Thin capitalization – new rules as from 1.1.2015

According to the recently passed amendment to the CIT Act (which is to come into force as from 1.1.2015), the rules with regard to thin capitalization will be extensively modified.

These changes would affect the limit of the interests, being treated as tax-deductible:
- The limit would concern the directly related entities, as well as those, which are indirectly related;
- The ratio would be based on the equity (excluding revaluation reserve and some other items), not only on the share capital.
- The threshold ratio value has been changed to “1: 1” (previously: “1:3”)
- The ratio should be calculated as at the end of the month preceding the month of payment. (previously: the date of interests’ payment)

The taxpayers will be given a possibility to apply the alternative method, considering all the loans/bank loans received (not just those granted by the related entities). As a result, the higher the debt is (irrespective of who provides for the financing), the less the tax-deductible expenses are .

Under the alternative method the limit would be calculated as follows:
(R + 1,25 p.p.) x A,

R – NBP (Polish Central Bank) reference rate as at the at the recent year-end;
A – The tax value (tax base) of the assets, excluding intangible assets, as at the year-end (as a general rule the tax value of the assets, e.g. the trade receivables, would be equal to their book value).

The deduction may not exceed 50% of the operating profit (except for some financial institutions).

As a general rule this scheme should be opted for no later than at the end of the first month of the tax year, at least for the next 3 years.

This method may be preferred by the companies, taking advantage of the intra-group financing, especially if the loans are granted in foreign currencies (subject to lower interest rates than these in PLN).