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Outsourcing Stars have been revealed
The first non-virtual gathering of the modern business services sector in 2021 took place on the premises of Elektrownia Powiśle on June 24 in Warsaw. It was on this day that Pro Progressio – an organization supporting the growth and development of the BSS industry – held the eighth edition of its Outsourcing Stars Gala. As always, the gala was an opportunity for the industry to reflect on the past year and acted as the grand finale of the Outsourcing Stars competition, where companies representing eleven different ares of the modern business services realm are distinguished among their peers. The awards go to outstanding entities which grew their operations the quickest. Outsourcing Stars is where we also praise the fastest-developing city serving as a hub for national and international BPO, SSC, R&D, and IT centers.
The Outsourcing Stars Gala gathered 250 participants representing Polish and international outsourcing companies, GBS, SSC, and IT operational centers, advisory and consulting companies, as well as representatives of a number of city halls. The Gala was held under the Honorary Patronage of the Polish Investment and Trade Agency, and the Patrons, Partners, and Sponsors of this unique event included: White Star Real Estate, Invest in Pomerania, Cushman & Wakefield, City of Poznań, Nowy Styl, SoftServe, Torus, wielkareklama.pl, Riposta, Deutscher Outsourcing Verband, GSA UK, IAOP, IT Ukraine Association, MultiCowork, and the Scandinavian-Polish Chamber of Commerce.
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THIS YEAR'S OUTSOURCING STARS WINNERS INCLUDE:
BPO – Frista
Call Contact Centre – Armatis SSC – 3M GBC
IT Software Development – Infopulse
City – Trójmiasto
Developer – Skanska Real Estate Agency – CBRE
HR Permanent Recruitment – HAYS
Innovative Business Solution – Zonifero
ADAM PUSTELNIK, Deputy Mayor of the City of Łódź. Pustelnik was recognized for his contributions in developing the BSS sector in the city of Łódź, support for entrepreneurs, and a clear vision for the growth of the modern business services industry in his city. – The way Adam cares for investors already present in Łódź, as well as the energy he exudes when acquiring new business for the city, is an example to follow for most government officials and local government in Poland – said Wiktor Doktór, Head of Pro Progressio, when presenting Adam Pustelnik with a diploma recognizing his efforts.
The Outsourcing Stars Gala was preceded by a full-day international conference – The BSS Forum.
‘Back to Business’ was the event’s theme this year and it accompanied fifteen different webinar sessions. The conference organized by Pro Progressio gathered 410 participants from ten different countries. Forty-five speakers from North America, South America, Africa, and Europe delivered their presentations.
In this year's edition of The BSS Forum the organizers focused on a wide range of topics addressed to the international community. The event had three parallel parts, with five substantive presentations delivered in each of them.
The HR part saw Zyta Machnicka (Lightness), Greg Albrecht (Albrecht & Partners), Magdalena Kopenhagen (Kopenhagen Academy), Wojciech Strózik (Learn2Lead), Amani Rabei (ITIDA), Andreas Flodstrom (Betroot), Constantine Vasuk (IT Ukraine Association), Mikołaj Makowski (Devire), Ireneusz Bilski (Amway Business Service Center Europe), Iwona Grochowska (NAIS), Izabella Krzywosądzka-Pajdak (Carlsberg Shared Services), Klaudia Martelus (Tate & Lyle), and Michał Lisawa (Baker McKenzie) address the attendees. Issues highlighted by the speakers concerned new developments in labor law, remote work, incentive programs, the future of IT services and IT contracting, as well as personal development and employee loyalty.
The ‘Business’ part of the Forum concerned hybrid sales and saw Wojciech Herra, an outstanding sales coach, share his advice on the matter. Assumptions and challenges that may be brought by the ‘Polish Deal’ program implemented by the Polish government were among the issues discussed.
Under the active moderation of Monika Smulewicz (Grant Thornton), the panel included Dr. Maciej Chakowski (C&C Chakowski & Ciszek), Grzegorz Szysz (Grant Thornton), and Małgorzata Samborska (Grant Thornton).
