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Aneta Majchrowicz-Bączyk

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The thin capitalisation rules play a significant role when an enterprise chooses its financing sources. It is therefore advisable to take a look at the changes which are going to take effect from 1 January 2015, both in the context of the already existing loan agreements and the planned financing of the enterprise. 

What will change in the thin capitalisation rules?

According to the existing thin capitalisation rules, non-tax-deductible is the part of interest paid to the so-called eligible related parties which is calculated on the surplus in the loan value over three times the paid up share capital of the borrower. 

Firstly, the amendments will change the existing thin capitalisation rules. The most significant of them are as follows:

  • the value of debt will need to be compared to the value of owners' equity, and not – as is presently the case – to the value equal to three times the share capital
  • the limitation arising from the thin capitalisation rules will apply to the loans received not only from direct, but also from indirect shareholders;
  • the debt-to-equity ratio will be calculated on the last day of the month preceding the interest payment date, and not – as of today – on the interest payment day.

Secondly, the lawmakers have introduced an alternative to the thin capitalisation rules, namely the taxpayer will have an option to follow either the limitations arising from the thin capitalisation rules or those arising from the newly-added Article 15c CIT Act. 

Article 15c CIT Act introduces two limitations on the tax-deductibility of interest on all loans (and thus not only on loans from eligible related parties). 

Accordingly, only interest not higher than the following can be recognised as tax-deductible costs:

  • the product of the NBP's reference rate (about 2.5%) plus 1.25 percentage point and the tax value of the enterprise's tangible assets; and
  • 50% of the generated operating profit.

Therefore, the limit amount will depend on the value of the enterprise's assets and on it's operating profit. This means that enterprises with assets of significant value, generating even a moderate operating profit, which take out loans only from one related party may find the new limitation less severe (and thus financially more efficient) than the existing or amended thin capitalisation rules.

Important transitional regulations

An important aspect is also the timing of the regulations in question as they will apply only to interest on the loans which are paid out to the taxpayer after 1 January 2015. Loans paid out to taxpayers until 31 December 2014 will be subject to the existing rules. However, there is one very positive exception from the general rule, that is, after 1 January 2015 taxpayers who fulfil certain formal requirements will have the right to desist from following the thin capitalisation rules in their existing version. In return, they will have to respect the limitations imposed under Article 15c CIT Act.  

If you are considering the options for injecting capital to companies we recommend reviewing the sources of financing in consideration of the opportunities and threats arising from the amendments to be made to the thin capitalisation rules. We will be glad to assist you in this regard and provide you with tax advice in Poland on CIT, PIT and VAT issues. Our tax advisers working in Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw will also answer other tax-related questions that you may have.