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Mathematics to the rescue of lawyers. IP BOX relief – eligible employee remuneration costs and overall working time. Warsaw, May 23, 2024

In a recently issued judgment, the Supreme Administrative Court (NSA) dealt with the concept of general working time. It is essential in determining what part of employees’ remuneration may constitute an eligible cost for the purposes of the IP BOX relief.

Cash PIT method.  The government published a draft act amending the Personal Income Tax Act and the Act on flat-rate income tax on certain income earned by natural persons. Warsaw, May 21, 2024

The Cash PIT (Personal Income Tax) method is a newly introduced settlement method aimed at small business entrepreneurs. It allows for the determination of income generation dates from business activities and the deduction of income-related costs upon settling receivables. Here’s a comprehensive overview of how this method works and its implications for eligible taxpayers.

Liability of a management board member as a third party – the very formal requirements. Warsaw, May 21, 2024

Transferring tax liability for the tax obligations of a limited liability company to a third party requires that tax authorities meet a number of procedural requirements. It might seem that the very fact of the existence of arrears and the lack of grounds for exoneration premises decides the case to the detriment of the former management board member.

Appeal against the ZUS decision.Warsaw, March 13, 2024

The authorities (i.e. ZUS) are of the opinion that no formal (procedural) objections can be raised against the decisions they issue, but only substantive ones. Formal allegations will only be admissible in exceptional situations.

The basis for such a view is, among others, the judgment of the Supreme Court of January 14, 2010, ref. no. I UK 252/09).

In this judgment, the Supreme Court stated that “Court proceedings, including cases in the field of social security law, focus on defects resulting from violations of substantive law, and the issue of defects in administrative decisions caused by violation of the provisions of administrative procedure remains, in principle, outside the subject of these proceedings.” . The social security court – as a common court – can and should only notice formal defects of an administrative decision that disqualify it to the extent that it deprives it of the characteristics of an administrative act as the subject of an appeal. However, such a defect is determined only for the purposes of civil proceedings and with consequences for these proceedings only. In cases of other defects listed in Art. 156 § 1 of the Code of Administrative Procedure and in the provisions referred to in Art. 156 § 1 point 7 of the Code of Administrative Procedure, it is necessary to initiate appropriate administrative proceedings in order to declare the decision invalid and eliminate it from legal transactions.” (judgment of the Supreme Court of January 14, 2010, reference number I UK 252/09).

Due to the content of art. 47714 § 21 of the Code of Civil Procedure, which has been in force since November 7, 2019 (art. 47714 § 21 added by Article 1 point 169 of the Act of July 4, 2019 amending this Act as of November 7, 2019) this view should be considered obsolete. Pursuant to art. 47714 § 21 of the Code of Civil Procedure, “if a decision imposing an obligation on the insured person, determining the amount of this obligation or reducing the benefit was issued in gross violation of the provisions on proceedings before the pension authority, the court shall repeal this decision and refer the case for reconsideration to the pension authority.”

Moreover, the provision of Art. 83 section 2 of the Act of 13 October 1998 on the social security system clearly states that “the decision of the ZUS may be appealed against to the competent court within the time limit and in accordance with the principles set out in the provisions of the Code of Civil Procedure.”  It means that in the process of considering an appeal, the provisions of the Code of Civil Procedure should also apply, including Art. 47714 § 21 of the Code of Civil Procedure, as well.

As stated by the District Court in Gliwice, “pursuant to Art. 47714 § 21 of the Code of Civil Procedure if the decision imposing an obligation on the insured person, determining the amount of this obligation or reducing the benefit was issued in gross violation of the provisions on proceedings before the pension authority, the court repeals this decision and refers the case for reconsideration. The above provision was added by Art. 1 point 169 of the Act of July 4, 2019 amending the Act – Code of Civil Procedure and certain other acts (Journal of Laws, item 1469, as amended) amending the Act as of November 7, 2019 and allows for examination by the insurance court already at the stage of proceedings before the court of first instance, not only defects resulting from violations of substantive law, but also procedural law. As the justification for the 2019 draft [legislation] shows, regardless of whether these defects concern the form or content of the decisions, their common feature is that they violate the provisions on proceedings before the pension authority to such an extent that their validation is impossible (judgment of the District Court in Gliwice of March 9, 2021, ref. no. VIII U 193/21, LEX no. 3217322). Therefore, the view expressed by the ZUS authorities should be considered erroneous.

