Under-taxed profits will be taxed
The function of the top-up tax on under-taxed profits is to fill any gaps in top-up taxation that would lead to a lack of taxation of parent entities, writes Dr Grzegorz Keler of Thedy & Partners in the Rzeczpospolita.
The global minimum tax (GLoBE) system consists of three taxes. One of them is a compensatory tax on under-taxed profits. The principle in GLoBE is the priority of compensatory taxation at the level of the parent entities ( income inclusion rule). However, in some cases it will not be possible to apply this rule. In such cases, theunder-taxed profit rule will come into play, whereby the obligation of top-up taxation is passed on to those at the bottom of the capital structure. It is the compensatory tax on under-taxed profits that implements this principle. An example of a structure to which it may apply is a group comprising a parent company based in a country that has not implemented GLoBE (e.g. China) and its directly dependent Polish companies.
Who will be covered by the tax
The taxpayers of the top-up tax on under-taxed profits will be Polish entities (mainly companies) that are part of an international group. However, this concerns only such entities that are not parent entities in the group. In practice, therefore, Polish companies belonging to foreign groups will be subject to this tax. Also excluded from the tax will be investment entities, i.e. e.g. investment funds and certain portfolio companies of such funds.
However, as the tax in question is only supplementary to the domestic top-up tax, it will only be applicable in certain cases, i.e. if the ultimate parent company
- is located in a jurisdiction where the so-called qualified inclusion rule does not apply, or the jurisdiction has a low level of taxation and the parent entity is not subject to the rule; thus, for example, parent entities from countries that have not implemented GLoBE;
or
- is a so-called excluded entity to which the Equalisation Tax Act does not apply (e.g. certain categories of investment funds).
The tax will therefore apply if the foreign ultimate parent entity is not subject to the equalisation tax regime.
If the obligation to pay the tax is found to arise and the group has several component units in Poland, the group will be able to choose which of them will pay the tax. Indeed, the obligation to pay the tax is intended to be joint and several.
Of course, in order for the tax to arise at all, the international group must meet the revenue criterion, i.e. achieve EUR 750 million in revenue in at least two of the four tax years immediately preceding the tax year.
The entire article can be read in Rzeczpospolita of 14 October 2024, page D7