Changes in cash transport from 2023. The withdrawal of the provisions on the so-called hidden dividend

The Ministry of Finance has drawn up a draft comprehensive amendment to corporate income tax. This project presupposes, among other things, the repeal of the provisions on the so-called hidden dividend, which would come into effect on January 1, 2023.

Corporate Tax Changes

On June 28, 2022, the Government Legislation Center published a bill on: amendment of the corporate tax law and certain other laws (print number UD404). The bill provides, among other things:

  • delaying the entry into force of the minimum income tax provisions (2022) while simultaneously amending the current tax structure,
  • repeal the provisions on “hidden dividends”,
  • changing the regulations on foreign controlled entities (CFCs),
  • amending the provisions on taxation with tax on deferred income,
  • amendment of the provisions on withholding tax (WHT),
  • changes in the settlement of debt financing costs in tax costs,
  • the relaxation of the conditions to benefit from the exemption by a Polish holding company,
  • clarification of the provisions on flat-rate taxation on business income.

Hidden Dividends Excluded from Tax Costs

One of the assumed changes is: withdrawal provisions on the so-called hidden dividend† It concerns the provisions of art. 16 sec. 1 point 15b and sec. 1d-e CIT, which would enter into force on 1 January 2023. by virtue of the Act of 29 October 2021 amending the Personal Income Tax Act, the Corporate Income Tax Act and some other acts (Journal of Laws, item 2105, as amended).

As a rule dReturns paid to partners are subject to CIT tax as tax on earnings earned and CIT or PIT tax as capital gains or cash income. Distribution of profits and distribution of dividends are also not tax-deductible costs for the company. Therefore partners companies often get the current compensation on the company’s profits from other titles, which in principle constitute tax-deductible expenses, e.g. services provided by family businesses related to partners.

Introduction of regulations generating artificial tax-deductible expenses in the form of the payment of the so-called “Hidden dividend” aimed at countering the situation where the distribution of profits to partners takes place in a way that reduces the taxpayer’s income by including a specific distribution in tax-deductible expenses.

According to art. 16 sec. 1 point 15b of CIT are not considered tax-deductible expenses costs incurred by a taxpayer who is a company in connection with a service provided by an entity affiliated with that company or a partner of that company, if the incurring of these costs constitutes a hidden dividend.

The above costs would be a hidden dividend if:

1) the amount of these costs or the date on which they were incurred in any way depends on the profit made or the amount of such profit made by the taxpayer, or

2) a rationally operating taxpayer would not incur such costs or could bear lower costs if a comparable service had been provided by an entity unrelated to the taxpayer, or

3) these costs include a fee for the right to use the assets that were owned or co-owned by the partner or an entity affiliated with the partner before the taxpayer was incorporated (art. 16 sec. 1d VAT

The costs referred to in points 2 and 3 do not apply if the sum of the costs incurred by the taxpayer in the tax year, constituting the hidden dividend, would be less than the amount of the gross profit within the meaning of the accounting regulations (Article 16 (1st) of CIT).

Withdrawal provisions on the so-called hidden dividend

However, the ministry pointed to the demands of industry associations, entrepreneurs and experts and concluded that the stated wording of the provision would lead to interpretation doubts about the interdependence between the hidden dividend provisions and the transfer pricing provisions. Hidden dividend regulations can also significantly impede the operation of capital groups that provide support services to subsidiaries, depending on the profitability of these companies, and adversely affect the provision of licensing services. Significant doubts were also raised about the potential effects of the provisions on hidden dividends related to the profit distribution method and transfer pricing adjustments applied in transfer pricing.

In addition to the above aspects, due to the broad nature of the buildings leading to the recognition of costs as hidden dividends (including the buildings related to the use of assets), it would not be possible to identify situations where the scope of the provision also includes other specific economically justifiable transactions, the main purpose is not de facto the transfer of financial surpluses to associated entities.

Because of the doubts presented The Ministry of Finance found it justified to withdraw the above-mentioned provisions on the hidden dividend

The draft foresees the entry into force of most of the provisions (including those related to the repeal of the provisions on hidden dividends) of this amendment on January 1, 2023.

Currently the project is submitted for 14 days consultation.


  1. The bill on amendment of the corporate tax law and certain other laws (print number UD404)
  2. Justification for the project the law on amendment of the Income Tax Act for Legal Entities and some other Acts (Form No. UD404)
  3. Act of October 29, 2021 amending the Personal Income Tax Act, the Corporate Income Tax Act and some other acts (Journal of Laws, item 2105, as amended)
  4. Law of 15 February 1992 on corporate income tax (Official Gazette of 2021, item 1800, as amended; hereinafter: CIT).

Jagoda Kondratowska-Muszyńska, Tax adviser at the law firm of prof. dr hab. Henryk Dzwonkowski

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