Can tax capital groups be excluded from the minimum income tax?

Among others, tax capital groups (hereinafter: PGK) are subject to the minimum tax if:

(a) incurred a loss in the tax year from a source of income other than capital gains, or

(b) achieved a share of income from a source of income other than capital gains in income from that source of income of no more than 2%.

PGK as a separate CIT taxpayer

Issues related to the formation and registration of a PGK are regulated by Article 1a of the CIT Act. The status of a PGK taxpayer is acquired upon registration of the agreement on the formation of a tax capital group by the head of the tax office competent according to the seat of the parent company.

The minimum tax provisions precisely define the entities that may exempt, which include, inter alia, taxpayers beginning its business . However, the legislator excluded entities established as a result of a transformation, merger or division. Nevertheless, the legislator did not include newly formed tax capital groups in this catalogue.

It is also important to note that the notion of ‘commencement of activity’ is not defined in the CIT Act. Therefore, it is justified to refer in this respect to the interpretation practice of the Director of the National Fiscal Information (hereinafter: DKIS). This authority uniformly considers PGK to be a taxpayer commencing its activity, which was expressed in tax ruling of 21 January 2020[1], and 16 May 2019[2].

As indicated in the tax ruling issued by the DKIS 20 June 2022[3]: The PGK will become a CIT taxpayer as soon as the agreement is registered by decision by the head of the relevant tax office. This taxpayer will not be the successor of any of the Companies forming the PGK, as its legal and tax existence will commence from the date of registration of the agreement on the formation of the PGK by the tax authority.

PGK (not) obliged to pay the minimum tax?

Pursuant to Article 24ca(14)(1) of the CIT Act, the provisions on the minimum tax do not apply to taxpayers in the tax year in which they commence operations and in two consecutive tax years immediately following that year.

Taking into account the above provision and the well-established line of interpretation of the CIT Act, the newly established PGK is a separate, previously non-existent taxpayer, and thus benefits from the exemption from the obligation to pay the minimum tax for three years: in the year of commencement of operations and in two consecutive tax years.

Also, if the PGK is not the result of the occurrence of restructuring events (forms of transformation) specified in Article 19(1a) of the CIT Act, the PGK will benefit from the exemption from the obligation to pay the minimum tax. Such a position was contained in an letter of practice dated 4 January 2024[4].

Conclusions

The decision to establish a PGK should be preceded by a study covering not only the conditions for its establishment, but also the potential consequences of its business. This solution will not work in the situation of every group, hence a number of factors should be analyzed, such as the planned reorganization changes or the intention to use the CIT exemption on the basis of the obtained support decision. It will also be necessary to simulate the tax results of the future PGK in subsequent years.

Nevertheless, for PGKs incurring a loss or achieving a low profitability ratio, taking advantage of the minimum tax exemption may lead to an increase in their efficiency and potential and facilitate the implementation of business strategies. Not having to pay the minimum tax for three tax years is also a significant saving that will allow new PGKs to focus on business development and new investments.

[1] Ref. 0114-KDIP2-1.4010.493.2019.1.MR.

[2] Ref. 0114-KDIP2-2.4010.133.2019.1.AS.

[3] Ref. 0111-KDIB1-2.4010.187.2022.1.AW.

[4] Ref. 0111-KDIB1-2.4010.612.2023.2.END.