The global minimum top-up tax, introduced based on a draft act implementing Directive 2022/2523, poses new challenges in the area of data processing. Especially, the introduction of a qualified domestic minimum top-up tax (QDMTT) means that the Polish companies need to prepare for the local requirements and report the group's aggregated results achieved on the territory of the country.
What are the key challenges for QDMTT taxpayers?
The published draft of the act implementing the directive into the Polish legal system, introduced in Poland: an income inclusion rule, qualified domestic minimum top-up tax and undertaxed payments rule. In addition to potential additional tax burdens, the new regulations will also require Polish companies that are part of international capital groups to:
- analyze completely new categories and exclusions introduced by new regulations and consider the specificity of local calculation;
- identify, collect and process large amounts of data;
- adapt data recorded in the accounting systems to new requirements or using separate records;
- aggregate individual calculations for all Polish companies within the capital group;
- submit an annual QDMTT return to the national tax authorities;
- coordinate the work of tax, accounting and IT teams at the local and group level;
- assign additional resources in the organization necessary to implement additional reporting.
Therefore, it is crucial to comprehensively analyze the new legal obligations and establish an approach to the implementation of reporting obligations from the perspective of processes and systems used by companies.
How to identify and collect data for reporting?
Firstly, entities required to calculate QDMTT should identify all data necessary to determine the amount of additional tax liability. In this respect, the most important data will be the information needed to calculate:
- net income obtained by constituent entities in Poland, i.e., in principle, the accounting result adjusted by appropriate correction resulting from the draft Act, such as, the value of taxes included in the net result; exclusion from the tax result of certain dividends, profits/losses from certain capital transactions, profits/losses from revaluation, tax consequences of transfer of assets as part of restructuring; exchange rate gains or losses resulting from the use of different currencies for accounting and tax purpose; significant fines and penalties and illegal payments or accrued but unpaid pension costs and
- adjusted covered taxes of all constituent entities based in Poland i.e. categories of taxes specified in the draft Act, such as taxes on the income or profit of a constituent entity or the share of this entity in the income or profit of another constituent entity in which it has an ownership share, adjusted by appropriate adjustments resulting from regulations, such as, the total deferred tax adjustment.
Based on this data, it will be possible to calculate the Effective Tax Rate (ETR), which is a key element necessary to calculate the QDMTT. Then, it is crucial to analyze the data to calculate the so-called substance-based income, i.e. the value of eligible payroll costs and the carrying value of eligible tangible assets, which may reduce the tax basis.
It should be kept in mind that the draft Act implementing Directive 2022/2523 introduces a number of new concepts impacting the scope of data required for the calculations described above. Some of the newly introduced definitions do not appear in other legal acts, but result directly from the EU directive and the OECD’s commentary and administrative guidelines. Thus, it may be necessary to analyze the OECD guidelines related to reporting and scope of the required corrections to be able to determine in detail which data should be included in the QDMTT calculations. Due to the complexity of this process, it may be necessary to use the help of experts who will support the organization in defining all target data.
Once the necessary data is identified, the company should verify the data sources from which the required information will be gathered. Some of the data will be available directly in the accounting and financial systems (ERP). In order to make the necessary QMDTT calculations, the given company should extract required records and documents such as e.g. data related to deferred tax, dividends, employee costs etc. Some data will probably be stored outside the companies' ERP system, for example in dedicated reporting tools for financial and management purposes. Moreover, selected data may not be currently reported by the given entity, which may influence the efficient extraction and transformation for reporting purposes. Such cases should be analyzed and the company should decide on a best strategy of data recording and presentation.
After carrying out the above analyses, it will be possible to map data from many sources to the target data required by the new regulations. It may be necessary to transform and standardize data, as well as to "clean" large volumes of data. It is worth considering reduction of manual processes in the organization that may cause the risk of errors and benefit from using additional tools that can collect and transform data.
How to improve calculation and reporting?
Once all required fields have been identified, it becomes possible to prepare the appropriate calculations for QDMTT reporting.
At the same time, the QDMTT taxpayers should keep in mind that although the calculation of net income for the purposes of QDMTT is similar to the methodology of calculating corporate income tax, the catalog of exclusions and adjustments is different. As such, it is necessary to prepare a separate, additional calculation. Another specific requirement is an obligation to perform ETR calculation at the level of a given jurisdiction, which may result in the need to perform the final calculation based on aggregated data of several companies, outside the ERP system. Therefore, many companies may consider performing appropriate calculations in Excel spreadsheets.
However, it should be noted that preparation of QDMTT calculations in Excel may pose many challenges that can affect both the effectiveness and quality of the calculations. The most important problems include the limited possibility to extract necessary data from the source systems, as well the risk of making errors related to the manual processing of the large amount of data.
In this respect, one may consider using additional tools, allowing for automatization of the calculation based on the gathered data.
Due to the large scope and significant diversity of the types of information required, it is worth considering the implementation of a tool allowing for automatic data upload based on an ETL (Extract, Transform and Load) solution dedicated for storing and transforming data from various sources. Based on predefined logic, conditions and configurations these types of tools allow users to download data from the source, process data to the scope and format expected by the calculation application, and upload data to this application directly. Additional advantage of using such a solution is a functionality to implement automatic tests, where thanks to a dedicated interface, it will be possible to verify the completeness and correctness of the data before uploading it to the tool dedicated to QDMTT calculation.
Apart from supporting multiple data sources, automatic extraction and easy management of large volumes of data, QDMTT calculation tool should allow for the flexible creation of multi-level analysis and calculations - including the option of creating several parallel calculations in order to select the best option for a given organization. This functionality may be especially important, in the case of Pillar II calculations, where, in accordance with the provisions, it is possible to choose the calculation method for certain categories.
To sum up, the most important functionalities of the tool dedicated to automation of QDMTT calculations are:
- support of multiple data sources;
- easy data management;
- automated data extraction;
- multi-level analyses and calculations;
- ensuring that the tool is adapted to legal requirements changes;
- automatic generation of tax returns in accordance with the scheme required by the Polish tax authorities;
- option to identify the author and date of data modification;
- ability to manage user authorisation;;
- archiving data and submitted declarations.
How can we help?
Our team is ready to support you in preparing for changes also from the IT system side. PwC can provide support in the area of analysis of required data in existing financial and accounting systems, fit gap analysis of existing data, data mapping, in adapting the configuration of ERP systems to new reporting requirements, as well as, in the implementation of dedicated tools for automating tax calculations.
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