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Introduction to Polish Tax Law. Prof. W. Nykiel Centre of Tax Documentation and Studies University of Łódź. Part I. Glossary. Tax. compulsory unrequited payment to the government (OECD working definition). Unrequited.

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slide1

Introduction to

Polish Tax Law

Prof. W. Nykiel

Centre of Tax Documentation and Studies

University of Łódź

part i

Part I

Glossary

slide3

Tax

compulsory unrequited payment to the government

(OECD working definition)

unrequited

Unrequited

benefits provided by government to taxpayers are not normally in proportion to their tax payments

return
Return

tax declaration (usually a completed official form) by which a taxpayer reports income, sales and other details and calculates his/her tax liability

slide6
Direct taxes

Indirect taxes

income tax

Income tax

tax imposed on income received which is recognized for tax purposes by taxpayer, reduced by the allowable deductions, exemptions and credits

income tax8
Income tax on individuals

(Personal income tax,

Individual income tax)

Income tax on legal entities

(Corporate income tax)

Income tax
withholding tax

Withholding tax

tax on income imposed at source, i.e. a third party is charged with the task of deducting the tax from certain kinds of payments and remitting the amount to the government

turnover tax

Turnover tax

general term used to refer to the different forms of consumption and sales taxes

turnover

Turnover

gross receipts, gross amounts due, from the sale of goods or services supplied by the entity

value added tax

Value added tax

specific type of turnover tax levied at each stage in the production and distribution process

excise duties excise tax

Excise duties (Excise tax)

taxes typically charged on products such as alcohol, tobacco and motor fuels

death duties

Death duties

taxes imposed on the transfer of property on death (death duty, inheritance tax, succession duty, tax on transfers by death)

gift tax

Gift tax

tax imposed on gratuitous transfer of property among the living,

levied by reference to the value of a single gift or cumulative gifts during a certain period of time

property tax

Property tax

tax imposed on owned

tangible movable or immovable property or both

tax liability
Tax liability
  • Unlimited tax liability
  • Limited tax liability
juridical double taxation

Juridical double taxation

one person is subjected to taxation twice in respect of the same income

economic double taxation

Economic double taxation

imposition of comparable taxes on different taxpayers in respect of the same taxable income

methods of relieving double taxation
Methods of relievingdouble taxation
  • Exemption method
  • Credit method
  • Deduction method
part ii