The BSS Forum is an event that addresses topics concerning operations of GBS/ SSC centers.
The HSBC center in Krakow, being of the most dynamic GBS centers in Poland, was a fantastic case study ripe for further examination. It was analyzed by Bartosz Brak, Ewa Baranowska, and Philippe de Brouwer. A lecture by Michał Bielawski (Adaptive SAG) and Marcin Janiszewski (Elekta Business Services) raised a number of fascinating points about the GBS centers’ development and identified the main factors changing this industry, and perfectly complemented the subject matter at hand.
Pro Progressio put a strong emphasis on the internationality of proceedings during The BSS Forum this year. Experts from North America, South America, and Africa talked about nearshoring and offshoring of US business projects. Panelists included Debi Hamill (IAOP), Jason Heil (Redial BPO), Mauricio Velasquez (Velasquez & Company), Peter Ryan (Ryan Strategic Advisory), and Rod Jones (Rod Jones Consulting). The third important thread during this years’ Forum was the location aspect for BSS centers and the work environment. Szymon Kogut discussed the best European locations for BPO and SSC operational centers during this part. Krzysztof Misiak (Cushaman & Wakefield), Piotr Boulangé (MultiCowork), Katarzyna Augustyn (Chillispaces), and Grzegorz Kmieciński (Corees) engaged in an indepth discussion on offices, serviced offi ces, and coworking. This section also featured mixed-use facilities, an up-andcoming trend in the world of commercial real estate. Anna Celichowska (Virako), Dariusz Domański (White Star), Marcin Piątkowski (Torus), and Tomasz Czuba (JLL) addressed it during their captivating talks.
Two interesting discussion panels closed the event. First concerned the creation of an investment offer by Polish cities, moderated by Andrew Wrobel (Emerging Europe) and involved Adam Pustelnik (City of Łódź Office), Katarzyna Sobocińska (City of Poznań Office), and Wojciech Tyborowski (Invest in Pomerania). The second issue, presented by Cristina Stamboli (Romania), Dr. Akos Mates-Lanyi (Hungary), and Radim Kotlaba (The Czech Republic) of NOERR law office, concerned the business conditions across the CEE region.
The BSS Forum and the Outsourcing Stars Gala will return next year. Meanwhile, Pro Progressio has announced changes to its media channels – the OutsourcingPortal and the Outsourcing&More magazine. More on these exciting developments will be shared shortly!
SAFE WAYS TO REDUCE CIT TAXATION
On 1 May 2021, the group of entities subject to corporate income tax expanded. The number of entities subject to the "regime" was increased by limited partnerships and some other partnerships.
In the case of some companies, it is pos sible to reduce the tax burden by implementing the tax instruments provided for in the CIT Act. The most recognisable ones are a special investment fund, tax relief for research and development activities and IP Box.
SPECIAL INVESTMENT FUND
Despite positive announcements of the "Estonian CIT" by the Ministry of Finance, its final format does not look promising. Several inaccuracies, such as hidden profits taxation, effectively discourage adopting this form of tax optimisation. Many companies have decided to wait for the tax authorities' interpretation to understand the Estonian CIT's intricacies better.
However, not all solutions proposed from 2021 have turned out to be unfavourable. An attractive solution is a special investment fund that allows to classify the transferred funds as tax costs. Unfortunately, this solution is intended only for spółki z o.o. [limited liability companies] and spółki akcyjne [joint stock companies]. It consists in transferring funds from the previous year's profit to a bank account separated within the supplementary capital. Such transfer allows the monies to be recognised as tax-deductible costs. The condition for the deduction is the transfer of funds for the purchase or production of a fixed asset included in group 3–8 of the Classification of Fixed Assets. It is a broad group of fixed assets that allows the investment fund to be used for machinery, computers or vehicles. However, it will not be possible to spend these funds on cars used by a shareholder or partner in the company. the company must employ three people and not draw up financial statements per the IAS principles.
The legislator has also regulated the spending of the accumulated funds. The col lected monies should be spent in the year following the year of the write-off at the latest. However, this deadline can be extended by two more years if we inform the tax authorities about it.
