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Hidden dividend


The Polish Deal, which came into force on 1.01.2022, was introducing, with effect from the beginning of 2023, a new legal institution – the so-called ‘hidden dividend’ in CIT.-

The regulations in that respect were intended to limit profit distribution from companies taxable with CIT to their shareholders intended, in turn, to reduce the taxpayer’s taxable income by recognising certain payments as costs of revenue in CIT taxable companies.

Excluded from tax costs were to be the benefits where the recipient was a shareholder or entity related, directly or indirectly, with the company or with that shareholder provided that:

1) the amount of such costs or time they were to be made would be dependent in any manner on the company making a profit or a certain amount of profit, or

2) a reasonably prudent person would not have incurred such costs or could have incurred lower costs had a similar benefit been provided by a non-related entity, or

3) such costs were to include remuneration for the right to use assets owned or co-owned by the shareholder or entity related to the shareholder prior to the establishment of the company.

The somewhat ambiguous definition of the expenses which could be deemed as hidden dividend (a very broad scope of expenses) gave rise to concerns that the definition could apply to transfers made to shareholders or related entities in the course of normal business which are economically justified.

On 28 June 2022, the Ministry of Finance published a bill amending the act on corporate income tax and certain other statutes, which, among other intended amendments, sets out to repeal the provisions on hidden dividend.

The statement of reasons for the bill states that considering the postulates made by trade organisations, businesses and experts, as well as the expected adverse effect the provisions in question could have on the operations of capital groups, and, further, given the uncertain economic situation in which business entities doing business in Poland have found themselves due to the war in Ukraine, it would be reasonable to repeal those provisions.

Repealing the regulations imposing additional obligations on CIT payers relating to the need for verifying their expenses in view of the so-called 'hidden dividend' is a step favourable to the taxpayers concerned.


Martyna Przegalińska

Tax Consultant, ATA Tax Sp. z o.o.


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