Shifted Income Tax (Shifted Profits Tax)

What is the Shifted Income Tax?

The Shifted Income Tax is a 19% levy aimed at additionally taxing selected tax-deductible costs listed in the statutory catalogue where such costs are incurred to a related foreign entity and, taken together, the statutory conditions indicate income shifting to a preferential tax jurisdiction.

The tax is settled in the annual CIT return.
The rate is 19% of the tax base, which, as a rule, equals the total amount of shifted income in a given tax year.

Which payments (costs) may be included in the tax base?

(catalogue of passive costs)

In particular, the following categories may be included:

• selected intangible services (e.g. advisory, market research, advertising, management and control, data processing, insurance, guarantees and sureties, and similar services),
• fees and royalties for the use of, or the right to use, rights or intangible assets (IP),
• costs of transferring the risk of a debtor’s insolvency (including certain instruments),
• debt financing costs (in particular interest, fees, commissions, premiums, the interest portion of lease instalments, late-payment penalties and costs of collateral/security),
• remuneration for the transfer of functions, assets or risks (e.g. exit fees).

Key areas requiring verification

1. The 3% threshold (safe harbour)

Where the total passive costs incurred to related entities do not exceed 3% of total tax-deductible costs, the tax does not apply as a rule.

2. Criteria assessed if the threshold is exceeded

If the 3% threshold is exceeded, the application of the tax depends on the characteristics of the payment recipient, in particular:

• whether its income/revenue from passive items is subject to low effective taxation (e.g. below 14.25%) or benefits from an exemption/exclusion (taking into account detailed statutory rules),
• whether at least 50% of the recipient’s revenue from catalogue items originates (in total) from the Polish taxpayer and other Polish taxpayers,
• whether the recipient transfers at least 10% of such revenue further (in any form, including through costs or profit distribution).

3. Exclusion – genuine business activity (EU/EEA)

The regulations provide for a material exclusion where the recipient:

• is subject to taxation on its worldwide income in the EU/EEA, and
• carries out substantial genuine business activity there.

When assessing genuine business activity, factors considered include the existence of an enterprise (premises, personnel, equipment), decision-making autonomy, assumption of economic risks and the revenue structure.

How we can help

Our tax advisory team can support the verification of potential exposure to the Shifted Income Tax, including through:

• an extended books/GL review (account-by-account) to identify catalogue costs under Article 24aa(3), allocate them to recipients, confirm recognition periods and assess the 3% threshold,
• verification of payment recipients against the criteria relevant for the Polish CIT taxpayer (relatedness, tax residence, tax regime, effective tax rate, revenue structure and any onward 10% transfer),
• coordination with group entities and collection of supporting data and representations (e.g. for the 50%/10% tests, tax information, confirmations of onward distribution and genuine business activity),
• an opinion on substantial genuine business activity of EU/EEA recipients, together with forward-looking recommendations.

Please note: This material is of a general nature. Each case requires an individual analysis of the specific business model, documentation and data of the payment recipients.

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