At the end of April this year, the Ministry of Finance presented a draft Polish law on the top-up taxation of international and domestic capital groups. The draft act implements the provisions of Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring the global minimum level of taxation of multinational enterprise groups and large-scale domestic groups in the European Union (the “GloBE Directive”) into the Polish legal order. The deadline for its implementation passed in 2023.
Top-up taxation
The EU rules contained in the ‘GloBE Directive’ are the result of agreements by more than 140 countries gathered at the OECD in the form of the so-called Inclusion Framework (BEPS 2.0 project). It provides that companies with consolidated revenues equal to or greater than €750 million will be required to apply the provisions of the Global Minimum Tax.
The indicated revenue amount is intended as a compromise between the pursuit of the objectives of a global minimum tax, i.e. the elimination of tax avoidance practices, and the practical considerations of imposing administrative obligations on smaller groups that are too far-reaching. The threshold is also consistent with the threshold used for the purposes of the country-by-country reporting rules (CbCR).
It is important to note that the obligation to pay the top-up tax will only arise if the effective tax rate for the state/jurisdiction concerned (hereinafter also referred to as “ETR”) for the tax year in question – determined in a certain way – is less than 15%. Importantly, the calculation of the effective tax rate will take place not at the level of the constituent unit, but at the level of the state (jurisdiction) concerned.
Three types of tax
The law provides for three types of taxes, which together form a comprehensive system of top-up taxation:
- Qualified domestic minimum top-up tax (QDMTT) – a top-up tax levied on low-tax constituent units located in Poland,
- Global top-up tax – tax that is applicable in a country other than Poland and results from the application of the qualified principle of income inclusion rules (IIR),
- Under-taxed profit rule (UTPR) – acting as a ‘back-up mechanism’ when the IIR rule is not sufficient to cover all low-tax jurisdictions with taxation.
As a result, constituent units of international groups located in Poland, as well as constituent units of domestic groups, will be obliged to perform the so-called effective tax rate test and to pay a domestic top-up tax in Poland in the event that the effective tax rate for Poland is below 15% and the constituent unit achieves qualified income.
Accounting income and acceptable financial accounting standard
As a general rule, tax calculations for top-up tax purposes will be based on accounting evidence (subject to certain adjustments) and on data from the accounts.
The Act introduces a definition of an “acceptable financial accounting standard”. This is the Polish Accounting Act, as well as International Accounting Standards and International Financial Reporting Standards (IAS/IFRS). Importantly, where a nationally accepted (approved) accounting standard is not listed as an acceptable financial accounting standard, then the entity’s financial items recognised in the consolidated financial statements in accordance with that accounting standard are compared to the treatment of those items under IAS/IFRS and a determination is made as to whether there are any material accounting differences.
Entry into force
The new rules are due to take effect from 1 January 2025, which is one year late compared to the EU directive.
At the same time, the Act provides for the possibility to apply the compensatory tax retroactively from 1 January 2024 under certain conditions. Namely, in the period from 1 March 2026 to 30 May 2026, a group may make a declaration, in the form of a notarial deed, electing to apply the provisions of this Act in respect of a tax year commencing after 31 December 2023, this election being irrevocable.
