From 1 January 2024, a global minimum tax called also the top-up tax is in force.
The global minimum tax is going to apply to capital groups:
- multinationals (MNEs) earning income in different tax jurisdictions (irrespective of whether the group companies are based in the EU or outside) and
- domestic, whose consolidated revenue in at least two of the last four fiscal years was equal to or higher than EUR 750 million.
The capital group is defined broadly – it also includes one entity if it has branches.
Countries liable to the global minimum tax are not only countries based in the European Union, but also outside the EU. 138 countries and jurisdictions supported the introduction of this tax. In the EU, the global minimum tax is regulated by Council Directive (EU) 2022/2523 dated 14 December 2022.
The Global Minimum Tax will be calculated as the difference between the effective income tax paid in the relevant jurisdiction and the tax calculated using the 15% rate.
The effective tax rate, i.e. the actual share of tax burdens in the group’s income, is to be calculated on the basis of the so-called qualified net income in a given country, and then compared to the rate of 15%.
Key Global Minimum Tax rules
- The top-up tax is to be paid in the country of residence of the parent entity, regardless of whether it will be due from its subsidiaries or from itself. This is the so-called IIR mechanism – Income Inclusion Rule.
- If the jurisdiction of the parent company does not impose a global minimum tax, the top-up tax will be payable in the countries where the group entities are located. This is the so-called UTPR mechanism – Undertaxed Payments Rule.
The EU Directive provides a list of exclusions from the basis for calculating the top-up tax, including due to the possessed economic substance.
Entry into force of the top-up tax
EU countries were required to issue the relevant regulations by the end of 2023. If a country fails to do so, the top-up tax will be payable on the income of tax years starting from 31 December 2024.
Consequences for Polish entities
The Polish legislation on the global minimum tax is at the draft consultation stage and it is already apparent that it is a very complicated regulation, requiring extensive and multifaceted preparation for its implementation.
Although, for the time being, the Polish regulations have not yet entered into force, Polish entities that are subsidiaries in MNEs must already today take into account the fact that due to the entry into force of the global minimum tax in the country of residence of the parent entity (head office) of the group, from 2024 they will be obliged to transfer certain information and financial data used to determine the effective tax rate in Poland.
Tax reliefs and other preferences, e.g. operating in the Special Economic Zone, the Polish Investment Zone, the IP BOX or the 9% CIT rate (e.g. in the renewable energy industry), will have a very significant impact on the amount of the top-up tax.
Head offices (parent entities) of capital groups based in Poland should determine today whether they will be subject to the global minimum tax in Poland or in the countries of subsidiaries, regardless of when the Polish regulations on the top-up tax will be issued.
Since the method of calculating this tax requires the calculation of data that has not usually been established, numerous organizational and competence changes will be necessary in companies, which will prevent arrears and sanctions.
How can we help?
Polish capital groups:
- Assessment if the group will have to pay the global minimum tax.
- Estimation of the amount of this tax.
- Determining the income of which entities in the group will affect the amount of tax and which will not, and whether there are incomes excluded from the top-up tax.
- Assistance in collecting the documentation required to exclude income from the top-up tax, within the criteria available in the law.
- Evaluation of planned or possible reorganization activities, including in particular mergers or divisions in terms of potential qualification as a domestic capital group liable to pay the global minimum tax or determination of group members subject to the top-up tax.
- Diagnosis of the impact of applied reliefs and tax preferences on the amount of the global minimum tax.
- Calculation of the effective tax rate according to the specific rules of the global minimum tax, which is the key value when calculating the amount of tax to be paid.
- Calculation of the global minimum tax payable.
- Verification of the approach to the consolidation of financial results for the purposes of the top-up tax.
- Support in adapting the processes and procedures in force in the organization for the purposes of reporting data that is a component of the calculation of the top-up tax.
- Support in managing the group’s financial liquidity in connection with the need to pay tax by the parent entity.
- Training of staff of financial, tax and legal departments involved in events affecting the amount of the global minimum tax.
Polish subsidiaries in MNEs:
- Determining the income of which Polish entities in the group will affect the amount of the top-up tax and which will not, and whether there are Polish incomes excluded from the top-up tax.
- Support in the preparation of data and information required by the group entity that will calculate and possibly pay the top-up tax, necessary for the reporting process by the head office.
- Determination of the impact of the application of Polish tax reliefs and preferences on the amount of the top-up tax.
- Assistance in collecting the documentation required to exclude the income of Polish entities from the group from the top-up tax, within the criteria available in the law.
- Calculation of the effective tax rate of Polish entities in the MNEs according to the specific rules of the global minimum tax, which is the key value when calculating the amount of tax to be paid.
- Support in managing the group’s financial liquidity in connection with the need to pay tax by the parent entity.
- Training of staff of financial, tax and legal departments involved in events affecting the amount of the global minimum tax.
Feel free to contact us
Monika Dziedzic
Partner | Tax adviser | Attorney at Law
E: monika.dziedzic@mddp.pl
Łukasz Kumkowski
Senior manager | Attorney at Law E: lukasz.kumkowski@mddp.pl T: +48 660 428 394
Agnieszka Walska
Manager E: agnieszka.walska@mddp.pl T: +48 797 603 696