The indicated solution brings about a double benefit. Namely, it allows dedu cting a large investment in fixed assets at a time, avoiding long-term depreciation, and reduces the tax basis in the deduction year.
Also, a company wishing to apply this form of cost credit must meet the conditions for the Estonian CIT. In particular, its revenue should not exceed PLN 100 million; most of it should originate from sources other than receivables, interest and copyrights, and
R&D CREDIT
Another form of tax reduction is research and development credit. Unlike the spe cial investment fund, all CIT payers can use this solution. The essential condition for applying this tax relief is research or development activity.
R&D activities, according to tax authorities, mean creative activities involving scientific research or development, undertaken on a systematic basis to increase knowledge resources and use the same to develop new applications.
Research activity is an activity that includes basic research or applied research. Basic research is understood as empirical or theoretical work to gain new knowledge about the foundations of phenomena and observable facts without focus on any direct commercial application. In turn, applied research is work to acquire new knowledge and skills, develop new products, processes or services or introduce significant improvements to them.
On the other hand, if we are considering development works, these are activities involving the acquisition, combination, shaping and use of currently available knowledge and skills, but excluding activities involving routine and periodic changes introduced to them, even if such changes are of improvement nature.
When reading the presented definitions, it may seem that the relief applies only to large entities from the technology or pharmaceutical industry. Nothing could be more wrong. Following the rich base of individual interpretations, it should be stated that there are no restrictions as to the business profile.
The R&D tax credit allows for "double" recognition of expenses incurred on research and development activities as tax-deductible costs. Thus, increasing the tax-deductible costs will reduce the company's tax liability without incurring them twice.
IP BOX
Another form of tax reduction is applying a preferential 5% tax rate on income from an eligible right. As in the case of the R&D tax relief, there are no restrictions on the manner of conducting business.
A qualified right is a patent, a utility model protection right, an industrial design registration right or an integrated circuit topography right. A qualified right is also a protection right for a patent for a medicinal product or a plant protection product, a registration right for a medicinal or veterinary product if it has marketing authorisation, and a copyright to a com puter program.
However, in order to take advantage of the reduced rate, gaining profit from a qualified intellectual property right is not enough. For this purpose, records must be kept, considering the revenues and costs related to the given right. Also, it should be noted that the income the lack of an objective approach to whether the conducted activity fulfils the conditions of research and development activity.
The most effective solution to this problem is to apply for an individual interpretation. That will allow for confirmation whether the conducted activity meets the requirements and will ensure the protection of the right to use the tax relief in the event of a possible inspection. Also, it is worthwhile for the records required by law to be verified by experienced specialists.
eligible to the 5% rate must be multiplied by the Nexus coefficient, only the product of the income and the coefficient is the basis for applying the 5% CIT rate.
The Nexus coefficient is calculated accor ding to the formula laid down in the Act. It concerns the costs incurred by the company for research and development activities. The Act provides for four cost options. The first one is direct costs; they regard expenses related to the research and development activity carried out within the scope of a specific eligible right. The second is the cost of acquiring research and development results in the field of eligible right. The final two concern the acquisition of results and the acquisition of the eligible right itself from affiliated entities.
It is a highly advantageous form of taxation, allowing for savings in CIT and the reduction of tax liabilities under the eligible right held. By comparison, the standard rate without applying the "tax credit" is 9% or 19%.
THREATS
A frequent problem in the implementation of tax instruments, i.e. the research and development relief and IP Box, is
SUMMARY
The presented relief allows for significant tax savings and are an interesting alternative to the Estonian CIT, which in its current shape is not a favourable solution. Bearing in mind that currently, all forms of tax optimisation are effectively obstructed by the tax authorities, taxpayers should focus on using safe solutions offered by the legislator.
