Shifted profits tax is a tax liability specific to CIT taxpayers and has been in effect since January 1, 2022.

The mechanism for recognizing and shifted profits tax is regulated by Article 24aa of the CIT Law, which includes a catalog of expenses subject to shifted profits tax.

It follows from the wording of Article 24aa(2) of the CIT Law that shifted profits tax is considered to be:

• Included in tax deductible expenses in the tax year, costs incurred by the taxpayer for the benefit of a related party that does not have its registered office or management in the territory of the Republic of Poland. The tax base is the sum of the shifted profits in the tax year..

Purpose

• To prevent tax avoidance by transferring income to jurisdictions with a lower or negligible income tax rate,
• preferential taxation will be met provided that the tax regulations in force in the country of the related entity's registered office, management, registration or place of location provide that income earned by the related entity from a Polish taxpayer from one of the titles listed in Article 24aa(3) of the CIT Law is taxed at an income tax rate lower than 14.25%, or is subject to exemption or exclusion from this tax.

Assumptions:

• tax on shifted profits is 19% of the tax base,
• shifted profit is not combined with other income (revenue) of the taxpayer,
• taxpayers of tax on shifted profit are obliged to calculate this tax for the tax year in the CIT-8 return and pay it to the account of the tax office by the deadline for filing this return,
• a detailed calculation of the tax is declared in the Information on the amount of the shifted profit - CIT/PD, which is an attachment to the CIT-8 return,
• tax on shifted profit does not apply to costs of a Polish taxpayer that were incurred for the benefit of an entity with its registered office in the European Union or the European Economic Area, which conducts so-called substantial real economic activity in this country

Tax base

The tax base is exclusively tax expenses specified in the closed catalog expressed in Article 24aa(3) of the CIT Law.

Tax expenses that constitute the tax base of the shifted profits tax include:

• consulting services, market research, advertising services, management and control services, data processing, insurance, guarantees and warranties and services of a similar nature,
• all kinds of fees and charges for the use or right to use rights or values such as know-how, licenses, copyrights, industrial designs,
• the transfer of the risk of insolvency of the debtor on account of loans, other than those granted by banks and cooperative savings and loan associations, including under liabilities arising from derivative financial instruments and benefits of a similar nature,
• debt financing related to obtaining funds and using these funds, in particular, interest, fees, commissions, bonuses, the interest portion of the lease installment, penalties and fees for late payment of liabilities and costs, security of liabilities, including costs of derivative financial instruments,
• fees and remuneration for the transfer of functions, assets or risks.

The need to pay shifted profits tax depends on the fulfillment of several conditions

The analysis of the conditions is based on the determination of:

• the effective tax rate in the recipient's country,
• what portion of the foreign payee's income comes from payments from Poland,
• what portion of the payments received the entity forwards and in what form,
• whether it disburses them, whether they are its deductible expenses, or whether the payments received from Poland increase the profit to be distributed in the form of, for example, dividends,
• whether the qualified costs subject to shifted profits tax incurred by the Polish taxpayer constitute at least 3% of that taxpayer's total tax expenses.