Part II

Tax System in Poland

tax system in poland
Tax System in Poland
  • Main elements and main features of tax system in Poland
  • Tax liability
slide28
Until 1989 the Polish tax system differed substantially from systems functioning in states with a market economy. These differences concerned among other:
  • basic principles of the tax system that were connected with the economic and political regime,
  • sources of tax law,
  • structure and function of the most important taxes,
  • fiscal procedure,
  • tasks and role of fiscal administration,
  • behaviour of the taxpayers.
slide29
The structure of budget revenues was also very different from the ones existing in states with a market economy. The nationalised sector was the main source of income for the budget. The most important resources came from nationalised legal entities such as state enterprises and co-operatives. Taxes levied on the private sector of the economy were of very limited importance mainly due to their size. Taxes levied on the population were also of minimal significance.
slide30
The reform of the tax system in Poland started in 1989 with the introduction of uniform corporate income tax regardless of the form of ownership thus realizing the principle of fiscal equality. This tax was based on solutions existing in countries with a market economy including those existing in member states of the European Community.
slide31
The reform went on with the adoption of the Corporate Income Tax Act of 15 February 1992 currently in force. The act was amended many times, which provoked criticism by representatives of doctrine and practice. On the other hand, it must be emphasised that these changes substantially improve the very structure of the tax and make it similar to modern solutions existing in states with an advancely developed tax system.
slide32
Examples of such solutions are as follows:
  • according the status of a taxpayer to a capital group,
  • introducing new solutions, based on OECD recommendations, concerning associated enterprises and profit shifting,
  • introducing thin capitalisation rules.
slide33
The adoption of the Personal Income Tax Act of 26 July 1991 was the next step of reforms of the Polish tax system. This act contained principles of equality and commonness of taxation, replacing a whole range of acts concerning five other taxes.
slide34
This act, which came into force on 1 January 1992, had effect on several millions of people who became taxpayers of a new tax. It also created new tasks for the fiscal administration. Due to principles governing the very structure and collection methods of this tax, the situation of taxpayers in Poland became to a large extent similar to that of taxpayers in states with a market economy
slide35
Within the period from 1989 to 2006 Poland concluded 57 treaties on the elimination of double taxation within the field of income and capital taxation. This constitutes more than 3/4 of all bilateral treaties on elimination of double taxation concluded by Poland. These treaties are based on the OECD model convention. Concluding these treaties is the result of development in the field of economic co-operation. Moreover, it indicates an evolution of our tax system and depicts the direction of this evolution.
slide36
Introduction of the tax on goods and services (Polish VAT) into fiscal system constituted a huge challenge for the Polish legislator. Works on construction of this tax lasted for several years and were inspired by solutions existing in European law, especially in the Sixth Directive (77/388/EEC) These works resulted in the adoption of the Tax on Goods and Services and Excise Duties Act of 8 January 1993.
slide37
At the beginning, both the fiscal administration and taxpayers were quite confused as to the application of new solutions. This was due to the scope and complexity of the regulation (the Act, which came into force on 5 July 1993, was accompanied by a huge number of executory regulations), to the completely new legal structure of the tax and some legislative shortcomings.
slide38
The analysis of the budgetary revenues structure shows clearly that the two direct taxes (personal income tax and corporate income tax) and the two indirect taxes (tax on goods and services – the Polish VAT - and excise duties) constitute the core of our fiscal system bringing 86 % (2005) of income to the state budget.
slide39
Besides the abovementioned taxes, there also exist the tax on games and the tonnage tax, which go to the state budget.
slide40
Furthermore, the whole range of taxes flows into communal budgets. These are:
  • immovable property tax,
  • agricultural tax,
  • forest tax,
  • tax on means of transport,
slide41
tax on the possession of dogs,
  • heritage and donation tax.
  • tax on civil law acts – such as different contracts.
slide42
Among local taxes the one on immovables is of greatest importance, as in many other states. The proposed changes aim at establishing the value of land and buildings as the basis of taxation. Currently the taxable basis in case of buildings is their usable surface and in case of land – its surface.
slide44
In 1997 the General Tax Law was adopted. It contains rules focusing on fiscal liabilities and fiscal procedure.
slide45
It is estimated that the Polish tax system suffers a whole range of shortcomings that should be eliminated. The most important ones include:
  • high complication and lack of clarity leading to significant enforcement difficulties for both the taxpayers and fiscal administration,
  • lack of stability.
slide47
On 1 May 2004 both the new Tax on Goods and Services Act and Excise Duty Act came into force implementing the Council directives in Polish domestic regulations covering these taxes.
slide48
During the last period before our accession to theEU, Polish legislator concentrated on changing Polish tax law mainly in line with standards derived from the relevant EU directives.
slide49
These works did not sufficiently include analysis of compatibility of Polish legislation with the provisions of the EC Treaty, especially the ones devoted to four freedoms.
general tax law

General Tax Law

Tax liabilities

Tax proceedings

tax liability51

Tax Liability

Tax Liability is a taxpayer’s obligation to pay tax for the benefit of the State Treasury or commune (gmina)

tax liability52
TAX LIABILITY

Art. 21 GTL

Tax liability arises on the day:

