CFC Legislation and Tax Planning from the Polish Perspective

Wojciech Stiller

Published : 2017-12-30

Vol. 77 No. 6 (2017)

CFC Legislation and Tax Planning from the Polish Perspective

Wojciech Stiller

Abstract

In accordance with the European directive against tax avoidance (ATAD), all Member States of the European Union (EU) have to adopt the legislation tackling controlled foreign companies (CFC) as tax planning vehicles. This EU directive is an outcome of the recommendations worked out in 2015 by the Organisation for Economic Cooperation and Development (OECD) as part of the project addressing tax base erosion and profit shifting (BEPS). Against the background of the "hastily" introduced CFC legislation in Poland, this article investigates the advantageousness of tax planning through a CFC, especially for Polish corporations as shareholders, by comparing the tax burden before and after tax optimisation. Although the corporate income tax (CIT) rate in Poland is relatively low compared to other OECD countries, there is a fiscal risk associated with tax planning in Poland because of a very low tax level in some non-OECD jurisdictions, significantly reduced rates on certain types of income and opportunities for tax deferral. When compared to the OECD recommendations and the ATAD requirements, the Polish CFC legislation has some drawbacks. The thresholds for the exemption of the CFC income (of 50% and 10%) as well as the non-inclusion of shares held by associated enterprises do not fulfil the requirements of the ATAD. Moreover, the benchmark for the low tax should refer to the effective tax burden rather than the statutory tax rate. Nevertheless, the recent tax law amendments in Poland eliminate the aforementioned non-conformities with the ATAD and thus must be viewed positively. Regarding the profit repatriation, the approach for elimination of double taxation remains unclear.(original abstract)

Keywords:

Income tax, Corporate income tax, Optimalization, Taxes, Member states

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Stiller, W. (2017). CFC Legislation and Tax Planning from the Polish Perspective. Zeszyty Naukowe Wyższej Szkoły Bankowej W Poznaniu, 77(6). Retrieved from https://journals.wsb.poznan.pl/index.php/znwsb/article/view/788

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