Authors:
Dorota Chudzik,
tax advisor | general manager, in Law firm "Chudzik i Wspólnicy Radcowie Prawni" sp.p., www.chudzik.pl
Konrad Matuszewski,
legal and tax consultant, in Law firm "Chudzik i Wspólnicy Radcowie Prawni" sp.p., www.chudzik.pl
ACTIVITIES OF SHARED SERVICES CENTRES FOR FINANCIAL INSTITUTIONS
– REGULATORY ASPECTS
Many shared services centres in Poland operate within capital groups, which include various types of financial institutions subject to strict regulations and supervision. What specific regulatory issues should be then taken into account when establishing and managing such centres?
LEGAL FORM OF ACTIVITY
This question should be asked already at the stage of choosing the legal form in which a shared service centre (SSC) will operate. In practice, there is often a temptation to set up a SSC as a branch of one of the existing financial institutions1 operating within a group and based in an EU country, using the passporting mechanism provided for in EU law. It allows many types of financial institutions operating in the EU to expand their activities into another EU country by establishing a branch there, with relatively little formality and cost, and no need to create a new entity, as the branch does not have a separate legal personality and is only a separated part of the parent institution’s activities.
In most cases, however, a branch is not the most appropriate form of operation for a SSC. It must be borne in mind mainly that a foreign entrepreneur may only carry out business activities in a branch within the scope that it carries them out abroad. Thus, if a foreign entrepreneur is, for example, a bank or an insurance company, it may open a branch in Poland only to conduct banking or, respectively, insurance activity, and only to the extent to which it conducts such an activity in its home country. In principle, the typical activities of a SSC (i.e. IT, accounting, HR, etc.) do not fall within the scope of business activities that a bank, insurance company, investment firm or other similar regulated entity may provide to third parties (even from the same capital group), because the permissible scope of activities of such entities is usually, both in Poland and in other countries, strictly limited to certain types of financial and related services. When notifying supervisory authorities of the intention to commence operations in Poland through a branch, the foreign institution must indicate which of these services it intends to provide in Poland – and only to that extent will the branch be permitted to operate. The provision of, for example, IT services to other entities in the capital group should generally not be included in this scope of services.
In conclusion, the most appropriate form for a SSC operating in Poland and serving a group of financial institutions seems to be a subsidiary established in Poland. Opening a Polish branch for this purpose will usually not be a good idea.
COMBINING FINANCIAL ACTIVITIES AND A SSC IN ONE ENTITY
However, not every company operating in Poland is suitable for running a SSC. If a given financial group already has a subsidiary in Poland conducting regulated activities, the idea sometimes arises that the activities of a SSC could be carried out by this company. In the case of certain types of entities (e.g. banks or insurance companies), this is generally impossible because the scope of legally permissible activities of these entities is strictly defined and does not include typical activities performed by shared services centres. However, some other types of regulated financial institutions (e.g. lending institutions) do not suffer from such restrictions and are not formally prevented from operating as a SSC for their group in addition to their financial services activities.
However, even such a solution may prove to be highly problematic in practice. It must be remembered namely that lending institutions have the status of the so-called “obliged entities” in the meaning of AML/ CFT regulations. This means, in particular, that they are subject to a number of obligations relating to KYC (Know Your
Where a SSC provides services to regulated entities from different countries, this may lead to significant complexity in the regulatory aspects of its activities.
Customer), i.e. identification and verification of the identity of the customer and its beneficial owner. It is debatable whether these obligations apply to the activities of obliged entities other than regulated activities (so, for example, to the activities of a shared services centre carried out by a lending institution), but unfortunately there is currently no clear basis for treating the non-regulated activities of obliged entities separately in terms of AML obligations and therefore these requirements should be deemed to apply to all relationships of obliged entities with customers. This situation may put an additional and unnecessary burden on the shared service centre activities of the obliged entity. services to a group of financial institutions are the regulations on outsourcing which, in the case of financial institutions, can be quite rigorous. Significantly, when a SSC provides services to financial institutions that do not operate in Poland, the regulations in force in their home countries, and not the Polish ones, will be most important in this respect. This is an element that may undoubtedly complicate the activity of a Polish SSC, because when providing services simultaneously for regulated financial institutions from different countries, the Polish SSC will have to take into account in its activities the regulations on outsourcing in force in each of those countries.