  • the event with which a tax statute associates the arisal of such liability occurs (tax liability arises ex lege),
  • a tax authority’s decision determining the amount of such liability is served (tax liability arises by administrative decision)
slide54
Self-assesment
  • The taxpayer is required to report the basis of assesment, to calculate the tax due and to pay the tax
slide55
If a tax authority finds (as a result of tax proceedings) that the amount of tax liability is different than indicated in return, the tax authority shall issue decision that specifies the amount of tax
slide56
Tax return - the form on which a taxpayer reports income, sales and other details and calculates his/her tax liability
slide57
VAT return
  • VAT payable on outputs
  • VAT recoverable on inputs
  • net amount VAT due to or from the authorities
slide59
The joint taxation of spouses is regulated in Articles 6 and 6a of the Personal Income Tax Act. As a rule, the incomes of spouses are taxed separately. Spouses may however be taxed jointly on the sum of their income
slide60
The Constitutional Tribunal in its judgment of 4th of May 2004 (sygn. akt K 8/03) found Article 6 sec. 2 of Personal Income Tax Act incompatible with the constitutional principle of democratic state of law and principle of care and protection by State over marriage and family in that part in which it prohibits the joint taxation of spouses after a death of one of them.
slide62
Information and calculation return
  • facts, events,
  • taxpayer’s choices,
  • calculation of the tax,
  • informations about taxpayer.
slide64
Taxpayer has the right to correct a tax return
  • This right is suspended for the duration of tax proceedings
slide65
Art. 293 GTL
  • Individual data contained in tax returns and other documents filed by taxpayers are covered by fiscal confidentiality
slide66
The whole Section VII of the GTL deals with the fiscal confidentiality(fiscal secret). The following issues are regulated there :
  • the scope of tax secret,
  • the subjects under duty to observe secrecy,
  • the access to the tax information in an ongoing tax proceedings,
  • the way of storing of certain data,
  • the rules for passing information on taxpayers to other parts of the tax administration, courts, prosecutor etc.,
  • the passing of the tax information to the tax authorities of other states (Section VIIa),
slide67
The right of privacy is literally expressed in the Constitution of the Polish Republic.
  • Article 47 : ”Everyone has a right to the legal protection of his private life...”.
slide68
Article 51 having broader purportis connected with this regulation. It provides that : ”Nobody can be obliged on other than statutory basis to disclose information concerning himself” (passage 1).
slide69
”Public authorities cannot acquire, store and render accessible other information concerning citizens than is necessary in the democratic state governed by the principle of the rule of law” (passage 3).
slide70
It is only the statute which can impose the obligation to disclose the information. Moreover, this is the statute which determines the rules and the course of storing and rendering the information accessible (passage 5).
slide71
The forms of tax returns are prepared and published by the Ministry Finance
  • They are to cover only data necessary from the point of view of a particular tax
slide72
It is widely adopted principle that burden or onus of proof is on taxpayer to declare his taxable income or transaction.
slide73
In Poland as it is the case in the other countries the taxpayer is obliged to keep tax books (accounting books) and submit declarations.
  • However in tax proceedings a tax authority is obliged to collect and comprehensively consider all evidentiary material.
slide74
Evidence may have the form of (in particular):
  • Tax books
  • Tax returns
  • Testimony of witness
  • Expert opinions
  • Materials and information gathered as a result of inspections
slide75
Tax books kept reliably and in a non-defective manner shall constitute evidence of that what is to be derived from entries contained therein
slide76
A tax authority shall assess whether a given circumstance was proven on basis of the evidentiary material collected
slide77
During tax control tax authorities have in particular the right to:
  • Access premises of the taxpayer (e.g. land,office, appartment – in circumstances mentioned by law)
  • Require books and other documents connected with the control proceeding,
  • Gather materials connected with the scope of the control,
  • Secure evidence gathered during control,
slide78
The taxpayer may obtain a binding ruling from the Minister of Finance
  • The binding ruling may cover not only future but also past periods
part iii

Part III

Tax on goods and servicesPolish value added tax

slide80

During the period of the

so-called real socialism there were two turnover taxes in Poland: turnover tax on the entities of nationalised economy and turnover tax on the entities of non-nationalised economy. They existed until 1993.

slide82

During the works on this tax, European solutions were taken into account to a great extent, however its construction differed greatly from the European standards.

slide83

The Act of 11th March 2004 on Tax on Goods and Services:section I general provisions, II scope of taxation, III taxpayers, IV tax liability, V place of supply, VI taxable amount, VII tax on imported goods, VIII tax rates, IX deduction and refund of tax, partial deduction, X registration, returns and summary information, payment of tax, XI documentation, XII special procedures, XIII amendments to provisions in force, transitory and final provisions.

slide84

The taxable transactions cover:

Supply of goods for consideration and supply of services for consideration on the territory of Poland.

