Compensatory taxation already on the final straight

The idea of compensatory taxation, in simple terms, is that no large international group with a turnover of more than EUR 750 million in a year should effectively pay less tax than 15 per cent. In order to achieve this, it took an international consensus, the beginnings of which can be found in 2021, the finale of which is reflected in the draft provisions of the act on compensatory taxation of constituent units of international and domestic groups. The first draft of the law was released in Poland at the end of April this year, with the next iteration on 29 July this year. The provisions are theoretically to take effect from next year. Theoretically, as for some taxpayers it will apply sooner.

This article is the first in a series explaining the regulations on compensatory taxation, commonly and not precisely referred to as Pillar 2. The series will present its genesis, mechanism of operation and impact. Reporting obligations will also be indicated, as well as some simplifications in its application.

Genesis of the legislation

The history of Pillar 2 is important because it points to the origins and principles guiding the draft Polish law. It is the result of the implementation of the Directive of 14 December 2022 on ensuring the global minimum level of taxation of multinational enterprise groups and large domestic groups in the European Union. In turn, the Directive is a response to the implementation within the European Union of the results of the OECD’s work on eliminating practices that allow profits to be transferred to countries where there is no taxation or where profits are subject to very low taxation. In the course of this work, the OECD developed and, at the end of 2021, endorsed a set of principles to achieve the goal of a minimum level of taxation for international organisations. These principles and guidelines are summarised in a document called: The Tax Challenges of the Digitisation of the Economy – Model Global Principles to Address Tax Base Erosion (Pillar Two) (the ‘Model Principles’). OECD member states have committed themselves to accepting these principles, and at the European level, this is reflected in the directive just drafted.

The presented genesis of the rules has its practical significance, as certain dependencies have arisen. Polish law should be consistent with the EU directive. The directive, on the other hand, should coincide with the Model Rules and take them into account in its content. This means that when analysing a given factual situation and doubts arise, not only the Polish Act may be the only one to be analysed, but also the Directive, the Model Rules or foreign practice. It promises that the subject of compensatory taxation will undoubtedly be an interesting matter, because it will be even more universal than the provisions of the EU directive.

The entire article can be read in Rzeczpospolita of 23 September 2024, page D2