Dr. Janusz Fiszer The new Polish CFC Regulation

 No CFC (up to December 31, 2014)  New CFC Regulation passed on June 26, 2014 and entered into force on January 1, 2015  Effective application of the new CFC regime to such controlled foreign corporations, whose new fiscal year commences on March 1, 2015 or later. The new Polish CFC Regulation

The new CFC regulations define a “foreign corporation” very widely as a legal person, a corporation in organization, organizational body without legal personality or a partnership without legal personality – all of them without seat or place of management within the territory of Poland, in which the Polish taxpayer (corporate or individual) has a share in capital, voting rights or a right to participate in profits. The new Polish CFC Regulation

The new CFC regulations define a “controlled foreign corporation” also quite widely as: (i) a foreign corporation with seat or place of management in a jurisdiction put on a “Polish black-list”, announced by the Ministry of Finance in April 2013, which currently includes 37 countries and territories; or (ii) a foreign corporation with seat or place of management in a jurisdiction other than the ones referred to above, but with which Poland did not conclude an international treaty, in particular a DTT or the European Union did not conclude an international treaty, constituting a basis for receiving a tax information from tax authorities of such a country; or (iii) a most important category, namely a foreign corporation, which jointly meets the following three criteria. The new Polish CFC Regulation

 a Polish resident taxpayer owns, directly or indirectly, for an uninterrupted period of at least 30 days, at least - 25% of the capital, or 25% of the voting rights, or 25% of shares involving participation in profits; and  at least 50% of the revenues of such a corporation in a fiscal year comes from passive items, i.e. dividends or other participation in profits of legal persons, capital gains, receivables, interest or loans or guarantees of any kind, as well as from royalties, IP rights, including revenues from alienation of such rights or alienation of or other proceeds from financial instruments; and  at least one of the income categories referred to in item b), received by the foreign corporation, is subject, in the country of the seat or place of management of such a foreign corporation, to a tax which is lower by at least 25% then the 19% income tax rate applicable in Poland, i.e. lower than 14.25%, or is income tax- exempt or falls outside of the scope of income taxation – except for the dividends which are tax-exempt under the UE Parent-Subsidiary Directive. The new Polish CFC Regulation

Possible solutions to avoid the CFC issue: * Decrease shareholding to less than 25% * Keeping passive income below 50% * Keeping revenues below EUR 250,000 * Find a jurisdiction with the CIT rate higher than 14.25% * Discretionary Trust * Private Family Foundation * Change of tax residence … The new Polish CFC Regulation