Tag: Finance

The End of an Era: Why Management Charges Became a Global Target — and How Poland’s CIT Reform Fits Into a Worldwide Shift






Poland’s proposed changes to the CIT Act — which would exclude from tax‑deductible costs a wide range of intangible services provided by shareholders, directors, and other related individuals — may feel sudden. In reality, they are part of a much longer global trend. For more than a decade, tax authorities worldwide have been tightening the rules around related‑party management services, advisory fees, and other intangible charges.

To understand where Poland is heading, it helps to understand how we got here — and why management charges became such a persistent target for regulators.

1. The historical problem: intangible services are hard to verify

Management services have always been difficult for tax authorities to audit. Unlike physical goods or operational services, intangible activities such as:

  • strategic advice,
  • oversight,
  • management support,
  • business development,
  • or “services of a similar nature”

leave no physical trace. Documentation is often subjective, and the economic value is hard to benchmark.

This created a structural vulnerability: the same invoice could represent genuine value — or pure profit extraction. Tax authorities could not reliably tell the difference.

2. The BEPS era: intangible services under global scrutiny

The OECD’s Base Erosion and Profit Shifting (BEPS) initiative (2013–2015) identified related‑party intangible services as one of the easiest ways to shift profits across borders. BEPS introduced concepts such as:

  • the benefit test,
  • arm’s‑length pricing,
  • substance over form,
  • and the prohibition of shareholder activities being charged to subsidiaries.

Countries began tightening their rules — but each in its own way.

3. How other countries responded

Poland is not alone. Similar developments have unfolded across major jurisdictions:

United Kingdom — IR35 and disguised employment

The UK targeted individuals invoicing through personal service companies while effectively acting as employees. The logic is similar to Poland’s: if you behave like an employee or director, you should be taxed like one.

Germany — strict transfer pricing and “shareholder activity” doctrine

German tax authorities routinely reclassify management fees as non‑deductible profit distributions if they overlap with governance duties or lack clear economic benefit.

Netherlands — substance requirements

Management fees remain deductible only when the service provider has real substance and the service is clearly documented and benchmarked.

Australia and Canada — aggressive audits and “reasonableness” tests

Both countries frequently deny deductions for related‑party management fees unless the taxpayer can prove necessity, benefit, and market value.

Across jurisdictions, the pattern is consistent: intangibles + related parties = high‑risk area.

4. Poland’s proposal: a decisive, domestic‑focused approach

The Polish draft goes further than many international counterparts by:

  • targeting domestic related individuals,
  • disallowing entire categories of intangible services,
  • applying a 5% ownership threshold,
  • and offering only narrow exceptions (employment, board remuneration, resale, production necessity).

This is not a refinement — it is a structural redesign of how shareholder‑managers may interact with their companies.

The Ministry of Finance’s message is clear:

If you want to be paid for managing your own company, do it through employment or board remuneration — not through service invoices.

This is both a tax policy and a governance intervention.

5. Why management charges became a target

The global crackdown is driven by several long‑standing issues:

• Valuation ambiguity

There are no reliable market comparables for “strategic advice” or “management support”.

• Overlap with governance duties

Directors charging for what they should already be doing creates inherent conflict.

• Profit‑shifting potential

Management fees can reduce taxable profit in the company while shifting income to individuals taxed at lower rates.

• Administrative burden

Auditing intangible services consumes enormous resources, often leading to years of litigation.

• Lack of economic substance

In many cases, the service provider is the same person who owns or manages the company.

Given these challenges, many jurisdictions concluded that the enforcement cost outweighs the benefit. Poland is now taking the same view — but applying it broadly and domestically.

6. Governance implications for Polish companies

For many organisations — especially SMEs, family businesses, and founder‑led firms — the change is not just a tax issue. It affects:

  • remuneration structures,
  • shareholder agreements,
  • board roles,
  • and the division between ownership and management.

The reform pushes companies toward:

  • employment contracts,
  • formal board remuneration,
  • managerial contracts taxed on the progressive scale.

This will require a shift from flexible, informal arrangements to transparent, documented governance structures.

7. The bottom line

Poland’s CIT proposal is part of a global movement — but executed with unusual decisiveness. Management charges became a target because they combine:

  • tax risk,
  • valuation uncertainty,
  • governance ambiguity,
  • and administrative complexity.

For companies, this means the era of flexible shareholder‑provided services is ending. The future belongs to:

  • clear governance roles,
  • formal remuneration structures,
  • and robust documentation of economic substance.

