Legislation to expand the scope of Poland’s corporate income tax law is intended to be effective in 2014. The provisions of the legislation released on February 18, 2013 include changes to the transfer pricing documentation and thin capitalization rules.
The legislation would expand the list of related-party transactions. The requirement to prepare transfer pricing documentation also would apply to “internal” transfers between a taxpayer and its foreign or Polish branch with respect to the income attributable to the branch.
The legislation would further expand the scope of the thin capitalization rules to loans provided by entities that are indirectly related to the taxpayer. Such indirect participation would be determined based on rules contained in Poland’s transfer pricing regulations.
The legislation also introduces an alternative method of calculating the thin capitalization limits. Taxpayers would be able to select the method to apply in limiting deductible interest expenses. The alternative method would be to restrict the interest deduction to 5% of the assets presented in the financial statements (excluding intangible assets) but no more than 50% of the operating profit, regardless of the amount of liabilities involving related entities and regardless of the share capital level.
Any interest not deducted under the new method could be deducted in the subsequent five years.
The limitation of 50% of operating profit would not apply to entities allowed to provide loans on the basis of other Polish laws (e.g., banks).
