There is lot of fuss currently in the legal and business media about implementing exit tax in Poland. It is the right moment to break here down, what is the source of this new tax (with somehow sinister name) and to whom this tax will apply.
The idea of exit taxation comes from OECD initiative focused on enhancing collecting taxes among member states called Base Erosion and Profit Shifting (BEPS). This agenda included various proposals aimed at enhancing and improving members tax legislation to become more effective in collecting taxes, mostly by preventing and supressing aggressive tax optimization.
On the base of these proposals on 16th July 2016 Council of European Union adopted Anti-Tax Avoidance Directive (ATAD, Directive 2016/1164/EU) that laid down a package of Anti-Tax Avoidance rules to be implemented by members, in most cases, by 1st January 2019. Rules covering Exit Taxation, however, can be implemented into the national legal systems of member states a bit later, by 1 of January 2020.
Leaving aside other rules imposed by the directive, let’s have a look at exit taxation.
Firstly, the Directive is addressed only to corporate entities, it is entities being legal persons and paying corporate tax, so it should not affect individual tax payers and their mobility.
Furthermore, exit tax was designed to address the situation, when the corporate entity has accumulated some income untaxed yet (with capital gains tax) and by transferring its assets, principal office or permanent establishment to other EU state or third country would avoid taxation of this income with capital gains tax.
Having then in mind these above mentioned features of the new public burden, exit tax should be applicable to rather limited situations, but the tricky story with implementation of this part of the ATAD is that, the whole implementation process is going be carried out in great hurry in order to come into force on 1st January 2019 (at least, that is intention of Polish Ministry of Finance) and the government – according to press rumours – is going to impose exit tax on individual persons, as well.
Numerous tax experts expressed significant concerns about speed and quality of legislation process and alleged scope of implementation. Among many comments they voiced – very reasonable in my opinion – were those stressing that in Polish tax system there are already various instruments like anti abusive clause, CFC or transfer pricing rules enabling prevention of such “tax migration”. The unwanted and unexpected result of improperly and in hurry executed implementation of ATAD can strike back Polish economy and business as mobility on global market is one of the most important factors for global business.
Finally, more and more corporations with domestic capital are active players on foreign markets. What they need as fresh air is a lot of flexibility in operating abroad in order to protect and increase their capital to be able to compete against their global rivals. Hence, implementation of exit tax should be done carefully and with due consultation process.
Last but not least, EU Authorities for sure will be verifying new provisions carefully to be sure that ongoing implementation will not violate EU foundations: Four Freedoms.
It is crucial for local and international business present on Polish market to keep an eye on this matter. So far the official draft law was not published. OG Legal team will follow on this.
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Mec. Paweł Osiński Partner Zarządzający, Prawnik