Structural changes will affect the local minimum income tax

The local minimum income tax payable in 2025 will be calculated for the first time on the basis of the tax results achieved in 2024, and although there is still some time left before this deadline, taxpayers are already checking whether they will be subject to tax on the basis of historical data.

One of the first steps should be to check whether the company can benefit from any entity exemption provided for in the CIT Act. A positive verification will enable the analysis to be completed at an early stage and prevent the involvement of excessive resources, including the most valuable one – time.

Simple ownership structure

A particularly interesting exemption from the minimum tax has been extended to entities with a so-called simple ownership structure.

These include taxpayers whose shareholders, stockholders or partners are exclusively natural persons and the taxpayer itself does not own:

1. directly or indirectly, more than 5%:
   • shares in the capital of another company, or
   • all rights and obligations in a company which is not a legal person,
2. other property rights related to the right to receive a benefit as a founder (founder) or beneficiary of a foundation, trust or other entity or legal relationship of a fiduciary nature.

Even before its entry into force, this provision was modified from its previous wording, which provided for an exclusion only for companies that do not hold any shares in the capital of other companies or all the rights and obligations in a partnership. Although this change should be assessed as favourable for taxpayers with only small minority shareholdings in other companies, some issues still remain unclear.

When will the condition be met?

Taxpayers’ doubts may in particular relate to the period for which the fulfilment of the condition allowing exclusion from the minimum CIT regime should be determined. This doubt is so significant that letters of practice have been issued in this regard.

In the facts of the tax ruling of 26 August 2022, ref. 0111-KDIB1-1.4010.364.2022.1.SG, the partners of the applicant limited joint-stock partnership were natural persons (as shareholders) and a joint-stock company (as general partner).

Following changes in ownership during the fiscal year, an individual became the general partner of the partnership, making the partners of the partnership now exclusively natural persons. The company also planned to convert into a public limited company, which would have resulted in the obligation to close its accounts and at the same time close the tax year. Consequently, its last year of operation as a limited joint-stock partnership would be less than a calendar year.

The company’s question was whether it could benefit from the minimum tax exemption. Although the company had a limited joint-stock partnership for part of the tax year, on the last day of the year the taxpayer’s partners would only be natural persons.

However, the authority took the view that the premise of a simple ownership structure should be met throughout the tax year. In this regard, it is irrelevant that on the last day of the last tax year, the shareholders of the company were exclusively natural persons.

Disposal of shares during the year

However, a taxpayer whose shareholders are exclusively natural persons, even if this structure is maintained for the entire tax year, is not subject to automatic exemption from the minimum CIT. This is because it is also necessary that the company itself does not hold, inter alia, directly or indirectly, more than 5% of the shares in the capital of another company.

As is apparent from the rulings of the ASC, this condition, too, will only be met if the required circumstances last for a full tax year. For example, in the individual interpretation of 30 September 2022, ref. 0111-KDIB2-1.4010.277.2022.1.MK, the authority emphasized that if the applicant (whose shareholders are exclusively natural persons) sells the shares held in other entities during the tax year, it will not be excluded from the minimum tax regime. Indeed, such a state of affairs will not be maintained for the entire tax year.

Although the ruling was made in the legal state prior to the amendment of the provision, in our opinion it will also apply in the current state.

Practical consequences

Taxpayers making a loss or showing a profitability of less than 2% should keep a close eye on the practice of the DKIS in this respect, especially if they are part of a group that is considering a reorganisation. In particular, it is worth bearing in mind that any potential change in the shareholder of a company where an individual is replaced by a legal entity may effectively prevent the application of this exemption.

In such identified situations, it is important to consider whether the expected economic benefit of the modifications at the time will exceed the burden of the minimum tax.