The premise of Council Directive (EU) 2022/2523 of 14 December 2022 (Pillar 2) is the implementation of global principles against tax-base erosion in the EU. This concerns a minimum 15% taxation level for national and international groups with consolidated revenues of at least €750 million.
Polish perspective
In Poland the Pillar 2 Directive will be implemented into the Polish tax-law system through the act on compensatory taxation of component units of international and national groups. The draft act (UC20) was published on 25 April[1] and is planned to enter into force on 1 January 2025.
The regulations will cover international and domestic groups with a total annual turnover of at least €750m in at least two of the four tax years immediately preceding the tax year in question. Due to the introduction of the so-called domestic top-up tax, the new regulations will apply both to parent companies located in Poland and to subsidiaries with head offices located abroad.
The three mechanisms
The draft act envisages the introduction of three separate mechanisms of equalisation taxation:
- Qualified Domestic Minimum Top-up Tax (QDMTT) – a top-up tax levied on low-tax constituent entities located on its territory, i.e. a top-up tax for the Polish jurisdiction will be payable in Poland.
- Income Inclusion Rule (IIR) – tax applicable in a country other than Poland and results from the application of the qualified principle of inclusion of income in taxation (IIR).
- Under-Taxed Profits Rule (UTPR) – a back-up mechanism when the IIR rule is insufficient to cover all low-tax jurisdictions with taxation.
The QDMTT national top-up tax will be the main element of the top-up tax system. In Poland it may cover several thousand entities, mainly these which constitute parts of international groups, as a rule with a top-level parent located in another country. The global top-up tax IIR will apply only to a few dozen international groups with a Polish ultimate parent company. Challenges for taxpayers may include determining the jurisdiction in which the equalisation would take place, as well as the preparation of an appropriate calculation. Issues concerning compensatory tax will not be able to be resolved by way of an individual tax ruling. The provisions of the draft act provide for the new institutions available only for future events, including, in particular, actions planned or commenced and not completed:
Opinion on top-up taxation – a document issued by the director of the Fiscal Information Centre (at the request of the interested party and granting the interested party, in the case of compliance with its content, protection of analogous nature as in the case of an individual tax law interpretation.
‘Qualified’ safeguard opinion – an opinion on the application of the top-up taxation provisions, analogous to the standard safeguard opinions. The body issuing the safeguard opinion will be the head of Poland’s National Revenue Administration (KAS).
Safe harbours
The draft act also contains a number of regulations concerning certain facilitations, in particular:
De minimis exemption – exemption from the obligation to calculate a global equalisation tax or a national top-up tax, if certain thresholds are not exceeded in the country concerned, the amount thresholds in respect of income and revenue are not exceeded. This exemption means also means that there is no obligation to calculate an effective tax rate.
QDMTT safe harbour – the national top-up tax may, firstly, be deducted from the top-up tax payable in another state participating in the GloBE System, while, first and foremost, it means that an eligible entity may make a safe-harbour election regarding the respect of qualified domestic top-up tax, on the basis of which no global top-up tax in respect of the country for which the election is made (in relation to entities in that country), and the parent entity that is the taxpayer is not required to calculate the effective tax rate for that country.
A five-year safe harbour – the absence of global top-up taxation on ultimate parent entities located in Poland, which belong to international groups in the initial period of their activity. The exemption is available where the group operates in no more than six countries and does not exceed a certain threshold of net book value of tangible assets.
Transitional CbCR (Country-by-Country-Reporting) safe harbour – a short-term measure designed to not to impose a global top-up tax or a top-up tax on under-taxed profits in the early years of groups’ operations, in certain countries with lower risks under the GloBE System.
New compliance obligations
The entities subject to the new rules of global minimum taxation will be covered with new obligations as regards passing the selected information to the tax authorities:
GloBE Information Return – submitted to the competent head of the tax office for the tax year, by the end of the fifteenth month following the end of that tax year (for the first tax year, an extended deadline is envisaged – 18 months respectively).
Statement on the amount of top-up tax due – filed by taxpayers by the end of the eighteenth month following the end of the tax year (for the first tax year, an extended deadline is envisaged – 21 months, respectively). The tax resulting from the return must be paid into the account of the competent tax office within a period not exceeding the deadline for filing the return.
Entry into force
The new rules are to enter into force in principle on 1 January 2025. The draft, however, provides for the possibility to apply the new provisions on a voluntary basis for the tax year beginning after 31 December 2023.
Limitation of malpractice
The solutions are intended to equalise the competitiveness of individual countries from a tax perspective and limit investment decisions based on tax preferences in a given country –. the so-called race to the bottom, which leads to aggressive tax optimisation involving the placement of income by international groups in countries with the lowest level of taxation such as tax havens. The means to achieve this goal is to eliminate a large part of the benefits of shifting profits to countries where they are subject to no or very low taxation. The introduction of a global minimum tax has the potential to significantly limit competition on CIT rates. The mechanism provides that if the effective level of income taxation for a particular international group, in a particular jurisdiction, is below 15%, an appropriate top-up tax will be imposed on such group. This will effect in enabling individual countries to better protect their tax bases.
Draft act on compensatory taxation of component units of international and national groups https://legislacja.rcl.gov.pl/projekt/12384558/katalog/13055773#13055773 with justification
OECD (2023), Minimum Tax Implementation Handbook (Pillar Two), OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris, https://www.oecd.org/tax/beps/minimum-tax-implementation-handbook-pillar-two.pdf
Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union https://eur-lex.europa.eu/eli/dir/2022/2523/oj
[1] Draft act on compensatory taxation of component units of international and national groups https://legislacja.rcl.gov.pl/projekt/12384558/katalog/13055773#13055773