International tax law

Tax compliance of existing structures

Entrepreneurs conducting business activity by foreign companies or those using optimization through international structures may be unaware that due to new tax regulations the solutions they use will become ineffective. Legal structures with the use of companies, trusts or foundations that were an effective tax remedy in previous years may not currently play a role in tax optimization. As entrepreneurs, we must constantly analyse existing tools to preserve tax benefits. The knowledge of tax authorities about optimization models and the fight against them is also growing.

It is possible that taxpayer’s existing structure is not the optimal solution. Tax authorities can also considere it as aggressive, which burdenes taxpayer with high risk of control.

Risks

The risk for existing international structures is, among others, the amended provisions on CFC (Controlled Foreign Company). Article 30f of the Personal Income Tax Act and article 24a of the Corporate Income Tax Act include regulations on foreign tax of a controlled entity. Currently, according to the PIT and CIT regulations, the tax on foreign controlled entities is 19% of the tax base. These regulations may turn out to be risky. Especially for foreign companies with at least 33% of their revenues being so-called passive revenues (including dividends, receivables, and loans).

From July 15, 2016, the standards on counteracting tax avoidance (the so-called GAAR clause) came into force. The double taxation avoidance clause allows the tax authority to assess the tax consequences of the taxpayer’s activities without taking into account those activities whose main purpose was to achieve a tax advantage. The provision in article 119a in section IIIA of the Tax Ordinance states that:

An act does not result in a tax advantage if the achievement of such advantage, contrary to the circumstances in question, to the subject or purpose of the tax act or its provision, was the main or one of its main goals, and the method of operation was artificial.

Purpose of tax compliance

The purpose of tax compliance of the existing tax structure is to maximize taxpayer protection against the operation of tax authorities, and to adapt their construction to current tax law regulations, not only Polish but other jurisdictions involved in tax optimization.

CGO Legal specialists will perform a comprehensive analysis of the existing international structure. Then they will present recommendations regarding updates or changes in the optimization structure. It is also possible that the model used by the taxpayer should be withheld. Meanwhile, we can start creating a new optimal way for business development. Our international tax law experts will happily provide support in analysing the operating structure. They will focus on effectiveness and possible tax risk to controlling authorities.

Depending on the business model, we will present optimal solutions for optimization. We will give recommendations or a proposal to adjust the new structure in terms of Polish and international tax law. In cooperation with the offshore department, we will present safer and more effective models of international cooperation between foreign companies and Polish residents.

If You wish to obtain more information please contact us.