Consequently, in most cases, the most appropriate solution will be to place the activities of the shared service centre in a separate company dedicated exclusively to these activities.
Another issue of fundamental importance for the proper structuring and lawful operation of a SSC providing Obviously, the greatest burden of com pliance with these regulations will be borne by the financial institutions using the services of a Polish company, but these regulations will also very often have an impact on the activities of the SSC itself, e.g. in the form of the need to: (i) ensure an appropriate level of education, experience and qualifications of the persons managing the SSC; (ii) have in place action plans ensuring The most appropriate form for a SSC operating in Poland and serving a group of financial institutions seems to be a subsidiary established in Poland. Opening a Polish branch for this purpose will usually not be a good idea.
When a SSC provides services to financial institutions that do not operate in Poland, the regulations in force in their home countries, and not the Polish ones, will be most im-portant in this respect. This is an element that may undoubtedly complicate the activity of a Polish SSC.
When notifying supervisory authorities of the intention to commence operations in Poland through a branch, the foreign institution must indicate which of these services it intends to provide in Poland – and only to that extent will the branch be permitted to operate.
continuous and uninterrupted operation of the business within the scope covered by the agreement between the SSC and a given financial institution; or (iii) ensure that it is possible to carry out audits at the SSC on the correctness of the performance of the agreement, both by the financial institution itself, for which the SSC provides services, and potentially by the supervisory authorities of its home country. Where a SSC provides services to regulated entities from different countries, this may lead to significant complexity in the regulatory aspects of its activities. Polish re gulations on outsourcing of activities by financial institutions may also apply when the services of a SSC are provided to institutions based in Poland and, to a certain extent, when they are provided to foreign institutions operating in Poland in the form of a branch.
It is also worth bearing in mind that legal restrictions on outsourcing do not apply only to financial institutions such as banks, insurance companies or investment firms, but also to certain entities providing regulated financial intermediation services. For example, the outsourcing of certain activities by insurance brokers in Poland is subject to significant restrictions – they may outsource only those activities that require specialist knowledge, but other than specialist knowledge in the field of insurance and insurance intermediation.
In summary, the activity of a SSC within a financial group is subject to various restrictions related to the regulated nature of the activity of entities in such a group. Therefore, the creation and management of such centres must take into account numerous regulations, often originating in different legal systems.
Author:
Konrad Werner,
Attorney-at-law, Expert in Banking & Financial Regulations, Noerr
PREVENTION OF MONEY LAUNDERING
− OBLIGATIONS IMPOSED ON BUSINESS SERVICE PROVIDERS
The operation of business services centres, especially those serving a single corporate group, is not typically associated with duties in the area of anti-money laundering or countering the financing of terrorism (AML/CFT). However, if only the centre provides bookkeeping services or certain corporate services, it is sufficient for it to obtain the status of "obliged entity" which is subject to several AML regulatory obligations. Failure to comply with such requirements creates exposure to heavy financial penalties.
The April amendment to Polish AML regulations expands the range of situations when business services centres may be subject to the Anti-Money Laundering and Countering the Financing of Terrorism Act (the so-called AML Act). In addition to the existing obligations to make disclosures in the Central Register of Beneficial Owners (CRBO), the list of activities that can only be performed after additional AML procedures have been put in place has been extended.
BENEFICIAL OWNERSHIP REGISTER
The Central Register of Beneficial Owners is a publicly accessible database of companies' beneficial owners. The deadline to make initial disclosures in this register was 14 July 2020, and all new companies should make a filing within 7 business days of their registration with the National Court Register. Failure to make a filing creates exposure to a financial penalty of up to PLN 1 million. on time. Any change to the management board, personal details of a management board member (e.g., country of residence or surname), address, company name or details of the beneficial owner must be filed to CRBO within 7 business days. The April amendment to the AML Act specifies that a financial penalty of up to PLN 1 million also applies in the case of delays in updating data and filing incorrect data.
The amended AML Act also makes it mandatory to disclose all nationalities of beneficial owners. Until now, only one nationality could be filed. The new obligation will come into force at the end of October and may create the need to update data in the CRBO.
