting at ALTO, and even though the company now has not a dozen, but almost 150 employees, I feel again that this is my place. Extremely warm and cordial welcome gives the impression of returning to your homeland. I hope that I will be able to use the experience gained in recent years in new, interesting projects, which will not be lacking due to the constantly growing demand for consulting services, both business and tax. Over the last few years I have watched how the team at ALTO is developing dynamically and how it gathers great experts on board. I am glad that I could join them. “ – says Katarzyna Adamowicz, Senior Manager, Tax Advisor at ALTO.

A taxpayer is considered to be a Polish tax resident because he has a management board in Poland, also when his current affairs are conducted here in an organized and continuous manner, despite having a registered office in another.

Determining tax residence should not be problematic by definition. If an economic entity is registered in Poland and conducts its economic activity here, then – in accordance with the general rule – it is subject to taxation on all its income in Poland. But is it only then? Not necessarily.

For years, legislators around the world have been waging an unequal race with the economic reality, trying to adjust the regulations (including tax regulations) to its level of complexity and the pace of changes. The digital revolution and the fact that an increasing part of services can be delivered remotely and the fact that physical presence is no longer crucial for effective business management and decision-making makes it not so obvious to determine the tax residence of a given entity.

The concept of tax liability is inextricably linked with tax residence. Currently, this issue is governed by two provisions – Art. 3 sec. 1 of the CIT Act, specifying the so-called unlimited tax liability, and art. 3 sec. 2 of the CIT Act, which constitutes a limited obligation.

Pursuant to the first of the above-mentioned provisions, tax residents are entities that have their registered office or management board in Poland and, as a result, are obliged to pay corporate income tax in Poland on all their income, regardless of where it is earned (i.e. also on income earned abroad). Accordingly, tax non-residents are taxed in Poland only on the income they receive in the territory of the country.

 

Bilateral agreements are helpful

Insightful readers will immediately realize that a given taxpayer may have an unlimited tax liability in Poland and a limited tax liability abroad (e.g. in the Czech Republic). It may then come to a situation where the right to tax Czech income will be claimed by both the country in which this income is earned (in our example – the Czech Republic) and Poland, due to the unlimited nature of the tax obligation. To avoid such situations, bilateral international agreements on the avoidance of double taxation are signed.

This example shows how important it is to determine whether a given entity has limited or unlimited tax liability in Poland. In practice, this may turn out to be troublesome, because the construction of the definition of a tax obligation indicates that entities not having their registered office in Poland, but having a place of management here, can still be considered Polish tax residents. While determining the place of the seat is objective and usually does not cause problems, determining the place of management is much more subjective and often requires the use of the so-called professional judgment.

This is due to the fact that, unlike the place of seat, it is difficult to clearly determine the place of management on the basis of the formal status of the entity, i.e. information resulting from founding acts or official registers, such as, for example, the National Court Register.

The answer to these difficulties is to be a provision clarifying the definition of the Polish place of management.

 

Changes from January 1

A lot of talk about establishing a tax residence began with the appearance of the first projects of the Polish Deal. The proposed changes turned out to be unfavorable for many Polish entrepreneurs and for the self-employed, who began to threaten with business emigration to, for example, the Czech Republic or Slovakia. It seems that these voices were also listened to by the legislator who, as part of the amendments to the amendment, decided to clarify the definition of the place of management in Poland and to take into account this type of practice.

Pursuant to the provisions of the provision (Article 3 (1a) of the CIT Act), which entered into force on January 1, 2022, the taxpayer will be considered a Polish tax resident due to having a management board in the territory of Poland, also in a situation where his current affairs are conducted in an organized and continuous manner on the territory of Poland, despite being based in another country. At the same time, the basis for running the company’s affairs can be basically everything (the provision uses an open catalog), i.e. provisions of the articles of association, court decisions, powers of attorney granted or the existence of connections within the meaning of the provisions on transfer pricing. The main purpose of these changes, according to the justification to this provision, is to prevent Polish residents from establishing companies abroad that are effectively managed from Poland.

 

Effects also on holding companies

It is worth noting that the commented change may also affect businesses that have been operating abroad for years, but have Polish tax residents as board members. Many international enterprises (including Polish companies that expanded their activities abroad) decided to establish foreign holding companies, e.g. in order to organize the capital structure or to ensure access to foreign investors and financing.

Due to their experience and position in the organization, foreign holding companies are often managed by Poles. In the event that these persons (on their own or acting with other Polish directors) can make decisions that are binding on a foreign company (i.e. they represent it), the amendment may result in an unintentional change of the tax residence of such a company to a Polish one, which in turn may result in – at least temporarily – double taxation of its income.

To sum up, the commented change should encourage capital groups with an international reach to verify the current holding structure and the adopted corporate governance. And those who intend to flee with business abroad should prepare for this emigration a little better than just by registering a business in another country.

We are witnessing the dynamic development of modern technologies and business solutions based on them. The trend was additionally accelerated by the pandemic, which forced entrepreneurs to transfer a large part of their activity to virtual reality.