My colleagues at Grupa Strategia will continue to monitor the legislative process and support clients in adapting their governance and remuneration models to the new regulatory landscape. Should you wish to receive professional advice and tax planning for your international Group with branches in Poland to see how your current or expected practice will be affected by the coming changes in Poland, please email david.james@grupastrategia.com

Open Letter to the Prime Minister on the revision of the concept of valuations for CPOs


Dear Prime Minister Starmer,

I hope this letter finds you well. I am writing to express my concerns regarding the recent changes to compulsory purchase orders (CPOs) and the concept of “hope value” in land valuation.

While I understand the government’s intention to manage public project costs effectively, I believe that excluding hope value from CPO compensation creates inconsistencies in land valuation practices. If hope value is excluded for CPOs, it should also be excluded from the valuation of land for business rates and council taxes. This would ensure a fair and transparent system, where landowners are not disadvantaged by contradictory valuation methods. If a business’s rateable value of land is low, then owners cannot complain if that becomes the basis for compensation on a CPO, and by the same token, the state should not be giving back a lower value than the one they themselves set for the purposes of council taxes. Government should be consistent, and I am not sure that provision for this has been included in the legislation.

Furthermore, I propose that a moral payment be considered to cover the costs of rearranging investments around the affected property. This would acknowledge the broader impact on landowners beyond the immediate land value.

The term “hope value” is a neologism and not one found in any accounting standards, national or international. Moreover, it seems designed to be used exclusively by the government in their own favor against private investors. If private investors were to insist that the aspirational aspect of value be removed from market values, no deal would ever be made. As such, this is a fresh case of state exceptionalism in an area where state exceptionalism is not warranted.

Consistency in valuation practices across different governmental processes is crucial to ensure fairness and maintain public trust. I urge you to consider these points and advocate for a more balanced approach to land valuation and compensation.

Thank you for your attention to this matter.

Sincerely,

David of Quoracy

It pays to avoid the BBBs (Bargain Basement Bookkeepers)


Violent Storm Strikes Western Europe
Is a storm brewing over your books and records?

I am writing to relate a story based on true events which came to light last week when one gentleman came into one of our offices and spoke to me. To keep matters confidential, I won’t say the country – the same can happen in any country – or identify anything about this company the gentleman had – even the sector. It can happen to many sectors.

This gentleman had given his company bookkeeping and tax affairs to an outsourced book-keeper for his business in that particular country. He used outsourcing back home in his own country (I’m not saying where that is either) and he appreciated the benefit of being able to have his bookkeeping professionally handled by experts without needing to employ anyone, worry about holiday cover, etc etc.

Some time ago this gentleman had included our firm in his search, and we gave him a price entirely fair for a company with our niche in the market, that is, internationally trained people, with English, with proper quality assurance, supervision and back-up.  In other words,  a peer-reviewed, branded service tailored absolutely to the needs of West European businesses in the middle tier coming to start up in East Europe, and also very good for businesses not exactly in the middle tier and from places outside West Europe.

That means that the fee offered was not nearly as high as a Big Four service would cost, but certainly higher than a purely local service.

Now I’m not knocking the purely local services – many of them are very good, but for purely local clients as they don’t tend to be claiming proficiency in foreign languages or have the ability to engage cross-culturally with the client (a source of just as many miscommunications as the language barrier on its own). They are not a great fit with the international client, and often their cheaper price becomes a false economy as frustrations rise on both sides of the desk.

The problem in this case wasn’t lack of English – this gentleman’s chosen bookkeeper spoke English, apparently.

But she was in business just on her own. With no back-up employees, probably very little insurance, probably very few resources to turn to, and very few overheads hence enabling a price no quality firm could ever compete with. That was the price that tempted this gentleman to take her bid over mine.

But since then, it became apparent that this bookkeeper was not entirely what she seemed to be.

Neither this gentleman nor myself are qualified psychiatrists, and we could only speculate on what might have gone wrong, or been wrong all along with this person. The fact is, though, that mental illness happens in the human population. We’ve probably all had employees or acquaintances who have had a mental illness, and in a larger company they quickly get noticed by colleagues, and steps taken to look after them and safeguard the clients’ affairs. When they are on their own, no such controls exist.

Suffice it to say this lady no longer was answering emails or picking up the telephone when he was calling, and when he rang from another number she didn’t know, she put the phone down when she heard his voice – the person entrusted with his company’s books and records and processing a VAT reclaim for more money than she would normally earn in many years. As you can see, the situation is now much harder – and therefore more costly – for us to repair than if he had simply given us the work in the first place.

It simply doesn’t pay to use these Bargain Basement Bookkeepers. You know what you get if you pay peanuts, and if a price looks too good to be true, it probably is.

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