What tax breaks have been provided for entrepreneurs for carrying out a public task under the PPP system?

As of October 7, 2005, the new law of July 28, 2005 on public-private partnerships (Journal of Laws No. 169, item 1420), hereinafter referred to as the "PPP law," will come into force. It is intended to stimulate public sector investment, especially infrastructure investment. The new law creates an appropriate legal framework for this. With this regulation, the legislator expects to increase the number of highways, sewage treatment plants, sports facilities, etc.
The system of public-private partnerships is that public investments, carried out as part of public tasks, will be financed (in whole or in part) by private entities. The private entrepreneur, after the implementation of the project, will have the right - for a certain period of time - to profit from the investment. In exceptional situations, the public entity may also pay for the implementation of the investment. After a period of time in which the private investor is reimbursed for its expenses, the investment will pass to the public entity. Both parties will therefore benefit from the form of cooperation in question: the private entrepreneur will have the right to profit from the investment, and the public entity will obtain funds for the public task from the private entity.

Statutory regulations

The PPP Law strictly defines the concept of public-private partnership. According to Article 1(2) of this Law, a public-private partnership (hereinafter PPP) is a based on a public-private partnership agreement, a cooperation between a public entity and a private partner for the implementation of a public task. The subject of the public-private partnership agreement will be the implementation of a project by the private partner for the public entity in return for remuneration. The private partner will bear all or part of the expenditures for the implementation of the project or ensure that they are borne by other entities. The private partner's remuneration will be the right to derive benefits or obtain other advantages from the project or the payment of a sum of money by the public entity.

To private partner considered:
(a) an entrepreneur within the meaning of the laws on freedom of economic activity,
(b) a non-governmental organization,
(c) a church or other religious association,
(d) a foreign entity, if it is an entrepreneur under the laws of the country of registration and meets the conditions for conducting business in the Republic of Poland.

An entrepreneur engaging in the PPP system can therefore be not only a legal entity, but also a natural person engaged in independent business activity, or an unincorporated commercial company. Partners of a civil partnership are also considered entrepreneurs to the extent of their business activities.

Public entity it:
(a) government authorities,
(b) local government units and their unions,
(c) special purpose funds,
(d) state universities,
(e) research and development units,
(f) independent public health care facilities,
(g) state or local government cultural institutions,
(h) The Polish Academy of Sciences and the organizational units created by it,
(i) state or local government legal entities established under separate laws to perform public tasks, excluding enterprises, banks and commercial companies.
The PPP system is not only the construction of public facilities - such as public roads, railroads, etc., but also the provision of services or undertaking other forms of economic and social development activities. The involvement of private entrepreneurs, among others, to provide services in health care, social welfare or public policy in the PPP system is aimed at increasing the level of provision of these services.

Venture as defined in Article 4(4) of the PPP Law are:
(a) design or implementation of investments in the performance of a public task,
(b) the provision of public services for a period of more than 3 years, if it involves the operation, maintenance or management of an asset necessary for this purpose,
(c) an activity for economic and social development, including revitalization or development of a city or part thereof or other area, carried out on the basis of a project submitted by the public entity or combined with its design by the private partner, if the private partner's remuneration will not be in the form of payment of a sum of money by the public entity,
(d) a pilot, promotional, scientific, educational or cultural project, supporting the implementation of public tasks, if the private partner's remuneration will come predominantly from sources other than funds of the public entity.

Worth knowing:
An entity interested in realizing a particular undertaking as part of PPP may submit an application to the public entity with a proposal for realizing this undertaking. Before deciding to realize a particular enterprise as part of PPP, the public entity shall prepare an analysis of the enterprise, and if the analysis shows that the enterprise, even in part, requires financing from the state budget, consent to the realization of such an enterprise - at the request of the public entity - shall be given by the minister responsible for public finance. Information about the planned realization of a specific undertaking on the principles appropriate for PPP is announced in the Public Procurement Bulletin and the Public Information Bulletin. As a rule, to the selection of a private partner and public-private partnership agreements to the extent not regulated in the PPP Act, the provisions of the Act of January 29, 2004 shall apply accordingly. - Public Procurement Law (Journal of Laws No. 19, item 177, as amended) - cf. Article 14 of the PPP Act.
The PPP contract may also stipulate that the public entity and the private partner will form an equity partnership for its implementation.

P.d.o.f. implications.

To encourage private entrepreneurs to take an interest in the PPP system, the legislature introduced personal and corporate income tax breaks.
The amendments to the PPP Law were introduced by Article 31 of the PPP Law. They are aimed at making PPP activities more attractive and simple by introducing the principle of tax neutrality. Thus, if the investment is financed to some extent by the public partner, the funds received by the private entrepreneur for the project will not constitute taxable income for him.
This is because according to Article 21 (1) (122) of the p.d.o.f. Law. the public entity's own contribution received by the private partner and allocated for the purposes specified in the public-private partnership agreement is exempt from income tax. The above exemption also applies to taxpayers who pay lump sum on registered income (Article 37 of the PPP Law).

Own contribution means the contribution of a public entity consisting in particular of:
(a) to finance a portion of the costs of implementing the project, including a surcharge on the services provided by the private partner in the project,
(b) contribution of an enterprise within the meaning of Article 55¹ of the Civil Code, real or movable property, licenses and other intangible assets, if they serve to implement the project.
In particular, the transfer of the contribution may take the form of donation, sale (subject to repurchase), lending, use, rental or lease.
According to Article 21 (19) of the P.D.O.F. Law. Funds constituting reimbursement of expenses incurred for the implementation of a public task or project that is the subject of a public-private partnership agreement by or through a private partner, as well as funds intended for the acquisition of shares in a commercial company are not exempt.
At the same time, to the cost of revenue the entrepreneur will not be able to count expenses and costs directly financed by the public entity's own contribution. This follows from Article 23(1)(56) of the Law on p.d.o.f., according to which deductible expenses do not include expenses and costs directly financed from income (revenues) referred to in Article 21(1) points. 46, 47a, 47c, 47d, 116 and 122.

As indicated above, the private entity will be entitled to remuneration for the implementation of the project (e.g., construction of a sports facility). As part of the remuneration, the entrepreneur will have the right to collect fees from users, or income from the project for a certain period of time. The contract should regulate the amount of fees, the method of their collection and measures to protect recipients. At this stage, the legislature has not provided additional tax benefits for entrepreneurs.
According to Article 25 of the PPP Law, upon completion of the performance of the contract, the private partner shall hand over to the public entity the asset that is the subject of the PPP contract in an undamaged condition, taking into account its wear and tear due to proper use, unless the PPP contract provides otherwise.

Pursuant to Article 22 (1j) of the p.d.o.f. Law. for the private partner specified in the public-private partnership agreement, as defined in the PPP Law, in the case of a gratuitous transfer to a public entity (or for the benefit of a state or local government legal entity established to perform public tasks, or a commercial company with a majority share of a local government unit or the State Treasury) ownership of tangible or intangible assets within the period specified in this agreement, the cost of income is the initial value of these tangible or intangible assets, less the sum of depreciation deductions, referred to in Article 22h (1) (1) of the p.d.o.f. Act.

Legal basis: The Act of July 26, 1991 on personal income tax (Journal of Laws No. 14, item 176, as amended), the Act of July 28, 2005 on public-private partnership (Journal of Laws No. 169, item 1420)