Polski Ład 3.0. – what changes await CIT taxpayers in 2023?

Year 2022 brought many changes in tax law, among which, some of the most significant and controversial were the reforms introduced under the so-called “Polish Deal.” Considering that the year 2022 is coming to an end and the mentioned changes still pose numerous problems for taxpayers, it is worth examining the amendments to the regulations that the legislator has prepared for the upcoming year.

The most important changes set to come into force on January 1, 2023, are provided for in the Act of October 7, 2022, amending the Corporate Income Tax Act and certain other acts (hereinafter referred to as “Polish Deal 3.0”). The most significant amendments within this act are outlined below:

1. Modification and postponement of the application of the provisions on minimum corporate income tax: The minimum corporate income tax is a solution introduced into the CIT Act as of January 1, 2022. The purpose of introducing this tax was to limit the problem of understating income by taxpayers who, as a result of optimization activities, over a longer period of market presence, showed low income or losses. Taxpayers were supposed to pay the minimum corporate income tax for the first time for the tax year ending December 31, 2022. However, under the Polish Deal 3.0, the collection of the minimum tax has been suspended until December 31, 2023. Additionally, the law also included numerous changes to the structure of the tax itself.
2. Repeal of provisions on hidden dividends: Regulations concerning so-called hidden dividends, which were included in the first version of the Polish Deal, were intended to prevent the distribution of profits from CIT-paying companies to shareholders, resulting in a reduction of the taxpayer’s income by including certain payments as deductible costs. To limit this practice, as of January 1, 2023, provisions were planned to be added to the CIT Act that would not allow the inclusion of payments with the character of hidden dividends as deductible costs. However, under the Polish Deal 3.0, the provisions on hidden dividends have been repealed.
3. Simplification of bad debt relief provisions: Under the Polish Deal 3.0, administrative obligations regarding bad debt relief have also been simplified. From January 1, 2023, taxpayers will no longer be required to report receivables or liabilities associated with increases or decreases resulting from bad debt relief in the CIT-8 return. Consequently, taxpayers will also not be required to fill out CIT/WZ information.
4. Changes in Estonian CIT: The flat-rate tax on corporate income, known as Estonian CIT, was introduced into Polish law at the beginning of 2021. Essentially, Estonian CIT involves not taxing profits generated by a company until they are distributed to owners. Taxpayers eligible for Estonian CIT can submit a notification of choosing this form of income taxation to the competent head of the tax office, provided they meet certain conditions specified in the law. As some of the principles related to the application of Estonian CIT may have seemed unclear so far, the legislator decided to amend some of the provisions as of January 1, 2023. Among the most important changes introduced to the CIT Act under the Polish Deal 3.0 are:
   • Addition of Article 28m(4a), stating that expenditures unrelated to business activities do not include expenditures and depreciation allowances related to the use of passenger cars, aircraft, and other property items (in full – if the property item is used exclusively for business purposes, or at a rate of 50% – if the property item is used not only for business purposes).
   • Clarification of Article 28j(5) regarding the possibility for a taxpayer to choose Estonian CIT during the tax year.
   • Explicit indication in the text of Article 7aa(5)(1) that the tax liability for the so-called initial adjustment expires in its entirety after at least one full tax period under Estonian CIT, i.e., 4 tax years.
   • Modification of the conditions related to minimum employment (changes in Article 28j(1)(3)(b) and (3)(2)).

The changes mentioned above are just some of those introduced by the Polish Deal 3.0. The Act also provides for amendments to the provisions concerning the taxation of transferred profits, changes in withholding tax, and in the scope of so-called indirect offshore transactions, as well as the settlement of losses by tax capital groups and controlled foreign entities. From the perspective of taxpayers, it is therefore worthwhile to familiarize themselves with the new solutions contained in the Polish Deal 3.0 and prepare for the upcoming changes.