More and more innovative solutions are used in the insurance industry, which is noticeable in the interactions of insurers both with clients and agents. The creation and development of tools increasing the competitiveness of insurers is associated with incurring expenses. Thanks to the R&D tax relief, such costs may be refinanced and may result in real savings.

 

What is R&D relief?

The R&D tax relief is a solution that allows for the deduction of costs related to R&D activity from the CIT tax base. In order to recognize the activity as research and development, it is necessary that the entrepreneur, within his own resources, works on innovative solutions on the scale of his own activity (even if they are already available on the market).

In practice, the mechanism of applying the tax relief is not complicated. A specific expense constituting a tax cost (reducing taxable income) can be deducted again from the tax base, which in turn reduces the tax payable. We can apply the relief on an annual basis, also in relation to previous tax years (from 2016).

At first glance, the relief seems to be a solution dedicated to technology, IT or industrial companies. However, also in the insurance industry, we can find many examples of R&D activity, in particular regarding internal software or applications made available to clients – we presented them later on in the text.

 

What costs do we deduct?

The regulations provide for a wide range of costs that may be deducted as part of the R&D relief. From the perspective of applying the tax relief in the insurance industry, the key factor is the possibility to deduct the costs of remuneration of both employees and persons employed under a mandate contract or a specific specific task contract. The deduction also covers ZUS contributions paid by the entrepreneur. Unfortunately, it is not possible to settle expenses for the remuneration of associates who provide services on the basis of B2B as part of the relief. It is possible to deduct, for example, from depreciation of fixed assets (e.g. computers) or intangible assets (e.g. software) used as part of R&D.

 

How much are we cutting down?

The R&D tax relief has been in force since 2016 and has changed significantly during this period, in particular with regard to the value of deducted costs. Year by year, the legislator encouraged more and more to undertake R&D activities and to use the tax relief. Initially, only 30% of the value of eligible costs could be deducted. In 2017, it was 50%, while from 2018, 100% of eligible costs are deducted. The last change was introduced as part of the Polish Order, from 2022, deduction as part of the relief is 200% of payroll costs and 100% of other costs. Thus, in Poland we currently have one of the most attractive, if not the most attractive tax relief of this type, and a similar instrument is used in many countries.

What financial benefits can the implementation of the tax bring? For example, if in 2021 a taxpayer incurred PLN 1,000,000 of remuneration costs as part of R&D activities, the real savings on CIT will be PLN 190,000. From 2022, it will be PLN 380,000 tax benefit. Such a level of support for large entrepreneurs is often not available even in the form of a grant for an innovative R&D project on the market scale, while the use of subsidies, i.e. selectively granted public aid for R&D activities, is associated with very significant restrictions and administrative effort .

 

How to use the relief?

R&D relief is not a state aid as it is not selective – it is granted to everyone on the same terms. To use it, it is enough to take the following steps:

• identifying projects / areas of activity that meet the definition of R&D activity,
• assigning eligible costs to them.

The relief is settled at the end of each year in the CIT-8 declaration and there are no contraindications to settle several previous years at the same time in the form of correction of tax declarations. In terms of future periods, however, it is worth considering a possible improvement of the processes.

More and more entrepreneurs use the tax relief, and the practice of tax authorities is already well known. Appropriate documentation prepared for the purpose of including the tax relief in the tax declaration will be completely sufficient if the tax office has questions.

 

The insurance industry is innovative

The assessment of the possibility of using R&D relief in the insurance industry is simple. It is enough to visit the websites of several exemplary insurance companies to find out that the insurance industry has a great potential to use R&D relief, and the solutions implemented by insurers are undoubtedly innovative. Some of them are already effectively using the tax credit, but this is a small percentage of eligible companies.

What can the insurer’s R&D activities involve? These can be any solutions used in the process of insurance distribution and service, or for the internal needs of the organization. As examples, we can mention, among others:

• software enabling remote purchase of policies;
• risk assessment systems;
• solutions improving customer service (e.g. the so-called voicebot);
• mobile application for customer service;
• automation of claims handling processes;
• data protection solutions.

R&D activity can also potentially include works related to the development of the system for selling and servicing policies used by the insurer and its agents.

In our opinion, insurance companies that develop independently indicated solutions with the use of internal resources can consider applying the relief in relation to their tax settlements.

 

Is it worth taking advantage of the R&D tax relief?

The tax changes introduced in recent years increase the tax burden on entrepreneurs and impose new obligations on them. R&D relief, on the other hand, is a positive accent that allows taxpayers to obtain significant financial savings. It can be an interesting solution to reduce taxation “on the occasion” of the development of various types of innovations as part of the conducted activity.

At the same time, it must be remembered that the use of the tax relief is relatively simple and does not generate any significant tax risk. Therefore, it is worth analyzing within the organization the possibility of implementing R&D relief right now, when the tax settlement for 2016 has not expired and can be covered by it.