Poland tax alert
Uncertain tax position regarding taxation of capital gains at the Warsaw Stock Exchange
Published October 2012
Until recently, as a general rule, capital gains earned at the Warsaw Stock Exchange (WSE) in Poland by foreign investors were in practice taxed only in their country of residence. Also, Polish tax authorities did not show particular interest in these transactions.
As a consequence, most non-resident investors trading in securities in Poland did not register for taxes and did not pay income tax in Poland.
Recent change in approach
It is now certain that this approach has changed. Recently, the tax authorities started an investigation via all major brokerage houses in Poland, requesting lists of transactions performed at the WSE by non-resident investors, including dates, values of securities traded and details of investors. The authorities require not only data from the period 2007 until August 2012, but also ongoing monthly reporting from September 2012 onwards.
This investigation will most likely result in tax investigations for those foreign investors who failed to register for taxes and pay the tax.
Who may be affected?
The new standpoint of the authorities creates a tax risk primarily for:
- Non-resident entities earning capital gains by trading in securities on the Warsaw Stock Exchange who are not protected by relevant Double Tax Treaty signed by Poland and their country of residence
- Non-resident entities making profits on other financial transactions in Poland who are not treaty-protected
What may be the consequences?
For those investors who fail to prove that they benefit from Double Tax Treaty protection (i.e. are taxed exclusively in their country of residence), tax arrears will be assessed together with penalty interest. In order to benefit from a given Double Tax Treaty, Polish tax authorities require a certificate of tax residence of a given entity, issued by relevant foreign tax office.
For legal persons, the tax rate is 19% and tax penalty interest rate for the past years fluctuated in the region 10% - 15% per annum. Tax years open to audit are currently 2006-2012.
Additionally, failure to register and pay the tax is a criminal offence penalized by Polish Fiscal Penal Code. Therefore persons responsible for the tax settlements of a given entity may be subject to. This may include fines as well as imprisonment in extreme cases. In practice, if a given non-resident investor persistently fails to pay the taxes, a European Arrest Warrant may be issued in order to arrest responsible personnel, valid throughout the EU.
How Deloitte can help?
Deloitte offers comprehensive support to entities influenced by the recent changes in the tax authorities’ practice. Our assistance includes:
- Tax advice regarding liability to tax in Poland for the investors
- Full assistance in the tax registration process
- Calculation of tax, preparation of returns and explanatory letters, aimed at minimizing penalty tax interest
- Preparation of explanatory letters (so-called active repentance letter) necessary to eliminate potential personal liability of investors’ tax officers
- Deregistration (if advisable)
Based on successfully completed proceedings, Deloitte has the required know-how to perform the whole process smoothly. This includes direct contact with the tax authorities’ representatives, which will enable you to speed up the proceedings and complete these seamlessly.
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