Changes to the “Shifted Income” Regulations – What Is the Legislator Planning?
Poland plans to amend its rules on shifted income taxation. Learn what the proposed changes in CIT and PIT could mean for cross-border related-party transactions.
Since 2022, the so-called shifted income regulations have raised numerous practical concerns. In the latest draft amendment to the CIT and PIT Acts, the legislator has proposed several important clarifications that may significantly affect taxpayers’ settlements.
What is shifted income?
The mechanism applies when a taxpayer includes in tax-deductible costs certain intangible services or passive payments made to related entities. If these exceed 3% of total costs, they may become subject to a specific shifted income tax.
The tax obligation arises if the recipient of the payment:
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is a low-taxed foreign related entity,
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transfers at least 10% of its revenues to another entity,
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and until now – derives over 50% of its revenues from intangible services and passive payments received from Polish companies.
What’s changing?
The proposed amendment provides for:
1️. clarification of how shifted income should be calculated within tax capital groups,
2️. confirmation that not only incurred but also accrued costs (e.g. depreciation) are covered,
3️. removal of the 50% revenue structure condition.
Why it matters
This last change could considerably broaden the scope of the regulations. It will be enough for a low-taxed foreign contractor to transfer 10% of its revenues further to trigger the tax consequences.
As a result, Polish taxpayers using foreign service providers may face new compliance obligations and a higher risk of taxation.
What about the Ministry’s guidelines?
The Ministry of Finance recently published official guidance on shifted income taxation. Following these guidelines provides taxpayers with protection similar to an individual tax ruling.
However, a key question remains: will this protection remain valid after the amendment comes into force?
Since the draft only partially modifies the current provisions, the guidelines should largely remain applicable – though it’s uncertain how the tax authorities will interpret them in practice.