On 25th June 2020, the act implementing amongst other ATA 2 Directive has been published. The newly established anti hybrid regulations shall be applicable to income (revenue) incurred in the tax year beginning after 31 December 2020.
What is ATAD2 directive about?
The purpose of the ATAD2 Directive is to prevent hybrid mismatches. Such mismatches arise generally when, due to differences in the treatment of an entity or instrument on tax grounds by different jurisdictions:
- cost is deducted in one jurisdiction without corresponding income being reported by the other party to the transaction (deduction without inclusion), or
- the same cost is deducted in more than one jurisdiction (double deduction).
In addition, ATAD2 targets also mismatches resulting from differences in qualifications of a permanent establishment and the taxpayer having double tax residence.
The Polish implementation of ATA2 Directive is, generally speaking, based on wording of ATAD2 Directive. However in certain areas the scope of the regulations seems to differ from the one set in the Directive. In particular, while ATAD2 seems to apply only to costs resulting from “payments”, the Polish law does not impose such limitations.
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The hybrid mismatches - impact on polish taxpayers
The ATAD2 Directive provides for a number of rules aimed at counteracting the effects of hybrid mismatches. Based on those rules Polish taxpayers may be denied the right to disclose tax deductible costs incurred in transaction, undertaken with related entities or as part of so-called structural agreement, in case deduction / non-inclusion or double deduction takes place. In case of deduction / non-inclusion, only certain types of transactions (generally speaking those where hybrid element exist) trigger anti-hybrid rules.
The Polish taxpayer may also be denied the right to recognize an expense as a tax deductible cost if this expense finances directly or indirectly hybrid mismatch in another jurisdiction and this jurisdiction does not eliminate the mismatch (so called: imported mismatches).
Practical consequences
Implementation of ATAD2 Directive in Poland may affect many taxpayers operating within international structures. Although at first glance it seems that the ATAD2 regulations apply only to taxpayers using complicated international tax optimization schemes, in practice they may also affect entities operating in typical international structures.
Taxpayers who want to check whether the new rules may apply to them should answer a number of questions, including:
- Are there any expenses deducted from the tax base in Poland simultaneously deductible from the tax base in another jurisdiction (double deduction)?
- Are there any expenses that give the right of deduction in Poland but are not taxed abroad?
- Are there any expenses received by a Polish entity that are not effectively taxed in Poland, although in another jurisdiction they are deducted from income?
- Are there hybrid mismatches in foreign jurisdictions connected to the structure of the Polish company's capital group or related to transactions carried out by Polish company? If so, can payments deducted from the tax base in Poland be considered as a source of financing, directly or indirectly, of those foreign mismatches?
Although a positive answer to any of the above questions does not automatically mean that anti-hybrid rules will apply, the transactions identified under those questions potentially may qualify for anty-hybrid regulations.
How can we help you?
In case you would require our advice on new regulations please feel free to contact us. We are ready to analyse whether transactions carried out by your Company may fall under the scope of anti-hybrid rules.
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