Poland’s corporate tax code imposes some of the strictest limits on the use of tax losses in the OECD, curbing firms’ ability to offset losses against future profits and adding extra tax burdens for loss‑making companies.
Loss‑carryforward rules
- Carryforward period: losses can be carried forward for a maximum of five years; no loss‑carryback is permitted.
- Immediate‑deduction cap: losses up to PLN 5 million (≈ EUR 1.2 million) may be deducted in full in the first year. Any amount above this threshold is limited to 50 % of the original loss per year.
- Effect on deductions: loss carryforwards account for ≈ 70 % of all corporate‑income‑tax (CIT) deductions (90 % in 2018, 69 % in 2024).
Impact on large corporations
- The largest taxpayers (revenues > PLN 210 million ≈ EUR 50 million) generate about 60 % of CIT revenue but consistently hold losses far above the PLN 5 million cap.
- Median loss for these firms exceeds the cap every year; average losses range from PLN 29 million to PLN 56 million, up to 11 times the immediate‑deduction limit.
- The average loss across all corporate taxpayers in 2024 was PLN 331 000, well below the cap, indicating that the restrictive rules mainly affect large, loss‑making firms.
Additional constraints
Mandatory separation of income baskets
Polish law requires separate calculation of operating income and capital income (e.g., dividends, capital gains). Losses can offset only income within the same basket, preventing, for example, an operating loss from reducing tax on dividend income. In 2023, 92 % of losses reported by the largest CIT taxpayers were operating losses, while capital‑losses represented only 8 %, suggesting limited anti‑avoidance benefit relative to the compliance cost.
Domestic Minimum Tax (DMT)
- Effective from 2024, the DMT applies to firms with tax losses or a profit margin below 2 %.
- It is calculated on a formula that includes a share of operating revenues and selected expenditures, taxed at 10 %.
- The DMT is payable even when the standard CIT liability is zero, and credit for the DMT can be used for only three years after a firm returns to profitability.
- The tax adds compliance complexity and can distort competition through numerous exemptions.
Implications for investment and risk‑taking
- Restrictive loss‑offset provisions raise the effective tax burden on firms with volatile earnings, discouraging high‑risk, high‑return projects such as R&D and rapid expansion.
- Empirical studies show that extending loss‑carryback periods by one year can increase corporate risk‑taking by 11.6 %, while each additional year of carryforward raises risk‑taking by 3.1 %. Poland’s five‑year limit and 50 % cap therefore suppress investment incentives.
- The inability to offset operating losses against capital income further reduces the liquidity cushion that loss‑carryforwards could provide, especially for firms with mixed income streams.
Policy recommendations
- Eliminate time limits on loss carryforwards, allowing indefinite carryforward.
- Remove the 50 % immediate‑deduction cap and the PLN 5 million threshold, enabling full loss utilization regardless of size.
- Abolish the domestic minimum tax or redesign it to avoid taxing firms that are already loss‑making.
- Reconsider mandatory income‑basket separation for corporate taxpayers, permitting cross‑basket loss offsets to improve tax symmetry.
Adopting these reforms would align Poland’s loss‑treatment regime with the majority of OECD countries, enhance the attractiveness of the Polish market for investment, and reduce the tax‑induced penalty on firms that experience fluctuating profits.
Source article: taxfoundation.org