Indicating procedural objections in the appeal regarding the proceedings pending before the authorities (i.e. ZUS) is also justified by the content of the standard contained in Art. 83 section 6 of the Act of 13 October 1998 on the social security system. This provision states that “if the ZUS finds the appeal justified, it shall amend or repeal the decision immediately, no later than within 30 days from the date of lodging the appeal. In this case, the appeal will not proceed any further.”

Thanks to the possibility for the authorities to become acquainted with the errors and violations of law committed by them, they have the opportunity to take advantage of the regulations resulting from the above-mentioned Art. 83 section 6 instead of involving the time and resources of common courts. Moreover, accepting the authorities’ view that procedural objections regarding the proceedings before them cannot be raised in an appeal would mean that each authority could commit various shortcomings and violate the rights of the appellant, as long as the formal content of the decision was correct. This, in turn, would lead to the conclusion that it would be unnecessary to conduct any proceedings that would meet even the basic standards of a fair procedure. Such a view cannot be considered rational and correct.

In extreme cases, considering the authorities’ view as valid, one could come to the conclusion that the shortcomings committed by them at the stage of administrative proceedings would be of no importance. As long as a decision is made. As a result, one might get the impression that, in the opinion of the authorities, common courts should replace them and conduct the entire proceedings themselves.

Bernard Łukomski
Legal Counsel
Tax Advisor
tel. +48 608 093 541 / WhatsApp+48 692 802 229

Anticipating the Fiscal Landscape of 2024: Limited Tax Adjustments Expected

In recent times, the commencement of each new year has often heralded a barrage of tax law modifications, with new regulations swiftly introduced and taking effect in a short span after their announcement. The initial weeks of the year were typically dedicated to scrutinizing extensive guides and summaries of these changes, with businesses and tax professionals grappling to comprehend and adapt to the evolving regulatory landscape.

A Departure from the Norm in 2024

Contrary to this pattern, the dawn of 2024 brings about a departure from the norm. The year unfolds with a noticeable reduction in the volume of tax law amendments. Entrepreneurs and tax practitioners are not thrust into the customary routine of delving into copious guides and dissecting changing regulations. While there may not be a sweeping revolution in tax law comparable to initiatives like the Polish Deal (Polski Ład), the challenges for businesses in the coming year are by no means trivial.

National e-Invoicing System Takes Center Stage

A pivotal moment on the horizon is the implementation of the National e-Invoice System in July. Companies are tasked with the imperative of constructing, adjusting, and integrating their accounting systems to facilitate the issuance and transmission of invoices under the KSeF framework. This undertaking extends beyond mere adjustments to accounting systems, necessitating updates to invoicing processes, procedures, contracts, and ancillary documents. Entrepreneurs and tax professionals bear the brunt of this substantial workload in preparation for the imminent shift.

Quality Concerns Surrounding Tax Legislation

As 2024 unfolds, a new government and leadership in the Ministry of Finance instill a sense of optimism. The absence of proclamations heralding a tax system revolution engenders hope for heightened stability and predictability. This shift is particularly significant given the tumultuous preceding years marked by erratic and superfluous changes, which posed obstacles to sound business decision-making. Businesses are optimistic that the new leadership will prioritize the rights and interests of entrepreneurs, fostering a more inclusive debate on business needs and expectations. The anticipated legislative measures should aim at creating an environment conducive to business development, moving beyond a mere focus on maximizing the tax burden.

Navigating the Agenda

The credibility of these commitments will be subjected to scrutiny during deliberations on crucial business-related issues. Topics such as the restructuring of health insurance premium payment systems for entrepreneurs and the reversion to lump-sum contributions, along with the collaborative development of new definitions for property taxation purposes, will test the government’s resolve. The existing definition of structures, deemed unconstitutional by the Constitutional Tribunal, is set to expire at the end of the year. Equally pivotal will be the enactment of legislation aligning with the EU directive on the global minimum tax for corporations, impacting larger companies.

A Time for Strategic Evaluation

As we step into 2024, it should serve as an occasion for contemplation on rectifying flawed tax legislation, eliminating unnecessary ambiguities, and streamlining onerous reporting and procedural requirements. The overarching objective should be refinement rather than revolution in the tax system, addressing pertinent changes without disrupting the overall fiscal landscape.