Export of goods.

Import of goods.

Intracommunity acquisition of goods for consideration on the territory of Poland.

Intracommunity supply of goods.

slide86
The supply of services is any performance for an individual, legal entity and entity having no legal personality, which does not constitute a supply of goods.
slide87

In connection with the accession to the EU and the introduction of notions of „intracommunity supply” and „intracommunity acquisition”, the notions of „import” and „export” have different meaning than so far. Today they refer only to sale and purchase of goods to or fromoutside the EU.

slide88

Taxpayers include legal entities, entities with no legal personality and individuals that independently carry out economic activities, regardless of the aim or results of these activities.

slide89

The economic activities comprise all activities of producers, traders and persons supplying services, including mining and agricultural activities, activities of the professions, also when the activity was performed only once but in circumstances suggesting the intention to perform this activity on a continuous basis. The exploitation of tangible or intangible property for the purpose of obtaining income, performed on a continuous basis, is also considered an economic activity.

slide90

Tax liability arises at the moment of delivery of goods or performance of services. However, if delivery of goods or performance of services should be confirmed by an invoice, tax liability arises at the moment of issuance of the invoice, no later thought than 7 days after the goods were delivered or the services were performed.

slide91

Small taxpayer (taxpayer, whose value of sale did not exceed during the last tax year amount equal to 800 000 Euros) may choose the tax accountingmethod according to which tax liability arises when the whole or part of the payment is effected, no later however than on the 90th day from the delivery of goods or performance of services.

slide92

The place of supply is in the case of:

goods dispatched or transported – the place where the goods are at the time when dispatch or transport to the person to whom they are supplied begins,

goods which are installed or assembled – the place where the goods are installed or assembled (simple activities which make it possible for the installed or assembled goods to function in accordance with their nature, are not considered to be installation or assembly),

goods not dispatched or transported – the place where the goods are when the supply takes place,

supply of goods to the ship, airplanes or trains during the part of passenger transport effected at the territory of the Community - the place where the passenger transport began.

slide93

In the case of the following services:

in the field of culture, art, sport, science, education or entertainment,

ancillary transport activities such as loading, unloading, handling and similar activities,

valuation of movable tangible property,

work on movable tangible property,

the place of supply of services is the place where those services are physically carried out.

slide94
The taxable base in the tax on goods and services is the turnover. The turnover is amount due from sales minus the tax due.
slide95

Taxable base in case of import is customs value plus customs duty due. However, if the subject of import are goods on which excise duty is levied, the taxable base is customs value plus the customs duty due and excise duty.

slide96
The basic rate of the tax on goods and services is 22%. The law indicates when rates of 7 %, 3% and 0 % apply.
slide97

Reduced rate of 7% applies to goods and services of special social importance (e.g. foodstuffs, books, newspapers, some health-care products, services connected with agriculture and forestry).

slide98

Reduced rate of 3 % (applicable until 30th April 2008) applies to agricultural products and unprocessed food products (e.g. products of meat industry with the exception of meat preserves, poultry products, fishery products with the exception of tinned fish food, milk, honey, products of field and meadow cultivation, products of animal farms).

slide100

„In so far as the goods and services are used for the purposes of taxable transactions, the taxpayer shall be entitled to reduce the amount of the output tax by the amount of the input tax...”

slide101

As a rule, the right to reduce the output tax by the amount of the input tax arises for the period in which the taxpayer received an invoice or a customs document.

slide102

If in any accounting period the amount of input tax, exceeds the amount of output tax, taxpayeris entitled to deduct the difference from output tax for subsequent periods or to have a refund transferred to his bank account.

slide103

There is no reduction of the output tax by the input tax in casethe taxpayer purchases inter alia: goods and services, if the amounts paid for them are not considered costs for the income tax purposes, engine fuels for passenger cars, gastronomy services and services of providing accommodation.

