Up Again Poland: Government Relief and Tax

Restructuring

1. Legislative changes: are there any additional processes or support which have been introduced as a response to the pandemic which I may not have considered previously?

Consult your legal and financial advisor to find out whether any of the proposed state financial support measures can be used by your company. The Anti-Crisis Shield offers some liquidity guarantees, and the Financial Shield offers some convenient liquidity support or liquidity financing you can use to avoid insolvency.  

The support for enterprises facing financial difficulties due to COVID-19 provided by the Anti-Crisis Shield is constantly subject to amendments and additions.

One of the planned measures – which has not been introduced yet – is a simplified restructuring procedure, which might be useful to avoid bankruptcy proceedings.

2. Is there anything else I should look out for?

Consider the restructuring measures offered by the Restructuring Law and file for the start of restructuring proceedings instead of filing for bankruptcy.

If a company is insolvent or threatened with insolvency and unable to satisfy all of its creditors, the directors cannot repay or satisfy only some of them to the detriment of the others. The selective satisfaction of creditors when a company is threatened with insolvency is an offence under Polish law.

Tax

3. What is the position with respect to the applicability of emergency tax measures , including

a. what they are and apply to;

b. when they are expected to be phased out on or following a return to business; and

c. whether any transitional periods are likely to apply.

Emergency tax measures are reliefs applied to reduce the impact of the COVID-19 pandemic on business activities. They include different types of reliefs available during the state of the pandemic or during a limited time period thereafter:

  • Postponement of the deadline for the payment of tax or social security contributions, payment in instalments of tax or social security contributions, and annulment of tax arrears or social security contributions: these reliefs are available without any time limits, but the extension fee normally charged with respect to those reliefs is abolished only during the period of the epidemic emergency or epidemic or within 30 days following its abolishment.
  • Full or partial exemption from social security contributions for certain payers (with no more than 49 people registered with the social insurance institution, ZUS) is available in respect of contributions due for March, April and May 2020 and must be claimed by 30 June 2020.
  • Extension of the deadline for employers to make advance payments on account of income tax on salaries and on consideration for personal services concerns tax collected for March and April 2020: these advances must be paid by 1 June 2020.
  • The exemption from the obligation to pay penalty interest on overdue social security contributions is available only regarding contributions for 2020.
  • Extension of the deadline for the payment of minimum tax on commercial properties is available for the months of March, April and May 2020: tax must be paid by 20 July 2020.
  • The income tax regulations concerning bad debts in relation to debtors do not apply when calculating income tax advances during 2020.

4. Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of

a. payment obligations (and therefore likely pressure on cash flow); and/or

b. filing of returns?

Apart from the deadlines mentioned above, the following deadlines concerning postponed tax obligations should be observed:

  • Deadlines to prepare, audit, approve and publish financial statements have been extended by three months.
  • Corporate income tax payers whose tax year ended between 1 December 2019 and 31 January 2020 should file their annual corporate income tax return (CIT-8) and pay the outstanding balance of CIT by 31 May 2020.
  • Personal income tax payers should file their annual personal income tax returns and pay the outstanding balance of PIT by 31 May 2020.
  • Information on tax schemes should be reported according to the mandatory reporting rules by 31 June 2020.
  • New electronic VAT files (JPK_VAT7M/K) should be prepared starting from 1 July 2020 (however, this deadline may be further extended).
  • Taxpayers whose fiscal year is different than a calendar year should prepare local transfer pricing documentation, submit a statement on the preparation of that documentation, and file a TPR report (transfer pricing information) by 30 September 2020.

5. Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?

There are no formal restrictions regarding reorganisations for entities that benefited from tax or social security reliefs in relation to COVID-19. Before implementing a reorganisation, however, consider the potential impact on reliefs you have applied for (e.g. succession rules).

6. Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?

Donations to hospitals for infectious diseases, the Agency of Material Reserves, and the Central Base of Sanitary and Anti-Epidemic Reserves for purposes of preventing or counteracting the epidemic are deductible from the income tax base:

  • For donations made before 30 April 2020, 200% of the value of the donation was deductible.
  • For donations made in May 2020, 150% of the value of the donation is deductible.
  • For donations made from 1 June 2020 to 30 September 2020, 100% of the value of the donation is deductible.

There is also a 0% VAT rate applicable to medical devices, laboratory glass and equipment, medicinal products and active substances, and selected biocidal products and personal protective equipment donated to hospitals for infectious diseases, the Agency of Material Reserves, and the Central Base of Sanitary and Anti-Epidemic Reserves. The preferential rate will apply until 31 August 2020.

0% VAT applies also to laptops and tablets donated to certain educational institutions before 30 June 2020.