The duty to enable the restoration of a deadline arising from the provisions of material tax law – the normative and axiological context of law and court judgments. Warsaw, January 10, 2024.

In the case of our client, the administrative court confirmed that the restoration of deadlines in tax law is not only permissible but even obligatory. It appears to be one of the most important judgments issued by Polish administrative courts in recent times.

According to the court in tax proceedings regarding the correctness of a taxpayer’s use of a 6-month deadline to report the acquisition of property or property rights to the competent head of the tax office, the tax authority is obliged – if a failure to meet the deadline for submission is identified – to enable the taxpayer to restore the deadline.

The basis for such a claim is Article 15zzzzzn[2] of the Act of March 2, 2020, on special solutions related to preventing, combating, and combating COVID-19, other infectious diseases, and crises caused by them.

According to the court, in the event of a taxpayer’s failure during the state of epidemic declared due to COVID-19 in the period of performing actions shaping his rights and obligations, this provision imposes an obligation on the tax authority to:

  • inform the taxpayer about this failure, and additionally
  • designate a 30-day period for the taxpayer to submit a request for the restoration of the deadline.

This means that the tax authority has a normative obligation to enable the taxpayer to apply for the restoration of the deadline ex officio. Usually, the taxpayer (party to the proceedings) must independently initiate the appropriate procedure to take advantage of the possibility of restoring the deadline. This time, however, it is the opposite.

The state of epidemic was declared on March 20, 2020, and revoked on May 16, 2022. If the state of epidemic occurred during the expiration of the deadline for a particular taxpayer resulting from Article 4a(1)(1) of the Inheritance and Gift Tax Act, then the aforementioned Article 15zzzzzn[2] of the Act of March 2, 2020, will apply. This provision also applies in the situation of a failure to meet deadlines arising from tax law. Based on this, it can be assumed that the possibility of restoring the deadline in the above manner also applies to other cases regulated by other tax laws.

The court pointed out that the interpretation conducted in the resolution of the Supreme Administrative Court under file no. I FPS 2/22 does not concern the above, especially since its reasoning stated that “when the legislator used the phrase ‘provided for by provisions of administrative law,’ understanding this provision in a way that puts the taxpayer at a disadvantage is inadmissible.” Therefore, both the normative and axiological context of the aforementioned resolution should be taken into account. Based on this, it can be assumed that the possibility of restoring the deadline in the above manner also applies to other cases regulated by other tax laws.

Bernard Łukomski
Legal Counsel
Tax Advisor
tel. +48608093541
WhatsApp +48 692 802 229

Polish Local Minimum Income Tax

Minimum Corporate Income Tax

Starting January 1, 2024, the provisions for the minimum corporate income tax will be reinstated.

The 10% minimum tax will be applicable to companies with Polish tax residency and domestic tax capital groups under specific conditions within the tax year:

  • Incurring a loss from a source of income other than capital gains, or
  • Achieving less than 2% of profit concerning non-capital gains income from a source other than capital gains to the respective profit.

Special rules are outlined in tax regulations for determining the loss concerning minimum tax, implying that an accounting loss doesn’t automatically result in minimum taxation.

It’s crucial to note that tax simulations conducted a few years back might not align with the rules changed from January 1, 2023. With this amendment, the calculation methods for loss and profitability levels have been revised, and the range of entities exempted from minimum taxation has expanded.

For taxpayers operating with a tax year different from the calendar year, the minimum tax provisions will come into effect from the tax year starting after December 31, 2023.

Tax Base

The tax base, in essence, amounts to 1.5% of income from operational activities, considering exclusions and deductions, with a critical emphasis on accurately identifying related parties and their transactions.

Which Entities are Affected?

The minimum tax may impact companies in sectors facing low profitability or temporary losses, such as:

  • HORECA
  • Transport
  • Real estate
  • Manufacturing
  • Processing
  • Wholesale and retail trade

Whether a loss or profit below 2% adheres to the arm’s length principle is inconsequential.

Tax Lawyer in Warsaw

If you’re seeking a tax lawyer in Warsaw, our law firm is well-equipped to assist. Poland’s tax landscape is constantly evolving, especially concerning both local and cross-border regulations, posing significant challenges for businesses and individuals alike. Lately, tax authorities have ramped up investigations, increasing their complexity and frequency, signaling a continued enforcement trend.