Senior executives as beneficial owners Many shared services centres establish beneficial owners based on the criterion of holding a 'senior executive position'. It is worth noting two main difficulties associated with such a filing:
Short deadline and high penalties for out-of-date data Although the vast majority of professionally managed companies have already made their disclosures to the CRBO, not all of them remember to update their data (i) Senior executives are often not just directors (management board members). In many cases, directorship is held by group officers not actively involved in the day-to-day management of the entity running the business services centre. Companies that limit disclosure of senior executives to management board members may face charges of false (incomplete) disclosures if the company has non-director level individuals who manage the operation at the local level − often these individuals include the local general manager or chief financial officer. On the other hand, there are times when key operational decisions concerning a company are made by individuals who are neither employed by the company nor serve on its management board − but carry out their functions within regional or global structures. Failure to disclose such persons, if they perform duties appropriate to senior executives of the company, will expose the company to financial penalties, the person signing CRBO filing to criminal liability, and the undisclosed beneficial owners − to personal financial liability.
(ii) The filing of senior executives as beneficial owners requires gathering documentary evidence of the impossibility of identifying beneficial owners based on other criteria. We have noted from practice that this requirement is often not met, which can expose those signing the filing form to liability.
Banks, accountants, and lawyers will report irregularities As early as 31 October, regulations will come into force requiring "obliged entities" (banks, insurers, accountants, tax advisers, transactional lawyers, among others) to record discrepancies between the information they have established about a customer's beneficial owner and the data filed to CRBO. Once it is confirmed that the discrepancies are not the result of a mistake (e.g., personal changes have been filed to CRBO but are not yet visible in the National Court Register), the obliged entities will have to notify the discrepancies to the Minister of Finance. The notification may result in an enquiry being launched, and a note about this will be recorded in CRBO. Such note will be a public warning of the increased risk of concealment of beneficial owners, which may have reputational consequences.
To prevent the obliged entities from coming to a conclusion that may be at odds with the information filed with CRBO, it is advisable to prepare a professional documentation package demonstrating that beneficial ownership has been correctly determined.
SERVICE CENTRE WITH RESPONSIBILITIES AS A BANK: SERVICES RESULTING IN "OBLIGED ENTITY" STATUS
The carrying out of certain activities triggers the status of "obliged entity". Some of these activities can be found in business services centres. For example, these include: • bookkeeping services • providing a registered office, business address, mailing address, or other related services to companies and certain other entities • preparation of tax returns (to be an obliged entity, an activity consisting in preparing tax returns, keeping tax books, giving advice, opinions or explanations on tax or customs legislation must be the core business activity of the entity) • accepting or making payments for goods in cash with a value of EUR 10,000 or more (rare in services centres).
Obtaining the status of "obliged en tity" (OE) is automatically triggered by the performance of certain activities. Obligations of obliged entities relate to several areas of activity.
OBLIGATIONS OF OBLIGED ENTITIES
OEs are required to assess the risk of money laundering and terrorist financing, and to document the risks identified, as well as to apply to their clients (e.g., service recipients) financial security measures adequate to the risk assessment con ducted. Financial security measures include identifying the customer and verifying its identity, identifying the customer's beneficial owner, and taking reasonable steps to verify its identity and establish ownership and control structure, assessing the business relationship (including the purpose of individual transactions) and monitoring the customer's business relationship on an ongoing basis. The application of financial security measures must be documented and presented to the audit authorities in case of an inspection.
In addition, OEs must put in place an internal procedure for all AML processes. The institution should have a procedure in place for anonymous reporting of breaches, appoint an AML officer, and provide training for AML staff. Failure by an obliged entity to comply with its obligations exposes it to administrative penalties − financial (for natural persons − up to PLN 20.8 million, for legal persons − up to EUR 5 million or 10% of turnover), reputational (publication of information on breaches) and personal (ban on holding positions, withdrawal of licences or permits, order to cease certain types of activity).
Author:
Piotr Jaśkiewicz,
Counsel, Baker McKenzie
