Poland’s minimum income tax and the tobacco and air charter industries

Poland’s minimum income tax[1] may be particularly burdensome for the tobacco industry and international aircraft charter companies. What does this mean for entrepreneurs?

The tobacco industry will not pay the minimum income tax

For calculating the loss or level of profitability, no account shall be taken of revenue and tax-deductible costs directly or indirectly related to such revenue respectively earned or incurred in connection with a transaction, if the price or the manner of determining the price of the subject of the transaction results from the provisions of laws or normative acts issued on their basis.

Thus, it may be concluded that tobacco products constitute goods referred to in article 24ca(2)(2)(a) of the CIT Act, as the manner of determining their price in turnover, including by the taxpayer, results directly from the provisions of the Excise Duty Act and the Act on Health Protection against the Consequences of the Use of Tobacco and Tobacco Products.

Therefore, the turnover carried out in the trade of tobacco products is not considered in the national minimum income tax.

The Director of the National Fiscal Information [hereinafter: the Director of NFI], in a tax ruling of 27 June 2024[2], confirmed the possibility of excluding the obligation to apply the provisions on the minimum income tax in the case of retail sales of tobacco products, the price of which is regulated by the provisions of the Excise Duty Act.

According to the facts, the company operates through retail shops across the country. Due to the nature of the business, the shops mainly offer tobacco products, newspapers, books, tickets, sweets, beverages and prepaid cards. The sale of cigarettes and tobacco takes place in specialised outlets.

The director of NFI agreed with the tax payer’s position, holding that both a linguistic and purposive interpretation of article 24ca(1)(2) of the CIT Act should be applied. This provision was introduced to exempt from the obligation to pay the minimum income tax entities that cannot freely shape the prices of their goods or services.

If the revenue of a tobacco trading company exceeds 50% of its revenue other than from capital gains, the company is not required to pay the minimum income tax. Moreover, it is not obliged to verify the conditions for the application of this tax at all.

What about companies in the aviation industry?

Pursuant to article 24ca(14)(5)(a) of the CIT Act, the provision of article 24ca(1) of the CIT Act requiring taxpayers to pay the minimum income tax does not apply if, in the tax year, the majority of their income other than from capital gains was earned in connection with the operation in international transport of seagoing vessels or aircraft.

A condition for this exemption to apply is that in the tax year in question, most of the taxpayer’s income is derived from the operation of charter services on international routes. This means that if a company operates mainly in international markets, providing air transport services (for example, between countries), it can benefit from the minimum income tax exemption.

The above was confirmed in an individual interpretation of 30 August 2023[3], where the Director of NFI held that a company operating in the aviation industry and specializing in chartering private aircraft as an air carrier may not pay the national minimum income tax.

It was held that the company’s income from charters should be treated as earned in connection with the operation of aircraft in international transport, and if it constitutes more than half of the income from sources other than capital gains in a given tax year, the company is not required to pay the minimum income tax.

Summary

The minimum income tax provisions in article 24ca of the CIT Act, create challenges for various industries, including the tobacco sector and international aircraft charter companies. For mixed businesses, it is necessary to identify costs and revenues for a specific type of turnover (e.g. tobacco trading). This is required because the correct exclusion of specific revenues and costs may allow the exclusion of the obligation to pay the minimum income tax.

However, as the quoted rulings indicate, it is extremely important to carefully analyze the provisions and apply them in the context of the specifics of the business.

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[1] art. 24ca of the CIT Act

[2] ref. 0114-KDIP2-2.4010.226.2024.1.AS

[3] ref. 0111-KDIB2-1.4010.225.2023.1.AR