Navigating this requires a multi-faceted approach and precise tax adjustments to optimize effectiveness. At Bernard Łukomski’s firm, we possess comprehensive expertise in national and international tax laws. We offer counsel on personal and corporate income taxes, VAT, excise duty, transfer tax, stamp duty, real estate tax, tax disputes, social security, and fiscal criminal law.

Our services extend to managing tax control and litigation cases, encompassing challenges to tax liability decisions and interactions with tax authorities, administrative courts, and the Supreme Administrative Court. Getting sound tax advice not only minimizes transaction costs but also averts severe penalties and repercussions.

Email / Tel

bernard.lukomski@kpbl.pl

+48 608 093 541 (Mobile)

+48 692 802 229 (WhatsApp)

Transfer tax: changes in purchase of real properties

As of August 31, 2023, there is no longer a transfer tax (abbreviated as PCC in Polish) on the purchase of a first home on the second-hand housing market. Typically, the transfer tax for civil law transactions is 2 percent of the real property price, and in the case of a sales contract, it is paid by the buyer. This relief now exempts the purchase of a second-hand home from this transfer tax.

Under the new regulations, the acquisition of the following is also exempt from transfer tax:

The ownership of a separate flat

The ownership of a single-family residential building

The cooperative member’s ownership of a residential property, either a flat or a single-family residential building.

These new regulations apply exclusively to individuals who did not previously possess the aforementioned rights, or had a share in these rights that was 50 percent or less, unless it was inherited.

Changes for Investors:

Starting from January 1, 2024, there will be changes for individuals investing in real property. Specifically, the tax rate on a contract for the sale of the sixth flat (or subsequent flats) in the same building(s), or an interest in such a flat, with the same buyer, will be 6 percent. This applies when the buyer:

Acquires at least six flats that are separate real properties in one or more buildings on the same land, subject to VAT, or shares in such flats

Has already purchased at least five such flats or shares in them.

Consequently, the purchase of the sixth flat (and each subsequent one) will incur a double tax – both VAT and a transfer tax of 6 percent.

Real Estate And Construction Law

Our services encompass a wide range of real estate transactions and legal matters, including:

  • Assisting investors in buying and selling real estate properties.
  • Providing representation for landlords and tenants in lease agreements, as well as sale-and-lease back transactions.
  • Representing developers in both commercial and residential projects.
  • Arranging and overseeing due diligence reviews.
  • Advocating for clients in proceedings to secure permits and administrative decisions during the construction process.
  • Offering guidance in structuring and financing documents for diverse investment projects.
  • Advising on and defending against restitution claims.
  • Providing counsel on the corporate aspects of all transactions.
  • Offering expertise in construction issues, both contentious and non-contentious, along with matters related to land use, planning, permitting, and environmental concerns.
  • Crafting and negotiating various agreements and documentation essential for the investment or construction process.

PEPP – pan-European Personal Pension Product

The pan-European Personal Pension Product, known as PEPP, officially became law on September 26, 2023. PEPP is a European pension plan designed to offer supplementary income in addition to both the state pension and its associated support structures.

Who is Eligible?

Any individual residing within the EU can take advantage of PEPP, regardless of their employment status. This includes individuals who are unemployed, on maternity leave, or currently enrolled as students. Participation is voluntary, allowing anyone to join and contribute funds, up to an annual limit set at three times the average monthly salary in the national economy per year.

Portability Across the Union

PEPP is portable across the entire European Union. This means that individuals who change their place of residence within the EU can continue to contribute to the PEPP account they originally opened in their previous country of residence. Simultaneously, these individuals retain all the benefits associated with ongoing investments in the same product. It’s important to note that only one saver can accumulate savings in a PEPP account, preventing the option of opening a joint PEPP sub-account, such as for spouses.

PEPP Providers

PEPP will be offered in all EU member countries by financial entities authorized to create and distribute PEPPs. These providers may include institutions such as credit entities, insurance firms, pension companies, and investment firms. Any provider wishing to offer a PEPP must undergo a registration process. Once registered, the product can be made available and distributed throughout the EU.

Tax Advantages

PEPP savers will be exempt from personal income tax under specific conditions. This exemption is available to those who:

Do not withdraw their accumulated savings until they reach the age of 60.

Become eligible for retirement, are at least 55 years old, and have been PEPP savers for a minimum of five years.

Have contributed more than half the value of their PEPP contributions no later than five years before their withdrawal request.

Tax Lawyer – Poland

The law firm of Bernard Łukomski has in-depth knowledge and expertise in national and international tax laws and we advise our clients in all aspects of personal and corporate income taxes, VAT, excise duty, transfer tax, stamp duty, real estate tax, tax disputes, social security, and fiscal criminal law. We can help you to manage tax control cases in addition to managing tax litigation cases including challenging tax liability decisions and dealing with tax authorities, tax administrative courts and the Supreme Administrative Court. Receiving the correct tax advice often reduces transaction costs and can avert serious penalties and consequences.

Artificial Intelligence and the Law

The surge in interest surrounding the implementation of artificial intelligence (AI) solutions to enhance efficiency and gain a competitive edge is the latest trend. However, concerns about legal compliance, particularly in light of pending EU regulations addressing AI, are of utmost importance.

Artificial Intelligence Regulatory Landscape

Currently, there exists no universally applicable legislation imposing specific obligations related to AI. However, this is expected to change in the near future. The finalization of the core act, known as the “Artificial Intelligence Act,” which establishes standardized rules on AI, is scheduled for later this year. The Commission, Parliament, and Council are currently engaged in negotiations to determine the final wording of this act. It will primarily impose obligations on both AI system providers and entities using AI systems under their control.

The Artificial Intelligence Act aims to establish a legal framework for the development and deployment of AI systems within the EU. Its primary objective is to ensure that AI technologies are employed in a manner that is transparent, accountable, and respects fundamental rights and values.

Common Concerns about Artificial Intelligence

In addition to regulations specific to AI, it is crucial to analyse AI usage within the framework of existing legislation. Frequently raised questions include:

  • Determining ownership rights over AI-generated outputs (completions) and establishing usage protocols, including the consequences of integrating such outputs with the client’s proprietary solutions.
  • Allocating liability for intellectual property infringements resulting from the use of AI solutions and completions/materials generated by generative AI (e.g., identifying the entity responsible for copyright claims when third-party materials were used in training models).
  • Addressing potential access by the AI system provider to data inputted into the model, particularly during content analysis and filtering to ensure proper usage.
  • Utilising client data for further training of the provider’s models.
  • Ensuring compliance with GDPR, especially in terms of upholding data subject rights and implementing requirements related to automated data processing (including profiling), as well as addressing issues of inaccurate personal data generated by AI solutions.

Solutions to these concerns can primarily be found within the contract with the AI system provider and technical documentation detailing data flow or service configuration options.

Furthermore, evaluating necessary adjustments within the client’s organisational structure is crucial to ensure lawful AI usage and mitigate solution-specific risks (e.g., over-reliance on AI systems or potential misinterpretations by AI solutions). These efforts often involve formulating appropriate usage policies for AI, updating data protection documentation, and implementing protocols for human oversight of AI-generated content.

When identifying legal risks and their solutions, it is worth remembering that there are considerable differences not only between different versions of AI solutions but – most importantly – between AI service providers, especially regarding the ways in which they regulate the above issues in their contracts or in the architecture of their services. The situation in this area is often very dynamic – for example, recently Microsoft published the Microsoft Copilot Copyright Commitment which states that, starting October 1st, Microsoft will extend existing contractual liability rules for intellectual property infringement with regard to commercial Copilot services and Bing Chat Enterprise. As a result of the above, Microsoft will defend the customer and pay any amounts awarded in adverse judgments/settlements in the event that the client is sued by a third party for infringement of intellectual property rights through the use of Copilot services or the generated responses (excluding trademarks). To benefit from the above, it is necessary to use the protections and content filters built into the services by Microsoft and not to use the services intentionally to create infringing materials. The obligation to defend against claims related to the use of AI-generated content by AI systems is undoubtedly an important change in the approach to the client, and may facilitate any decision regarding using AI.

Implementing AI is already possible Despite many valid points regarding the risks of using AI, what is common for new technologies, it should not be assumed, without further analysis, that implementing such systems in an organization is currently not possible, particularly given the still-ongoing work on the AI Act. The regulations which are in force in Poland do not generally prohibit the use of such solutions. However, it is important to approach this topic thoroughly, including by properly defining the rights and obligations of the user and the AI solution provider, defining the ways in which AI solutions can be used in the organization as well as adjusting internal procedures. Many entities are already using this technology in their daily work, showing many interesting applications of AI (e.g. efficient document review, performing summaries and analysis of large amounts of text) and how many further benefits it can bring.