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Poland publishes draft legislation implementing global minimum tax (Pillar Two), with option to apply retroactively from 1 January 2024.
- Draft legislation implementing Global Minimum Tax (GMT) in Poland was released late evening of 25 April 2024 on the official website of the Polish government.
- The draft provisions provide for Qualified Domestic Minimum Top-Up Tax (QDMTT) in addition to the Income Inclusion Rule (IIR) and the Undertaxed Profit Rule (UTPR).
- According to the draft law, the relevant Act would be in force from 1 January 2025, with optional application of QDMTT Safe Harbor (SH) and IIR as of 1 January 2024.
- The proposed legislation provides for Transitional Safe Harbor rules as well as a permanent QDMTT Safe Harbor.
Legislation proposed in Poland to implement the European Union directive on global minimum tax (the Directive) is expected to be adopted in the third quarter of 2024 and to be in force from 1 January 2025. The effective date is subject to certain exceptions, including for optional application of QDMTT Safe Harbor and IIR, already in effect, as of 1 January 2024.
When implementing the Directive in Poland, the Polish administration intends to focus on introducing the QDMTT in accordance with the rules agreed to within the Inclusive Framework, in addition to adopting the IIR and UTPR.
The proposed Act will be separate from the Polish CIT Act. The draft version comprises more than 150 pages with an additional 275 pages of official justification for the new law.
Impact on Polish subsidiaries of international groups
Despite the delay in Polish implementation of the Directive (deadline expired at the end of 2023), 2024 income of Polish subsidiaries may still be subject to global minimum taxation obligations due to Pillar Two regulations in force in other countries.
Going forward, implementation of the QDMTT in Poland may result in the allocation of most of the obligations related to the global minimum tax, including calculations of the effective tax rate for GMT purposes and payment of tax to Polish subsidiaries of international groups, as groups should be able to benefit from QDMTT SH regarding Poland.
In this context, it is important to note that the Polish implementation provides a specific regulation that allows the subject groups to opt for a voluntary QDMTT and IIR taxation in Poland beginning 1 January 2024. This means that if a group opts for the voluntary taxation as of that date in Poland, the ultimate parent entity or other respective nonresident group entities that would otherwise be responsible for Polish income under the IIR or UTPR could be exempt from this obligation under the QDMTT safe harbor. As a result, groups may choose to apply the option and shift the obligations related to Poland to their Polish subsidiaries from 2024 (rather than applying the IIR or UTPR for 2024 and using QDMTT safe harbor only from 2025). This is of particular importance as statutory CIT rate in Poland equals 19%, while foreign investors to Poland may take the advantage of tax incentives such as special economic zone CIT exemption or R&D tax credits, leading on many occasions to jurisdictional ETR for GloBE purpose below the minimum 15% rate.
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Summary
Taking the above into account, taxpayers may want to initiate an analysis directed at establishing the obligations of Polish entities in relation to the global minimum tax and estimating the impact of potential top-up tax under Polish Pillar Two domestic legislation. Additionally, taxpayers may want to explore the possibility of relying on Transitional Safe Harbors and substance-based income exclusion as provided in draft legislation.
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