Fiscal year in the Polish minimum tax

As a rule, the tax year for minimum tax is the calendar year. The legislation also allows taxpayers to amend this period depending on the decision expressed, inter alia, in the company’s articles of association. However, even in this situation, the tax year generally comprises twelve consecutive calendar months. In certain circumstances, this period may be shorter or longer.

The determination of the time frame of the tax year affects the timely fulfilment of the obligations provided for in tax law, including those regulated in the CIT Act.

It becomes particularly significant if the taxpayer may apply the preferences provided by the legislator, including exclusions from the Polish minimum tax. In order to exclude a taxpayer from minimum tax, it is sometimes necessary to compare tax results from as many as three tax years preceding a given tax year. Hence, it is extremely important to correctly identify not only the relevant data, but also the period from which to obtain it.

What if the previous tax year is shorter?

In the ruling issued by the Polish Tax Authority [PTA] dated 20 June 2024[1], the company indicated that in 2023 its tax year coincided with the calendar year. However, due to the decision to switch to flat taxation on corporate income (Estonian CIT) from 1 March 2024, the taxpayer closed its tax books as early as February and, consequently, its next tax year lasted only from January to February 2024. During this period, the company incurred loss. However, its revenue was 30% lower than in the previous tax year and, therefore, it considered whether, despite the shortened previous tax year, it could benefit from the exclusion from minimum CIT.

Significantly, there were no other conditions in the case that could exclude the application of the minimum tax provisions. Indeed, the taxpayer has not just been starting a business, nor was it a small taxpayer and its partners were not exclusively natural persons. Neither could it be said to be excluded from the system of this tax due to its participation in a group that achieved a profitability rate of at least 2% (with the fulfilment of additional conditions).

In the authority’s view, the taxpayer, by achieving 30% less revenue in January-February 2024 than in the previous tax year (covering a full calendar year), met the condition entitling him to benefit from the exclusion from the minimum tax. By doing so, the PTA confirmed that, in justified circumstances, a taxpayer, when examining the premise of the exclusion, may accept comparative data for a year that is not equal to 12 months.

The exclusion from minimum tax will also cover the year prior to the amended legislation

In a similar vein, the PTA interpreted the condition of achieving a profitability ratio of at least 2% in one of the three tax years immediately preceding the tax year for which the minimum income tax is due, which may also exclude the taxpayer from being subject to this tax.

According to the facts of the ruling of 22 July 2024[2], the tax capital group [TCG] plans to change its tax year running from December to the end of November of the following year. The TCG’s new tax year will be aligned with the calendar year. Consequently, the first tax year after the change will last 13 months, i.e. from 1 December 2024 to 31 December 2025. The change will extend the TCG’s period of operation by one month (until 31 December 2026).

In analysing the possibility of exclusion from the minimum CIT, TCG determined that, for the tax year running from 1 December 2022 to 30 November 2023, the share of its income from a source of revenue other than capital gains in revenue from the same source exceeded 2%.

However, the exclusion provision did not enter into force until 1 January 2023, i.e. during the tax year in which TCG achieved the required profitability ratio, which caused it to doubt whether the regulation applies in this case.

In justifying the aforementioned ruling, the authority agreed with the TCG that the condition should be considered fulfilled in the case under consideration, regardless of the fact that the tax data that allowed it dates from before the commented exemption came into force.

Once again, therefore, the tax authorities confirmed that, when examining the prerequisites for exclusion from the minimum tax, one should be guided by a linguistic interpretation and use data from the tax years explicitly stated in the legislation.

[1] Ref. 0111-KDIB1-1.4010.189.2024.2.AW.

[2] Ref. 0114-KDIP2-2.4010.247.2024.1.ASK.