Contrary to the claims of the Ministry of Finance, in most of the countries analyzed in Europe, limited partnerships (or similar ones) are tax-transparent companies.

The taxation of limited partnerships in other European countries is not related to the intensified fight against tax avoidance in recent years.

Most rationally operating companies will change the form of conducting business to a form that ensures the current level of taxation and foreign companies will pay the same as before.

The state budget will not gain much, Polish entrepreneurs busy fighting for survival in the times of the pandemic will lose

– according to the report by CRIDO, ZPP and InfoCredit “Taxation of limited partnerships in Europe”.

The authors of the report looked at the taxation of limited partnerships in 16 European countries. In most of the countries analyzed, limited partnerships are tax-transparent (not taxed with CIT). They include: Austria, Denmark, Finland, Ireland, Malta, Germany, Sweden and the United Kingdom.

In other countries, CIT taxation of a limited partnership results from the historically adopted legal system. Importantly, none of the countries analysed introduced taxation of limited partnerships in the last 5 years. This indicates that in none of these countries taxation of limited partnerships is related to the intensified fight against tax avoidance in recent years.

Among the limited partnerships subject to taxation, in France and the Czech Republic, income attributable to the general partner is still not subject to taxation at the level of the limited partnership (contrary to the assumptions of the Polish amendment). In none of the countries analysed are there any differences in the taxation of partners due to the degree of connections between them (i.e. limited partners holding shares in the company that is the general partner).

Polish small family businesses will pay more than their counterparts in Germany

In the event of the introduction of double taxation of limited partnerships in Poland, compared to the conditions of functioning of limited partnerships in Germany, the situation of Polish small family companies generating annual income not exceeding approx. PLN 230,000 will significantly deteriorate. Despite the use of the preferential 9% CIT rate by Polish SPK, the level of taxation of Polish partners will be higher than the analogous taxation of partners of German limited partnerships despite their being subject to progressive taxation.

This situation will affect at least 13 thousand limited partnerships in Poland.

The state budget will not gain much

Due to EU regulations and international law, CIT taxation of limited partnerships will not threaten the competitive position of such companies with foreign capital in Poland. They will continue to pay tax at the same level (i.e. 19%). On the other hand, Polish entrepreneurs, wanting to maintain their competitive position, will choose an alternative form of conducting business activity. Some of them will transform into a general partnership or a professional partnership. In this way, they will be forced to sacrifice their own safety and that of their families in order to maintain the current level of taxation and competitiveness. Others (mainly larger entities) will conduct business through a limited liability company based on holding structures. As a result, the effect on the state budget will be minimal, because while protecting their competitive position, Polish companies will save themselves by changing their structure.

The structure of companies in Poland and Germany

In the years 2010-2019, the number of new companies in Poland grew rapidly. The largest number (176.7 thousand) were limited liability companies, which in 2019 constituted 83% of all companies in Poland. There are as many as 429.1 thousand of them compared to 40.6 thousand limited partnerships, which constitute only 7% of all companies in Poland. In Germany, this percentage is more than twice as high and amounts to 15%. Despite the significant increase in the number of limited partnerships in recent years, if only due to the reduction of business risk for entrepreneurs, we are far behind our western neighbor in this respect.

– We see other alternative solutions that could help achieve the goal of reducing the risk of untaxed transfer of limited partnership income abroad, e.g. by imposing on the limited partnership the obligations of a payer. In such a situation, a limited partnership with foreign partners – acting as a payer – would be obliged to pay tax on the limited partnership income to the Polish office. Such an alternative scenario would protect Polish entrepreneurs from increased taxation while maintaining their competitive position in relation to foreign entities – comments Mateusz Stańczyk, partner in the tax advisory team at CRIDO.

– The fact that limited partnerships are not used for the purposes of international tax optimization was already proven by a report published at the beginning of October. This was later confirmed by the response of the Ministry of Finance to the request for information submitted by the ZPP on this matter public. The latest report also indicates that, in general, limited partnerships are rather transparent tax-wise in Europe. The opposite regulations, i.e. those covering CIT limited partnerships, are the result of a historically adopted approach rather than intensified actions to tighten the system. It turns out, therefore, that the arguments used by the Ministry of Finance in the justification for the draft act are not based on reality. The only effect of taxing CIT limited partnerships will be a deterioration of the competitive position of Polish entrepreneurs, who will be burdened to a greater extent than their foreign counterparts – says Jakub Bińkowski, director of the Department of Law and Legislation at the ZPP.

– Entrepreneurs conducting business in the form of limited partnerships are very concerned about the tax changes. All the more so because the economic situation has weakened and their costs, related to, for example, switching to a safe mode of work and investing in new communication technologies, are growing. We are collecting their opinions in the form of a survey until the end of this month. The response is considerable. The first responses started to arrive 10 minutes after sending the questions – says Jerzy Wonka, Development Director at InfoCredit.

About the report

The report refers to entities that qualify as limited partnerships or are comparable to them (i.e. companies in which there are partners with different status in terms of economic liability – general partners and limited partners). The regulations in 17 countries were analyzed, including 16 European countries (Austria, Belgium, Croatia, Czech Republic, Denmark, Finland, France, Greece, the Netherlands, Ireland, Malta, Germany, Romania, Sweden, Hungary, Great Britain) and Israel. The joint report was prepared on the basis of information obtained from the Taxand network and the InfoCredit database and publicly available data, including the Central Statistical Office.

The analysis is a continuation of the first report on the taxation of limited partnerships prepared by Crido in cooperation with InfoCredit and ZPP.