Creating a complex structure of entities in corporate groups has been a common practice so far, and the possibility of tax optimization is one of its key reasons. Also, many enterprises using SAP in Poland operate with carved-out commercial and/or production companies, shared service centers (Financial Shared Service Centers, HR Service Centers) and other entities with legal personality as well as handled as separate business entities in SAP systems.

In fact, in 2018 entrepreneurs face the biggest changes in CIT in recent years. Tax authorities are trying to implement the EU directive (ATAD of 2016) and to force entrepreneurs on their own to give up tax optimization.

The main source of changes is the Act of 27 October 2017 amending the Act on Personal Income Tax, the Act on Corporate Income Tax and the Act on Flat-Rate Income Tax on Certain Revenues Earned by Natural Persons (Dz. U. [Journal of Laws] of 2017, item 2175). The new provisions entered into force on January 1, 2018.

The Act introduces changes regarding i.a.:

  1. separate calculation of income from capital gains and other income (sources of income) and lack of possibility to offset capital losses against income from other business activities
  2. amendment of provisions regarding the so-called insufficient capitalization, i.e. provisions preventing excessive debt financing of taxpayers (Article 15c and Article 15ca of the CIT Act)
  3. amendment of tax avoidance provisions by creating controlled foreign companies in countries with preferential tax regimes, e.g. in so-called tax havens (Article 24a of the CIT Act)
  4. amendment of the provisions concerning the functioning of tax capital groups, the so-called TCG (Article 1a and Article 7a of the CIT Act); in this respect, the requirements were slightly lowered, but at the same time the consequences in the event of losing the PGK status were increased
  5. amendment of a small anti-tax avoidance clause (former Article 10(4) and (4a)) to prevent the application of the restructuring provisions where restructuring is not economically justified and is carried out with the aim of tax evasion
  6. enabling tax authorities to estimate the value of the provision of services if their price differs significantly from the market value
  7. introduction of a limit for the amount of tax deductible expenses related to CIT taxpayers’ contracts for specific intangible services (Article 15e of the CIT Act).
  8. limitation of the possibility to classify as tax deductible expenses bad and waived debts, losses on paid disposal of debts previously classified as income and amortization of certain intangible assets, as well as expenses in respect of the use of royalties and licence fees
  9. change in the rules of taxation at the partial division of companies

All these new provisions require managements to consider whether it is reasonable to continue the group’s operations in the current model. Of course, this does not mean a clear answer that in each case the economic calculation will translate into the decision to merge all the entities into one company. We should remember that tax optimization is not the only factor justifying the functioning of separate companies in the group. However, we already know from market practice that at least in some cases the existence of a Tax Capital Group loses its raison d’être and management decides to merge the companies.

A simple consequence of a business decision about the merger of companies is the need to make changes in SAP systems, often under a lot of time pressure. In such cases, each month of delay in completing the project can result in huge losses. Therefore, it is recommended to choose for such a project the specialists who will carry it out professionally, using the experience and tools built during numerous similar projects implemented previously.

Transformation is more difficult than implementation

SAP projects related to business changes generate additional challenges. As a result, in some respects such transformation projects are more demanding for the company and its implementation partner than system implementation from scratch.

The most common projects of this type (and the challenges they pose) are:

  • Mergers of companies or parts of companies (the need to merge business entities, profit centers, etc. in the system, often from various ERP systems, including SAP)
  • Carving out an organized part of an enterprise, e.g. for the purpose of sales (the need to carry out a carve-out – extraction of some data from the SAP system and its transfer to another SAP system)
  • Changes and shifts of financial years (shortening or extending a financial year or shifting a financial year – e.g. change of numbering so that it corresponds to a calendar year)

A characteristic feature of such projects is not only the change in the way data is recorded since the go-live of the system, but also often the transformation of historical data for a selected period retroactively so that it looks as if it was entered already in a new way.

Piotr Brzoskowski, Consulting and Application Management Director, All for One Poland

We have been implementing projects of business changes, such as mergers and carve-outs of entities, or changes of financial years for many years (until 2017 under the BCC brand). Since 2017, as a part of the SNP Group, we have had at our disposal additionally know-how and, above all, software of SNP, which has successfully supported hundreds of SAP environment transformations. Thanks to SNP solutions, SAP transformations are carried out better and more effectively. More changes can be made to the SAP environment in a shorter time, while minimizing system downtime (near zero downtime).
Such projects are dealt with by BLT – Business Landscape Transformation, a new area created in SNP Poland (now All for One Poland) in January 2018.
Piotr Brzoskowski, Consulting and Application Management Director, All for One Poland

Business Landscape Transformation to the rescue

Adjustments in an already operating IT system are not always easy. Often, due to the consistency of the system, they just may not be made, or their implementation is very labor-intensive. Here the support is provided by special tools prepared by the SNP Group as well as SAP solutions enabling virtually any changes to be made in the “live" SAP system, including, in particular, the mapping of ownership changes in the structure of corporate groups.

These tools enable the analysis of the current state of the system (SNP System Scan, SNP Interface Scanner) and allow even the most complex changes to be made in the data of the already existing system (SNP Transformation Backbone with SAP LT).

The family of SNP solutions for BLT services enables the existing SAP system to be reorganized without the need for reimplementation. Thanks to the specialized methodology and the products used to support the change process as well as many years of experience in similar projects, it is possible to carry out SAP transformation projects that:

  • are delivered faster than with standard tools,
  • are more reliable because they use proven transformation mechanisms developed by SNP and SAP,
  • are made possible at all by the use of SNP Transformation Backbone

Mapping of legal changes or simplification of the structure of master or transactional data is a task for the team of BLT project specialists. In the context of changes in CIT which came into force in 2018, it opens the way to achieving as soon as possible the optimal structure of the corporate group supported by a fully adapted SAP system, without any disruption in the day-to-day business.