part iv

Part IV

Personal Income Tax

slide106
Income tax is generally levied at progressive rates on the aggregate income from all sources after making deductions.
slide107

The taxable income from each source is as a rule the difference between the sum of receipts (both in cash and in kind) and related expenses incurred for the purpose of earning income, retaining or assuring the source of income.

slide109

Sources of income covered by the PITA:

income from dependent services, including employment and pension income,

income from independent services,

income from business,

income from particular agricultural sectors,

income from immovable property,

income from tenancy and lease,

income from investments and property rights (investment income),

income from the sale of immovable property, property rights and movables,

other income.

slide110

Taxpayer is considered to be a Polish resident in a given year for income tax purposes if at least one of the following conditions is met:

(1)

his centre of vital interests is in Poland or

(2)

he stays in the territory of Poland for more than 183 days.

slide111
Partnerships are not taxable entities.

Partners are taxed individually on their share of the profits.

slide112
Polish residents are taxed on their worldwide income. Non-residents are taxed only on income derived from Polish sources.
slide113

The list of exempt income is extensive and includes, inter alia:

several types of socialdistributions, indemnities received in respect of property and personal insurance, scholarships, game and lottery winnings (in some cases up to a certain limit).

slide114

Business income is defined as income from non-agricultural business activities. In principle, income from agricultural activities is not subject to tax under the PITA.

slide115

Business income is calculated as the difference between receipts and deductible costs. Expenses incurred in order to generate taxable income, or to retain or assure sources of taxable income are in general deductible, unless the law provides otherwise.

slide117

Income from employment is categorized as income from dependent services, together with pensions and income from membership in cooperatives.

Employment income is taxable on a cash basis, i.e. it becomes taxable at the moment the payment is received or put at the taxpayer\'s disposal.

It is aggregated with income from other sources and is subject to income tax at the general progressive rates.

slide118

Benefits in kind (valued on the basis of market prices of comparable goods or services) are subject to tax in the same way as salary payments obtained in cash.

slide119

Pensions are treated as income from dependent services and are taxable at the moment of payment or when they are put at the taxpayer\'s disposal. The general progressive rates apply.

slide120

Pensions derived from certain voluntary private pension plans, however, are exempt (contributions to these plans are not deductible for income tax purposes).

slide121
Employment income is calculated as the difference between gross income and standard deductions as provided for by the law.
slide122

Employees\' social security contributions are deductible for tax purposes. Contributions paid by the employer on behalf of an employee are not taxable in the hands of the employee.

Contributions to voluntary private pensions plans which are paid by employees, are not deductible for individual income tax purposes.

slide123
Polish-source interest is not aggregated with income from other sources; it is subject to a final withholding tax.
slide124
Polish-source dividends are not aggregated with income from other sources; they are subject to a final withholding tax.
slide125

Income from royalties is taxable under the general rules at the progressive rates. In certain cases, 50% of earned income is deductible as an expense.

slide126

Losses from one source of income may not be set off against profits from another source of income. Losses may be carried forward for 5 years; up to 50% of the loss may be set off in each year. However, the loss carry-forward rule does not apply to losses from the sale of real estate.

slide127
There is a personal allowance of PLN 3,013.36, which is the annual income threshold not triggering individual income tax.
the cost of internet access at the taxpayer s premises is deductible up to pln 760 per annum
The cost of Internet access at the taxpayer\'s premises is deductible up to PLN 760 per annum.  
slide129

In general, spouses are taxed separately on their income. However, spouses in a community property marriage, who are resident taxpayers, may select to file a joint tax return, provided that they were married during the entire tax year (also if one of the spouses died during the tax year) and do not earn income subject to a flat income tax rate (except for rental income).

slide130

Tax is assessed in the name of both spouses and is equal to twice the amount of tax computed with respect to half of the spouses\' aggregate income.

slide131
Withholding taxes apply to income from various sources, including employment and certain income from personal services.
slide132

RATES

Taxable Tax

Income (PLN)

