On 25 April 2024, a draft Act implementing into the Polish legal system the provisions of the EU Directive on the principles of the global minimum tax (“Pillar 2”) was published. The planned entry into force of the Qualified Domestic Minimum Top-Up Tax (“QDMTT”) starting in 2025 requires that taxpayers take preparatory actions as soon as possible.
Purpose of the Act
The purpose of the proposed Act is to implement in Poland, resulting from Council Directive (EU) 2022/2523, the principles of the global minimum tax. This means aiming for taxation with top-up tax on capital groups whose effective tax rate (“ETR”) is less than 15%.
The scope of the draft law largely focuses on implementing the provisions of the directive into Polish national law. Additionally, as anticipated, the project includes the introduction of a domestic equalization tax, which will result in obligations for Polish entities from groups subject to this tax.
Who will be affected by Pillar 2?
- The Pillar 2 regulations will apply to international and domestic capital groups with a total annual revenues of at least EUR 750 million in at least two of the four tax years immediately preceding the tax year in question.
- The newly adopted rules will affect both parent companies of the above-mentioned capital groups and subsidiaries of foreign capital groups operating in Poland (due to the introduction of QDMTT)
It is estimated that there are as many as 8,000 companies on the Polish market that may be subject to this tax.
According to which mechanisms the top-up tax should be paid?
The global minimum tax system introduced by the Act is to be based on three types of top-up tax:
- Global top-up tax levied under Income Inclusion Rule (IIR);
- QDMTT;
- Undertaxed Profit Rule (UTPR).
|
Tax |
Essence of tax |
Which companies will be affected? |
|
IIR |
The group's parent company, in the jurisdiction where seated, should pay top-up tax on itself and its low-tax subsidiaries. |
Companies with a parent company in Poland. |
|
QDMTT |
The top-up tax is levied in the country where the low-taxed constituent entities of the group are located. |
Companies located in Poland. |
|
UTPR |
A top-up tax is levied in a given jurisdiction in situations where the parent company operates in a jurisdiction where there is no IIR or QDMTT does not apply. |
Companies of capital groups whose parent company is located in a jurisdiction that has not implemented Pillar 2. |
What will be the new obligations and challenges associated with the implementation of Pillar 2?
If the ETR for a given international group, in a specific jurisdiction, is less than 15%, the relevant top-up tax will be imposed on such a group.
The setting of this rate will be done not at the level of a given company, but at the level of a given country. This will require calculating the proportion of taxes paid by entities from a given jurisdiction (adjusted covered taxes) to the income of those entities (qualified income).
In addition to the potential additional burden of having to pay a top-up tax, the new regulations will also require companies to fulfill compliance obligations, which may involve the collection of a large amount of data.
- Capital groups that fall within the scope of Pillar 2 will be required to monitor changes in the values affecting the calculation of this tax at the jurisdiction level. The size of the challenge is demonstrated by the OECD's consulted return (Globe Information Return), which requires the collection of more than 240 data points relating to various aspects of the group's operations.
- Capital groups whose effective rate may be less than 15%, for example, due to applicable tax credits or preferential tax rates (e.g., IP BOX or R&D relief), should analyze in advance the impact that Pillar 2 will have on their taxation level.
- Groups will have to make decisions which accounting standard they will use to calculate the domestic equalization tax. As a general rule, the draft law provides for the use of a Polish GAAP, but the transitional provision allows for the temporary calculation based on the UPE standard.
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The deadline for adoption of the draft Act by the Council of Ministers was planned for Q3 2024. The law is generally intended to come into effect from January 1, 2025. Transitional provisions provide for the optional possibility of retroactive application of the provisions of the law from January 1, 2024.
In addition, the Ministry of Finance announced the launch of public consultations on the draft Act, which will last until 17 May.
We invite you to visit our website dedicated to Pillar 2 issues - PwC Poland - Pillar 2 website
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References:
* Draft Polish Act on Pillar 2: LINK (polish version only).
** 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 [LINK].
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