On February 13, the Ministry of Finance published a draft act introducing significant amendments to the regulations on the top-up tax for constituent entities of international and domestic groups. The amendment aims to clarify existing regulations, resolve interpretative doubts, and align Polish legislation with OECD standards.
The Act of November 6, 2024, on the Top-up Tax for Constituent Entities of International and Domestic Groups implemented the provisions of the EU Directive on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (the so-called OECD Pillar II) into the Polish law. The key principle of these regulations is a coordinated approach that requires Member States to consistently implement and interpret the provisions in accordance with the guidelines issued by the OECD. The need to ensure this compliance, as well as to implement the latest OECD Administrative Guidance, was the direct reason for preparing the amendment. The draft, in addition to implementing the OECD guidance, also includes clarifying changes that respond to identified ambiguities in the original version of the act.
The draft amendment to the Act introduces a series of modifications that will directly affect the tax settlements of capital groups. The main directions of the changes introduced by the draft include, in particular:
- Implementation of the Administrative Guidance from June 2024, which primarily concerns the differences between values used for the Pillar 2 purposes and carrying values, clarification of the rules for allocating taxes from the head office to a permanent establishment, and the allocation of profits and taxes in the case of flow-through entities.
- Implementation of the Administrative Guidance from January 2025, specifying the rules for recognizing deferred tax assets arising from governmental arragements.
- Clarification of existing provisions, including, Article 148, to ensure their unambiguous interpretation in line with the safe harbour guidelines, procedural provisions concerning the filing of the GloBE Information Return and local tax returns, as well as the conditions for applying uniform accounting standards for the purposes of Qualified Domestic Minimum Top-up Tax (QDMTT).
The Most Important Change – Simplifications in Article 29 and the New Article 153a
The most significant and anticipated change introduced by the amendment is the modification of Article 29 and the addition of Article 153a, which introduce key simplifications regarding the accounting standards used to calculate the QDMTT. This is a response to numerous requests made by capital groups.
The previous provisions, effective from January 1, 2025, introduced a rigid rule regarding the accounting standards to be used. The general principle was the application of the Polish Accounting Act (Polish GAAP) by all Polish entities. However, Article 29(2) introduced a key exception: “if at least one taxpayer from a given group is legally obliged to apply IFRS, tlhe taxpayers of that group, for the purpose of calculating the domestic top-up tax, shall take into account items recognized in the books kept on the basis of the Accounting Act and in financial statements prepared on the basis of IFRS.” In practice, for many groups where some companies apply IFRS and others apply the Polish GAAP, this provision meant that all companies in the group had to apply IFRS also for the purpose of preparing their financial statements. The provisions also did not specify how being “obliged to apply IFRS” should be understood (e.g., whether the fact that the group’s consolidated financial statement must be prepared in accordance with IFRS is sufficient). This requirement entailed a huge administrative burden and costs related to adapting financial and accounting systems. In the new version of this provision, the legislator has formulated the obligation as follows: “if at least one taxpayer from a given group is legally obliged to apply IFRS, including for the needs of the group’s consolidated financial statement, the taxpayers of that group, for the purpose of calculating the domestic top-up tax, shall take into account items arising from the books or financial statements, recognized in those books and in those statements in accordance with the accounting principles resulting from IFRS,” to unequivocally indicate that in a group where at least one taxpayer is obliged to apply IFRS, the other Polish entities of that group, being taxpayers of the QDMT, are also obliged to apply IFRS for the purpose of its calculation. Moreover, the original provisions did not specify that being obliged to apply IFRS also means the preparation of a consolidated financial statement in accordance with IFRS by the Polish ultimate parent entity.
In response to the existing problems, the amendment introduces a significant simplification in the new Article 153a. It concerns the condition of a uniform accounting standard, which requires the use of the same accounting standards by all QDMTT taxpayers. According to the proposed provisions, this condition will also be considered met if some entities apply the Polish GAAP, provided that the following conditions are jointly met:
- All taxpayers in the group calculate the QDMTT based on IFRS.
- Taxpayers who normally prepare their statements according to the Polish GAAP will perform the QDMTT calculations based on the consolidation package (which is already prepared in accordance with IFRS).
- The consolidation packages will be subject to an audit by an auditor, which is intended to ensure the consistency and reliability of the data.
- IFRS has been the dominant accounting standard in the group for the last 5 tax years.
In practice, this seems to mean the ability to use consolidation packages without the need to change the financial reporting standard, which will translate into savings of time and money.
The concept of a “dominant standard” becomes key. It is considered as such if, in a given year, it was used in the group’s consolidated financial statement, and the sum of the carrying value of assets of entities applying IFRS exceeds half of the total asset value of all QDMTT taxpayers in Poland.
The analyzed provision of Article 153a, which introduces a special transitional rule, applies to tax years beginning after December 31, 2023. It should be emphasized, however, that this is a temporary solution, the application of which is limited to tax years ending no later than December 31, 2028. Consequently, a legitimate doubt arises as to the rules that will apply to capital groups after this period expires.
Should you have any questions regarding the amendment to the act, we invite you to contact our experts.
Authors:
Agata Oktawiec – Partner
Mikołaj Kondej – Director
Michał Stępień – Senior Manager
Anna Biernacka – Associate
