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New banking tax

On 1 February 2016, the Act on the Tax on Certain Financial Institutions came into force, introducing a “banking tax” and giving rise to multiple differences of opinion in the Polish banking and insurance sectors.

Entities affected by the new tax

The financial institutions that will be subject to the new banking tax may be divided into three groups, based on tax-free asset thresholds, as set out below:

1)    Domestic banks, branches of foreign banks, branches of credit institutions, and savings and loan associations, for which the threshold is PLN 4 billion (about EUR 906 million at the EUR/PLN exchange rate of PLN 4.4136 = EUR 1 on 12 February 2016)

2)    Domestic insurance companies, domestic reinsurance undertakings, branches and main branches of foreign insurance companies and foreign reinsurance undertakings, with the threshold of PLN 2 billion (about EUR 453 million)

3)    Lending institutions, with the threshold of PLN 200 million (about EUR 45 million).

State-owned banks, currently the National Bank of Poland and Bank Gospodarstwa Krajowego, are exempt from the new tax. Moreover, taxpayers may expect complete exemptions in some specific situations, such as when taking part in a recovery programme, or if covered by a recovery plan. Exemptions will also apply to banks, insurance companies and reinsurance undertakings for which the Polish Financial Supervision Authority has issued a decision on their liquidation.

Subject of taxation and tax base

The new banking tax applies to the assets of the taxpayers of the new tax (the financial institutions above). The tax base is the total value of the taxpayer’s assets over and above the tax-free threshold (PLN 4 billion, PLN 2 billion or PLN 200 million, depending on the category). The asset value will be determined by the trial balance from the general ledger for the last day of the month. The taxation base may be reduced, among other things, by the value of own funds and treasury securities (both reductions apply to taxpayers in the first group), and, in relation to domestic banks and branches of foreign banks and credit institutions, the value of assets they have acquired from the National Bank of Poland as security for a refinancing facility granted by NBP.

Tax rate

The tax rate is 0.0366% of the tax base monthly, which implies an additional tax burden of almost 0.44% annually on the taxed assets. The new banking tax should start shoring up the state’s finances in March 2016. At first glance less than half a percent may not seem high, but in nominal terms it will yield significant amounts. An explanatory memorandum to the bill noted that the estimated revenues from this tax in 2016 would be PLN 6.5–7.0 billion (about EUR 1.47–1.59 billion). It must be stressed that the new fiscal burden is not deductible, and therefore its impact on the profit of banks and other financial institutions will be felt more strongly by the financial sector. According to the most sceptical forecasts, the banking tax will completely absorb the net profit of the least profitable banks, while slightly more optimistic ones estimate that the net profit of banks most affected by the new tax will be reduced by around 80%, assuming that the new fiscal burdens are not passed on to the banks’ clients.

Protection of existing borrowers

When considering the Act on the Tax on Certain Financial Institutions, Art. 14 of the act must be taken into account. This article states that the new tax cannot affect the terms of providing financial and insurance services under contracts concluded before entry into force of the act. This provision should guarantee current customers of financial institutions that the new banking tax will not affect their existing contracts and associated fees. In this respect, banks may risk charges of violating the law or, in more sophisticated attempts to pass on the new tax, circumventing the law. However, the effectiveness of this clause is open to doubt, because the act fails to provide any legal instruments for monitoring taxpayers’ compliance with it. The ban itself gives rise to many questions of interpretation, as some loan agreements concluded before the act’s entry into force contain general provisions (e.g. increased costs incurred due to the introduction or amendment of laws or regulations) under which lenders could attempt to pass on the new levy to borrowers. Currently, the lower house of the Polish Parliament is making every effort to discourage banks from passing on the new tax to clients by increasing margins or fees.

With only 15 articles, the new act is brief, but it may have a major impact on the banking and insurance sectors as well as the entire economy.

Dagmara Michalska, Patrycja Polasz, Banking & Finance Practice, Wardyński & Partners