Getting down to the business of this year's tax changes
At last night's WBJ mixer someone unkindly asked me when the last time my column had actually been about Polish tax, and I must confess that it was not a question I found particularly easy to answer. So in keeping with the fact that a new year means loads of new legislation, I have trawled the knowledge bases of Arthur Andersen, and will write a very serious and sensible column this week about some of the tax law changes.
The first of the tax acts designed to harmonize Polish legislation with that of the European Union (EU) has been passed. This limits preferential treatment of taxpayers, and amends the Tax Code.
Under the new legislation, tax authorities will no longer have the power to issue individual decisions waiving the assessment and collection of tax. Decisions of that type will become the exclusive responsibility of the finance minister. Regulations issued by the minister will indicate the type of tax, the term of the waiver and the category of taxpayers entitled to benefit from the preferential rules.
Waiver of tax applicable to entrepreneurs will have to be in line with the Act on Public Subsidies for Entrepreneurs, which also came into force on Jan. 1. That act provides that public subsidies can be granted for removing damage caused by accidental occurrences (disasters). Public aid can also be granted to domestic entrepreneurs undertaking to further European interests. They may also take the form of compensation for an entrepreneur's contribution to public projects.
The Tax Code makes references to the public subsidies law regarding the remission of overdue taxes, deferral of tax deadlines, spreading the payment of tax or tax arrears into installments. The revised Tax Code authorizes EU inspectors to inspect materials and records concerning the implementation of European regulations in Poland and provides for the opportunity to give EU representatives access to confidential treasury information.
The act also introduces changes to the Act on Public Trade in Securities, including the rules on mutual recognition of prospectuses, admissions of securities to public trade and permits granted to investment companies for carrying on business. Stockbrokers will also be liable to make (tax-deductible) contributions to the compensation system. This was set up to ensure that investors are compensated for the loss of securities and the rights arising therefrom if a brokerage house is declared bankrupt.
The Personal Income Tax (PIT) Law has also been amended, in part to reflect changes to the Corporate Income Tax (CIT) law that were made last year, but not implemented into the PIT law. Rather than go into detail, some of these will demand a column of their own in due course, so I'll just give a summary of the high points.
Like CIT payers, PIT payers will now also be liable to prepare detailed documentation of related party transactions for transfer pricing purposes. Expenses for the construction of houses/apartments for lease as well as annuities and other perpetual charges will no longer be tax deductible. The existing capital gains exemption on income received from the sale of stock issued by public companies and of state treasury bonds will be extended to the end of 2003. This date also marks the expiration of the exemption applicable to income from fixed-term deposits and funds deposited in bank accounts.
A new exemption will be available for income from the sale of stock admitted to public trading provided that the taxpayer purchased the stock before it was listed, and the stock will be disposed of more than three years after its first public listing. In practice because of the 2003 date, the exemption will apply to stock of companies first listed on the stock exchange through Dec. 31, 2000. This corrects the anomaly whereby the capital gains exemption did not apply if you owned shares prior to listing.
The rate of withholding tax on dividends has been revised downward to 15%.
Lots of technical changes were made in respect to contributions in-kind, corporate reorganizations (where individuals are shareholders), mergers, and similar transactions. I'll come back to this when I work out how to explain them simply and clearly.
Depreciation regulations and rates have been revised to be consistent with the CIT law. The option to carry a tax loss forward over a period of five consecutive tax years (rather than three) and the opportunity to apply the simplified scheme of tax advance payments (for those carrying on economic activity) have been revised, again consistent with the CIT law.
Peter Ferrigno is a partner in the Warsaw office of Arthur Andersen.