(PLN)

up to 43.405 19% minus 572,54

43.405 – 85.528 7.674,41 plus 30% of amount exceeding 43.405

over 85.528 20.311,31 plus 40% of amount exceeding 85.528

p art v

Part V

Corporate Income Tax

slide135

Corporate income is taxed at the company level and the distributed profits are taxed again by way of withholding when distributed to the shareholders. For resident corporate shareholders, the tax so withheld is credited against their corporate income tax liability.If the withholding tax cannot be fully credited, the credit may be carried forward indefinitely.

slide136

Taxpayers: joint-stock companies, limited liability companies, state enterprises and cooperatives, units without legal personality, tax capital groups.

slide137
Companies "under formation" are also considered taxable persons if they commence economic activities before they become fully registered.
slide139

In general, partnerships are not taxable persons. Partners are taxed individually on their share of the profits, either under CITA provisions (corporate partners) or under PITA provisions (individual partners).

slide140
A company is resident in Poland for tax purposes if it has its legal seat or management office in Poland. Consequently, a company is regarded as a Polish resident if it is either incorporated in Poland or managed in Poland.
slide141
Resident companies are subject to tax on their worldwide income, while non-residents are taxable only on income earned in Poland.
slide142
The tax year corresponds to the calendar year. However, taxpayers may opt for another period of 12 consecutive months as the tax year.
slide143
Taxable income is the difference between gross income and deductible costs, as allocated to the tax year.
slide145

The CIT exempts certain types of income from income tax:

income received by taxpayers from governments of foreign countries, international organizations or international financial institutions, including the funds of EU and NATO programmes for research and technical developments, deriving from non-returnable foreign aid funds granted on the basis of a unilateral declaration or agreements concluded with these countries, organizations or institutions by the Council of Ministers of the Republic of Poland, the competent minister or government agencies (Art. 17.1.23 CITA),

income derived by charitable organizations and used for their charitable purposes (Art. 17.1. 6c) CITA) and

income derived by cooperatives and companies whose statutory activity is a scientific, technical research or educational activity.

slide146

Costs incurred for the purpose of generating income or retaining or protecting sources of income constitute deductible costs, unless otherwise provided by law.

slide147
Dividends paid to a company\'s shareholders are not treated as a cost and are not deductible for income tax purposes.
slide148

Interest accrued and paid is deductible (if incurred for the purpose of generating income), while interest accrued but not actually paid is not deductible.

poland has thin capitalization rules and therefore the deductibility of interest can be limited
Poland has thin capitalization rules and therefore the deductibility of interest can be limited.
slide150

Under certain conditions, donations made to public organizations registered in Poland or another EEA country (EU Member States, Iceland, Liechtenstein and Norway) as well as donations for religious purposes are deductible from taxable income up to a maximum of 10% of the income.

slide151

Non-deductible expenditures:

expenses incurred on purchasing or producing fixed assets or intangibles (deductible through depreciation and amortization deductions),

expenses incurred on purchasing land or perpetual usufruct rights to land (they can be deductible upon sale; see, however, for taxation of capital gains),

repayments of loans,

tax fines, penalties and indemnities,

interest on additional capital contributions, on dividends and other corporate distributions, and

representation expenses including costs of restaurant services, purchase of foodstuffs and drinks, including alcohols.

slide152

Losses may be carried forward and set off against income over a period of 5 years. Up to 50% of the loss may be set off in each year. Loss carry-back is not allowed.

slide154

Generally, dividends and other income from profit sharing of a resident company received from another resident company are subject to a 19% withholding tax. The dividend income can be exempt from withholding tax where the dividend recipient holds at least 15% of shares in the dividend payer\'s share capital for a minimum of 2 years (10% from 2009 onward).

slide155

Corporate income tax is assessed in the form of self-assessment by the taxpayer. Taxpayers must calculate the amount of tax due, pay monthly advances, file an annual tax return and pay the final tax.

slide156

The tax authorities have the right to verify the amount of calculated tax and may issue a decision correcting the amount of tax declared. A tax control and an assessment procedure take place before the decision is issued by the tax authorities.

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