Immediate depreciation is possible for assets acquired to produce goods used to counteract COVID-19 and entered in the register of fixed assets and intangible assets in 2020.

7. Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?

Most of the reliefs are available to entities and businesses from all sectors of the economy. Nevertheless, the tax and social security authorities are trying to grant reliefs to the sectors most affected by COVID-19 by applying the most simplified procedures available.

8. Which taxes might be increased to address the financial burden caused by the crisis, for example,

a. are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth)

b. measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (“BEPS 2.0”)

For some time now there have been discussions about implementing a digital services tax in Poland. The COVID-19 crisis has caused an increased interest and renewed these discussions.

According to the bill recently passed by the Polish Parliament, an entity providing on-demand audio-visual media services will be obliged to pay a fee to the Polish Film Institute equal to 1.5% of the revenue obtained from fees for access to publicly available on-demand audio-visual media services or the revenue obtained from the broadcast of commercials, if this revenue is higher in a given accounting period.

The calculation of the fee will take into account the revenue generated in Poland. The new law will come into force on 1 July 2020.

9. Are there other actions that ought to be considered by businesses in your country e.g.

a. revisit past tax filings to claim carry back of losses;

b. revise or update preliminary tax assessments;

c. claim bad debt relief for VAT output tax

Other actions to consider include filing a correction of the tax return for 2019 to offset up to PLN5 million of the loss for 2020 against the 2019 income (provided that revenues in 2020 will fall by at least 50% compared to 2019).

Finance

10. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?

Cashflow is critical, especially if your existing income and trade has been significantly disrupted by COVID-19.

There is no specific financial support dedicated to cover financial requirements related to returning to business. However, the Anti-Crisis Shield and the Financial Shield help support liquidity among enterprises, helping them bridge coronavirus disruption to their cashflows through loans, guarantees and other means, including non-repayable loans or grants. This support can also be used to finance returning to business.

11. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?

If the borrower's indebtedness and other circumstances have changed due to COVID-19, the borrower will need to renegotiate the financial covenants and amend the facility agreement or get a waiver from the lender to avoid being in default.

12. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?

The government has announced several support packages (Anti-Crisis Shield and Financial Shield) to help enterprises manage the disruptions to their business caused by COVID-19. The support includes access to loans, guarantees and other means, including non-repayable loans or grants. This support can also be used to improve the financial position of enterprises.

The Association of Polish Banks (ZBP) has presented relief measures to be taken by banks regarding their clients (individuals and enterprises) that have, or will have, problems in paying their liabilities to their banks in connection with COVID-19.

These relief measures, possibly simplified and less formal, include:

  • facility holidays;
  • renewal of credit lines;
  • deferred repayment of lease instalments;
  • deferred payments under factoring agreement;
  • non-charging of fees and commissions for the acceptance and consideration of applications; and
  • facilitated access to short-term facilities for companies.

Moreover, banks will provide their clients (enterprises) with access to a short-term facility for the purpose of stabilising the financial situation of those affected by the COVID-19 pandemic.

13. What practicalities do you need to consider in relation to audit requirements?

Companies should monitor the current and potential effects that COVID-19 may have on disclosures. For example, if companies anticipate reporting or filing delays due to travel restrictions, they should contact their legal and financial advisors to discuss the details.

14. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?

The process depends on the terms of the given loan documentation. Some changes to the loan documentation can be permanent (e.g. if the borrower asks to reschedule the debt to make the repayment dates achievable).

If the borrower's circumstances have changed in a more temporary way, the borrower will not need a permanent amendment to the facility agreement, but rather a short-term waiver from the lender to avoid it being in default.

15. Dealing with creditors, including amendments and waivers – Bonds

a. If I can’t comply with the terms of my bond covenants who do I need to notify?

The breach of a covenant can trigger a technical default. Therefore, the specific notification obligations and consequences of a breach of covenant should be analysed on a case-by-case basis. Generally, breach of bond covenants should be notified to the issuer agent.

b. If I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?

Not all breaches are treated equally, as their severity may vary and require different types of actions. For breaches that are not severe, a waiver will generally be granted after the debtor has notified the issuer agent and requested a waiver.

c. What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?

A bondholders' meeting can be convened by the issuer on the date specified in the terms and conditions of the bonds, at the directors own initiative or at the request of a bondholder or bondholders representing at least 10% of the total par value of bonds in a given series. The process of holding a bondholders’ meeting is regulated in the Polish Bond Act of 15 January 2015.

16. Is the availability of any return to business funding or relief either (a) conditioned on the use of proceeds for green or social purposes or (b) linked to sustainability-related outcomes? If so, what are the applicable purposes or outcomes?

There is no specific return-to-business funding that is conditional on the use of proceeds for green or social purposes or linked to sustainability.