On 8 April 2020 the Monetary Policy Council (MPC) reduced the reference rate determining the interest rate on basic open market operations conducted by the National Bank of Poland to 0.50%[1]
Pursuant to Art. 359 § 2 of the Civil Code, if the interest rate is not otherwise specified, statutory interest is due in the amount equal to the sum of the reference rate of the National Bank of Poland and 3.5 percentage points.
Using the reference rate amended by the MPC, statutory interest will be 4 percentage points (the sum of 0.50% and 3.5%) from 9 April[2].
Pursuant to Art. 359 § 21 of the Civil Code, the maximum amount of interest resulting from a legal transaction may not exceed twice the amount of statutory interest (maximum interest) per annum. The provisions on maximum interest are of the nature of iuris cogentis, but their application cannot be overruled by the choice of foreign law (Art. 359 § 23 of the Civil Code).
With the current reference rate, as amended by a resolution of the MPC, the maximum interest rate on loans may not be more than 8% per annum.
Therefore, in order for the loans granted between the companies of the group (related entities pursuant to Art. 11.1.4 of UoCIT) to comply with the arm’s lenght principle expressed in Art. 11c of UoCIT, their interest rate may not be higher than 8 % p.a. The arm’s lenght principle requires affiliated entities to develop, in their mutual commercial relations, including in particular as regards prices set in mutual transactions, such relations which would establish between themselves independent competing entities in the free market.
Related entities which lend or borrow more than 8 % per annum of the loan shall, as from 9 April 2020, bear the risk that the tax authorities will underestimate the revenue in respect of the interest rate on that loan.
It will therefore be advisable to review the loan agreements concluded after 9 April of this year with respect to the 8 % p.a. threshold. In the event that the interest rate on loans exceeds 8 %, it will be reasonable to change the interest rate on loans borrow or lend.
Due to the fact that the changed interest rates introduced by the MPC resolution of 8 April 2020 also reduce the WIBOR 3M interest rate, on the basis of which the interest rate for the application of the safe harbour for loans in PLN is calculated, it will be reasonable to review the loans borrow or lend, also in the context of taking advantage of the exemption referred to in art. 11g of UoCIT.
[1] Resolution No. 4/2020 of the Monetary Policy Council of 8 April 2020 on the reference rate, refinancing loan interest rate, term deposit interest rate and the rediscount rate and discount rate for bills of exchange in the National Bank of Poland.
[2] According to § 9, Resolution No. 4/2020 comes into force on 9 April 2020.
Author: Michał Mika – Senior Tax Consultant
