The question of opting out of the Zero tax on reinvested profits solution, when voluntarily choosing this form of taxation for 4 years, is questionable. The case has already received a tax interpretation.
Tax interpretation
In a letter dated 22 August 2022, 0111-KDIB1-1.4010.112.2022.1.BS, it was considered that, in principle, the Zero tax on reinvested profits solution is chosen for 4-year periods. The taxpayer may also opt out of this form of taxation at any time, pursuant to art. 28I(1)(1) of the CIT Act. However, the condition is that the resignation must take place at the end of the financial (tax) year.
It is not permissible to opt out of the flat rate during the ongoing financial (tax) year. Art. 28l(1)(1) of the CIT Act, indicated in the interpretation, changed its wording as of 1 January 2022. Currently, it follows from its wording that a taxpayer taxed under flat rate loses the right to this taxation at the end of the tax year of the period referred to in art. 28f(1) or (2) – in the event that the taxpayer submits information on resignation from flat rate taxation.
The legislator removed the word “last” from the provision, which, according to the director of the KIS, is significant. This means that a company can opt out of the Zero tax on reinvested profits solution at the end of any tax year falling within the 4-year period for which this form of taxation is generally chosen. It is only important not to opt out during the ongoing tax year.
The same matter was explained by the Ministry of Finance in the “Guide to the flat rate taxation on company income” of 23 December 2021 where it is stated that: “(…) the new taxation regime, as provided for in art. 28f of the CIT Act, is chosen for 4-year periods. After the end of the 4-year period, if the taxpayer meets the statutory conditions, it may continue to settle under Chapter 6b of the CIT Act in the next 4-year period”.
The taxpayer may also opt out of this form of taxation at any time pursuant to art. 28l(1)(1) of the CIT Act. However, the condition is that the resignation must take place at the end of the financial (tax) year. It is not permissible to opt out of the flat rate during the ongoing financial (tax) year.
The Ministry of Finance sees issues of timing of the Zero tax on reinvested profits solution opt-out differently
Despite the absence of a change in the provisions, the answer provided by the MF on 19 August 2022 to parliamentary interpellation no. 35017 stated that: pursuant to art. 28f(1) of the CIT Act, a taxpayer chooses to be taxed on a flat rate basis for a period of immediately consecutive 4 tax years, which it is obliged to indicate in the ZAW-RD notification.
The period of flat rate taxation on corporate income indicated in the ZAW-RD notice is the minimum period. It may be extended, among other things, as a result of a change in the financial year during the period of taxation on flat rate corporate income as indicated in the ZAW-RD notification, but it may not be shortened.
The above is due to the fact that, in accordance with art. 3(1)(9) of the Accounting Act of 24 September 1994, a financial year is a period of 12 consecutive full calendar months, and in the event of a change of financial year, the first financial year after the change should be longer than 12 consecutive months.
Conclusion
Regardless of the timing of the resignation from the Zero tax on reinvested profits solution, it should be borne in mind that making such a decision will result in the payment of tax on so-called temporary differences – if, of course, they occurred.
This is because, before entering the Zero tax on reinvested profits solution regime, the company is required to make what is known as a pre-adjustment and determine the taxable income therefrom. However, the tax on the so-called differences does not have to be paid if the company will use this form of taxation for a basic minimum period, i.e. 4 consecutive tax years.
The preservation of the 4-year period may also be relevant for companies that had an outstanding tax loss before entering the Zero tax on reinvested profits solution. Indeed, in such a case, it is possible to offset the loss against income earned in the 2 years immediately preceding the entry into the Zero tax on reinvested profits solution. An earlier exit from the Zero tax on reinvested profits solution, i.e. before the expiry of the 4-year period, will entail a refund of previously deducted tax with interest.