Provisions on hidden dividends will disappear

Let us recall that the regulations on hidden dividends were intended by the MF to counteract the situation in which the distribution of profit to shareholders is made in a manner that causes a reduction of the taxpayer’s income, by including a specific payment as a tax-deductible cost. Accordingly, the legislation indicated that if it was determined that the benefit paid was a disguised dividend, the taxpayer would not be able to recognise deductible costs (in the value of that benefit). The costs that would be considered a disguised dividend would be:
– when the amount of those costs or the timing of those costs is in any way dependent on the taxpayer making a profit or the amount of that profit, or
– where a reasonable taxpayer would not incur such costs or could incur lower costs if a comparable performance were made by an unrelated party, or
– where the costs include consideration for the right to use assets that were owned or jointly owned by the partner or an entity related to the partner prior to the formation of the taxpayer.
It is worth adding that the last two conditions would not apply when the sum of the costs incurred in the tax year by the taxpayer, which constitute a hidden dividend, would be less than the amount of gross profit within the meaning of the accounting regulations.
– These provisions are to be repealed from the CIT Act. As stated in the justification to the draft amendment by the Ministry of Finance, this was requested by entrepreneurs themselves as well as business organisations. These regulations are also so imprecise that they could result in the exclusion from costs of expenses which are rational and fully justified in economic terms. The idea to remove these regulations should be assessed positively, states Łukasz Kupryjańczyk, tax adviser, partner at Thedy & Partners.