Although the Polish solidarity levy has been in force for several years, it continues to raise significant practical concerns, particularly regarding the determination of its tax base. Recent case law and the evolving approach of the tax authorities, especially with respect to the treatment of tax losses, indicate that the method of calculating the levy is developing and requires a detailed case-by-case analysis.
What is the solidarity levy?
The solidarity levy is an additional charge imposed on individuals whose annual income exceeds PLN 1 million. The levy is calculated on the excess over this threshold, and the levy rate is 4% of such excess. This obligation operates independently of personal income tax and must be reported in a separate DSF-1 return, filed by 30 April of the year following the relevant tax year.
Legal basis – which income is included?
The basis for calculating the levy is the aggregate amount of income taxed under the provisions of the Polish Personal Income Tax (PIT) Act, in particular under:
- Article 27(1), (9) and (9a) of the PIT Act – income taxed according to the progressive tax scale (e.g. employment income, business income, civil law contracts, pensions);
- Article 30b of the PIT Act – income from capital gains (e.g. disposal of securities and financial instruments);
- Article 30c of the PIT Act – income from non-agricultural business activities taxed at the flat 19% rate;
- Article 30f of the PIT Act – income of controlled foreign companies (CFCs).
From a practical perspective, this means that the solidarity levy applies only to specifically listed categories of income and does not constitute a tax on a taxpayer’s total income in a general sense.
What is excluded from the levy base – practical significance
Determining which categories of income are excluded from the levy is just as important as identifying those that are included. In particular, the following are not taken into account when calculating the levy base:
- revenue from non-agricultural business activities taxed under the lump-sum tax on recorded revenues (ryczałt);
- revenue from privately rented property taxed under the lump-sum tax regime;
- income derived from the sale of real estate (outside business activities);
- income subject to final withholding tax, including dividends and other income derived from participation in the profits of legal entities;
- passive income, such as interest (e.g. from bank deposits, bonds or loans), which is taxed at source.
In practice, this means that income from business activities taxed under the lump-sum regime, frequently used in B2B cooperation models, does not increase the solidarity levy base. Similarly, profit distributions (e.g. dividends or profit-sharing payments within holding structures) and interest income generally remain outside the scope of the levy.
Solidarity levy and foreign income
For income earned abroad, the applicable double taxation relief method is of key importance. As a consequence:
- income covered by the exemption with progression method is not included in the levy base;
- income covered by the proportional tax credit method is included in the levy base.
This distinction may significantly affect the amount of income subject to the levy and therefore requires an individual assessment in each case.
Solidarity levy and tax losses – a change in approach
One of the most important practical issues concerns the possibility of taking into account tax losses carried forward from previous years. For a long time, the tax authorities adopted a restrictive position, excluding the possibility of deducting such losses when determining the levy base. However, under the influence of administrative court judgments, this approach has changed. It is currently accepted that, in the absence of an explicit statutory prohibition, losses may be taken into account when determining income. This means that:
- losses carried forward from previous years may be utilized;
- however, only within the same source of income.
This change is of considerable practical importance, as it may reduce the tax base and, in certain cases, also limit the taxpayer’s solidarity levy liability.
What about tax reliefs (e.g. R&D relief)?
Unlike tax losses, the treatment of tax reliefs, including the research and development (R&D) relief, remains unclear.
- the legislation does not regulate this issue explicitly;
- the tax authorities generally maintain a restrictive approach;
- at the same time, favourable trends can be observed in the case law of administrative courts.
In practice, this means that the possibility of taking tax reliefs into account has not yet been fully established and requires a cautious approach and individual analysis.
Most common pitfalls in the context of the solidarity levy
Despite its relatively simple mechanism, the solidarity levy involves a number of significant practical risks. In particular, it should be remembered that:
- its tax base does not directly correspond to the income reported in the annual PIT return;
- it includes only selected sources of income;
- it excludes important categories of income (e.g. lump-sum taxed income, dividends and interest);
- it provides for a limited range of available deductions.
Particular attention should also be paid to the treatment of married couples.
Although spouses may file a joint PIT return, for the purposes of the solidarity levy each spouse determines their tax obligation separately, based solely on their own income.
This means that if one spouse exceeds the PLN 1 million threshold, that spouse becomes liable for the levy regardless of the other spouse’s income level and irrespective of the joint filing status for PIT purposes.
PwC Commentary
Despite its relatively straightforward structure, the solidarity levy requires a detailed analysis of the taxpayer’s income profile in practice.
Particular attention should be paid to:
- the proper classification of income sources;
- the identification of income excluded from the tax base;
- and the current approach to the utilization of tax losses and tax reliefs.
The change in the interpretative approach regarding tax losses represents a significant softening of the previous position and may materially affect the amount of the tax liability. At the same time, the absence of clear regulations concerning tax reliefs means that the calculation of the solidarity levy remains an area requiring individual assessment and ongoing monitoring of administrative and judicial practice.
Autorzy:
