The Ministry of Finance has proposed regulations allowing for conclusion of an investment agreement (also called a “590 interpretation”) between an investor and a tax authority—an agreement on the tax consequences of a planned or commenced new investment in Poland. It is supposed to constitute a binding opinion for the tax authorities on all tax consequences of the planned investment. Thus the investment agreement should be an effective tool for removing investment barriers in Poland and thus encouraging more investments, including foreign investments. In particular, it will be addressed to foreign entities planning to commence business in Poland, but current taxpayers in Poland will also be able to take advantage of it.
On 14 June 2021, the Ministry of Finance presented the further assumptions of the economic development package called “Polish Deal” (Polski Ład), including the “Tax Restart of the Economy.” One of the proposals is for an investment agreement, a type of tax interpretation issued to investors, also known as a “590 interpretation” (from the bar code denoting Poland).
Then, on 22 June 2021, as part of pre-consultation, the ministry published a draft law amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts, which is to implement the investment agreement.
Currently, to be sure about the tax consequences of a planned investment, it may be necessary to obtain several types of tax interpretations issued by different authorities, as large investments can have consequences in terms of CIT, PIT, VAT, excise tax, property tax, other local taxes, and customs duties. Confirming these consequences may require obtaining binding rate information, binding excise information, an advance tax ruling, an advance pricing agreement, or an individual tax interpretation, which are issued in separate procedures by different authorities.
Nature of the planned investment agreement
An investment agreement is intended to be the sole opinion on the tax implications of a new investment. Indeed, a 590 interpretation will include an individual interpretation as well as the equivalent of binding rate information, binding excise information, an advance tax ruling and an advance pricing agreement.
The investment agreement is to be binding at all times on the investor and the authority with jurisdiction over the agreement and the tax authorities for the tax periods covered by the 590 interpretation.
In addition, if the period between promulgation and effectiveness of provisions affecting the content of the investment agreement is less than 30 days, and the agreement is not amended during that period, the investor’s compliance with the agreement within 30 days after the new provisions become effective will not result in commencement of proceedings for tax crimes or tax offences, proceedings initiated in such cases will be discontinued, and no interest will be charged for late payment.
Addressees of the new regulations
An investor who plans or commences a new investment in the territory of Poland will be able to apply for an investment agreement, regardless of the investor’s tax status in Poland. A group of investors, in particular a consortium, company, branch or representative office formed in connection with the investment, will also be able to apply for conclusion of an investment agreement. Thus, investors who so far have not been taxable in Poland will also be able to apply for an investment agreement.
However, an “investment” should be understood as a new investment within the meaning of Art. 2(1) of the Act on Support for New Investments of 10 May 2018. Thus, the subject matter of the investment agreement may include:
- An investment in tangible fixed assets and intangibles relating to establishment of a new plant, extension of the production capacity of an existing plant, diversification of the output of a plant by introducing products previously not produced at the plant, or a fundamental change in the overall production process of an existing plant, or
- Acquisition of assets belonging to a plant that has closed or would have closed had the acquisition not taken place, where the assets are acquired by a business entity unrelated to the seller, and the mere acquisition of shares in the company is excluded.
The minimum value of such a new investment which may be covered by an investment agreement is to be PLN 50 million (the value of an investment in foreign currency is to be determined at the average exchange rate announced by the National Bank of Poland on the first day of the month of submission of the application for conclusion of an investment agreement).
Application for an investment agreement
An application for a 590 interpretation is to include, at least:
- Data identifying the investor or investors
- Address for electronic delivery, unless the investor has consented to delivery of writings via the tax portal
- Description of the planned or commenced investment
- Declared value of the investment and an explanation of the valuation method
- Proposed duration of the agreement
- Proposed subject matter of the agreement.
The application and accompanying documents may be prepared in Polish or English.
At any time, the investor may amend the application for conclusion of an investment agreement. If the amendment of the application consists in joining of another investor, the amended application will also have to be signed by the existing investors.
It will also be possible to withdraw the application to conclude an investment agreement. Withdrawal of the application by one investor will have no effect on the others.
Negotiation and conclusion of an investment agreement is to take place as part of a special type of tax proceeding. According to the parliament, it is intended to be consensual and informal. To agree on the scope and content of the investment agreement, the authority competent for the agreement will be able to ask the investor to clarify doubts or supplement the application, including by providing a sample of goods or arranging a meeting to work out issues.
Refusal to conclude an investment agreement
The competent authority for the agreement may refuse to conclude an investment agreement, in particular, when the subject matter of the application has previously been considered by the competent tax authority, or at the time of submission of the application is under consideration by such authority. In case of refusal to conclude an investment agreement, the authority competent for the agreement will be obliged to notify the investor and indicate the reason for refusal, with a justification. Refusal to enter into an investment agreement would result in refund of the initial fee within 30 days of the refusal.
Validity and amendment
The duration of the investment agreement is to be decided by the participants in the agreement process. However, the duration of the investment agreement may not exceed 5 fiscal years, provided that it may be extended or shortened by the parties by either a joint voluntary amendment or unilateral voluntary termination (effective as of the first day of the following fiscal year). Renegotiations resulting in changes to the investment agreement will also be possible.
Termination of the investment agreement
The investment agreement will be terminable by either party at any time.
The investor will be able to terminate the investment agreement at any time. If the investor terminates the investment agreement, the agreement will expire as of the first day of the next tax year.
In the matter of the investment agreement, the competent authority will be able to terminate it with effect from the first day of its validity if a material new fact or evidence, existing at the date of the conclusion of the agreement and unknown to the competent authority, comes to light. Before terminating the investment agreement, the authority will be required to request the investor to provide explanations within no less than 7 days or submit to the investor a proposal to amend the agreement with effect from the first day of its validity or another date indicated in the proposal for amendment, and set a deadline no shorter than 30 days to conclude the amendment to the agreement.
If the investor fails to apply the investment agreement in the assessment that transfer pricing in a controlled transaction is set on terms that would be agreed between unrelated parties, the authority competent for the investment agreement will be obliged to terminate it with effect from the first day of its validity.
The authority competent for the investment agreement will also be able to terminate the agreement if it finds that the agreement is incorrect in light of rulings by the Constitutional Tribunal, the Court of Justice of the European Union, or the Supreme Administrative Court.
The investment agreement will terminate by operation of law upon entry into force of provisions of tax law to the extent that the agreement becomes inconsistent with these provisions.
An application for conclusion of an investment agreement is to be subject to an initial fee of PLN 50,000 for each investor submitting the application, payable within 30 days after submitting the application.
The main fee for issuing the agreement is to range between PLN 100,000 and PLN 500,000, depending on the value of the investment and the scope and complexity of the agreement. The amount of the main fee may be negotiable. The main fee should be paid within 30 days after conclusion of the investment agreement, or the agreement will be void. Investors are to be jointly and severally liable for payment of the main fee.
An application for amendment of an investment agreement submitted by an investor is to be subject to an initial fee of PLN 25,000 per investor, and the main fee in an amount specified in the amendment, between PLN 50,000 and PLN 250,000. An application for amendment of an investment agreement consisting in joining a new investor is to be subject only to the initial fee paid by that investor. An application to amend a 590 interpretation is to be subject to neither the initial fee nor the main fee if the amendment results from expiration of the investment agreement by operation of law upon entry into force of provisions of tax law to the extent that the agreement becomes inconsistent with these provisions (subject to submission of an application for amendment within a specified period).
Entry into force of the provisions
The draft provisions regarding the investment agreement are to enter into force on 1 January 2022.
Joanna Prokurat, tax adviser, Tax practice, Wardyński & Partners