What are the simplifications provided for in the Polish draft Act on global minimum tax and how to apply them?

Thanks to the de minimis exclusion, the global top-up tax (or domestic top-up tax) is not computed for constituent entities located in a given jurisdiction, if:

• the three-year average qualifying revenue of all constituent entities located in that jurisdiction is less than EUR 10 million;
• the three-year average jurisdictional qualifying income of all constituent entities located in that jurisdiction is less than EUR 1 million or the average jurisdictional qualifying loss of all such entities has been incurred.

It is worth noting that if in the first or second year preceding the fiscal year (or in both of these years) no constituent entity located in a given jurisdiction has generated qualifying revenue or qualifying income (loss), then this particular fiscal year (or fiscal years) is excluded from the calculation of the three-year average qualifying revenue or three-year average qualifying income (loss).

Importantly, the de minimis exclusion cannot be applied to investment entities and stateless constituent entities, and the revenue and jurisdictional qualifying net income (loss) of these entities are excluded from the calculation.

The application of the safe harbour provisions provided for QDMTT allows taxpayers to avoid calculating the global minimum top-up tax for entities from a selected jurisdiction other than Poland, if:

• all constituent entities located in that jurisdiction for which the taxpayer of the global top-up tax would compute the effective tax rate are subject to taxation with a qualified domestic minimum top-up tax and this tax is payable in full;
• this jurisdiction has been indicated as meeting the OECD requirements for safe harbours of this type.

Based on the selection of the qualifying group entity, it may – for the purposes of calculating the profit surplus, de minimis exclusion or effective tax rate – adopt simplifications in relation to the constituent entity achieving financial results of low materiality that allow to:

• determine qualifying income in an amount equal to the revenue of that entity, subject to disclosure in the information on the group of entities;
• determine qualifying revenue in an amount equal to the revenue of that entity, subject to disclosure in the information on the group of entities;
• determine adjusted covered taxes in the amount of income tax, subject to disclosure in the information on the group of entities.

A constituent entity achieving financial results of low materiality means a constituent entity together with its permanent establishments that:

• is not included in the consolidated, externally audited financial statements prepared by the ultimate parent entity due to its small size or immateriality;
• has total revenues that, within the meaning of the CBCR regulations, exceed EUR 50 million and whose books used to prepare information about the group of entities are kept in compliance with an acceptable accounting standard or an approved accounting standard.

In the event of a temporary safe harbour for CBCR, no global top-up taxes, domestic top-up taxes or top-up taxes on under-taxed profits are calculated, which are due only for the tax period 2024-2026, if at least one of the three tests is met:

• de minimis test – confirming that the revenues generated are below a certain threshold (EUR 10 million of revenue, EUR 1 million of income), 
• effective tax rate test – confirming that the effective tax rate, calculated according to simplified rules, should be 15% in 2023 and 2024; 16% in 2025 and 17% in 2026,
• routine profits test – confirming that the realised profit is (before tax) equal to or less than the payroll and tangible assets amount.

This safe harbour is mainly aimed at allowing taxpayers to use data based on the CBCR regulations to perform three simplified tests in relation to top-up taxation.

The global top-up tax does not have to be computed by a multinational whose ultimate parent company is located in Poland for a period no longer than the first five fiscal years of the group's operations - provided that these two conditions are met for the year in question:

• the group’s constituent entities are located in no more than six jurisdictions,
• the total net book value of tangible assets of all constituent entities of the group is less than EUR 50 million.

Importantly, the five-year period is counted starting from the fiscal year in which the multinational first met the conditions for being subject to global top-up tax.

If the group is willing to take advantage of this exclusion, it must also fulfil administrative obligations, i.e. report the commencement of the initial period of activity to the relevant head of the tax office. In such a case, in order to take advantage of the exemption from global top-up tax in the initial period of business activity, the taxpayer must submit the relevant document by the end of the fifteenth month following the end of the fiscal year. 

Constituent entities of multinational groups located in Poland do not compute domestic top-up tax or top-up tax on undertaxed profits for the first five fiscal years of the initial period of the group’s operation, if the following two conditions are met, in an uninterrupted manner, over the course of this period:

• the constituent entities are located in no more than six jurisdictions,
• the total net book value of tangible assets of all constituent entities of the group fails to exceed EUR 50 million.

Domestic groups, on the other hand, do not compute the domestic top-up tax for the first five fiscal years, counting from the first day of the fiscal year in which the domestic group became subject to the global top-up regulations.