The process of establishing these kinds of groups involves two steps. In order to establish a group, an agreement has to be concluded by the companies in the form of a notarial deed for a minimum period of 3 years. The agreement will have to be accepted and registered in the Tax Office. An agreement can only be registered if all the basic conditions which are required for establishing the fiscal group are met.
The Tax Office - registering an agreement - issues an administrative decision and therefore the refusal to register an agreement may be appealed.
Fiscal groups may only be established by companies:
- which have their seat in Poland;
- that have an average share capital of at least 1 million PLN per company.
The following criteria must also be met:
1. The dominant company should have direct 100% ownership of that part of the share capital which:
- is not acquired by persons (employees) authorised by the regulations on the privatisation of state enterprises; and
- which is not a state reserve in accordance with the regulations on the privatisation of state enterprises.
2. Subordinate companies are not be able to possess shares in the share capital of the dominant company or in the other subordinate companies in the group.
3. None of the companies which create the fiscal group are allowed to be partners or shareholders of other companies with the exception of being shareholders of listed companies.
4. Registered share capital must be fully paid.
Moreover, the companies which intend to establish a fiscal group:
1. can not benefit from the corporate income tax exemptions upon regulations other than the Legal Person's Income Tax Act;
2. can not be exempted from VAT on the basis of Article 14 of the Goods and Services (VAT) Act;
3. can not have any outstanding State or tax obligations;
4. can not be subject to transfer pricing provisions as defined in article 11 of the Legal Person's Income Tax Act;
5. can not expand the group to include other companies during the period for which the group has been established in the agreement.
Companies which establish a group are obliged to invest at least 50% of the group's income (after taxation) in each tax year, however not less than 20% of the sum of the income of all the profitable companies from the group.
All companies establishing a fiscal group are jointly responsible for the groups corporate tax liabilities during the period of the contract's validity. One company should be chosen to be the group's taxpayer.
Any income earned by the group in a tax year is subject to income tax at the 40% rate. The income of the group for taxation purposes will be the surplus of the total amount of revenues over the total revenue earning costs achieved during the tax year. If the total revenue earning costs exceed the aggregated amount of the group companies revenues, the difference will constitute a tax loss which may be carried forward for use by the group.
Companies' losses incurred before the establishment of a fiscal group will not be carried forward to set off against the revenue of the group.
A fiscal group will be disregarded for tax purposes in the case of any event happening during the validity of the term of the group agreement which breaches the conditions imposed on the companies forming the group or the group itself.
Once the group is dissolved for tax purposes, the tax liability of each company from the group is calculated retrospectively taking into consideration each company's individual results as if they were not group members.
The tax paid by the groups is then accounted for against the tax calculated for each company from the group. If there is still outstanding tax to be paid, it is due together with penalty interest calculated separately for each month for which the results will have been reassessed.
The following concessions are to be granted to the group as far as other regulations of the corporate tax are concerned:
1. Transactions between the group members are not subject to transfer pricing regulations for corporate income tax purposes.
2. Donations and subsidies made by group members to each other are regarded as tax deductible costs for the companies making the donations and taxable income for the recipient.
3. No withholding tax is imposed on the dividends paid by the subordinate companies to the dominant company.
We should like to point out that to date no fiscal groups have been registered in Poland. The government is currently reviewing the more restrictive provisions with the aim of encouraging the establishment of Polish fiscal groups. As yet, no amendments to the current legislation have been agreed upon, but they might include:
- allowing companies in a fiscal group to be shareholders of other companies,
- in the case of losing group status, having to account for corporate tax and penalty interest on the same basis as with outstanding tax liabilities.
- some reduction in the obligation to invest at least 50% of the groups income after taxation each year.
Tax laws and practise are constantly being revised and, whilst every effort is made to ensure that the information in this tax newsletter is accurate and timely, no decision should be taken on the basis of the information herein without first consulting with KPMG Polska.
Should you have any questions in relation to the above issues, please contact:
Oliver Sinton
KPMG Polska
LIM Center - Marriott Hotel - IX floor
Al. Jerozolimskie 65/79
00-697 Warsaw, Poland
Tel: +48 (22) 630 7236
Fax: +48 (22) 8300 796
This information was correct as of 14 October 1996.
