Mandatory reporting of tax-planning schemes
Change of Polish tax law provisions
31 October 2018
The amendment to Polish tax provisions adopted by Polish Parliament on 26 October 2018 introduces into the Polish Tax Ordinance Act mandatory reporting of so-called tax-planning schemes (Mandatory Disclosure Rules – MDR). The amendment imposes new obligations not only on advisors (attorneys-at-law, legal counsels, tax advisors), but also on their clients.
The amended provisions are to enter into force on 1 January 2019, but tax-planning schemes will have to be disclosed retroactively if the first activity related to implementation of the given scheme was performed after 25 June 2018 (cross-border schemes) or after 1 November 2018 (domestic schemes).
What is subject to mandatory disclosure?
Mandatory disclosure concerns tax-planning schemes which have or may have an impact on tax liability and which at the same time meet criteria indicated in the amended provisions - different for cross-border schemes (of which mandatory disclose results from the EU DAC6 Directive) and for domestic schemes (not covered by the Directive). In case of domestic schemes, obligation to report will cover schemes irrespectively of taxes they concern (among others, will cover schemes referring to CIT, PIT or VAT).
Subject to reporting will be a wide scope of information concerning the scheme, i.a. its detailed description, applied tax law provisions as well as the expected value of tax benefit. Disclosed schemes will be assigned a so-called NSP - number of the tax-planning scheme.
In which cases will domestic schemes be subject to mandatory disclosure?
Domestic schemes will be subject to mandatory disclosure if the beneficiary of the scheme will be a qualified entity (revenues, costs or assets of the beneficiary or of its related party exceed EUR 10m, or the scheme concerns items or rights of market value exceeding EUR 2.5m), and at the same time:
- the main or one of the main benefits that the beneficiary expects to derive from the scheme is a tax advantage (understood very broadly - generally as any reduction in tax liability or postponement in its creation), and additionally the scheme fulfills criteria of at least one of the so-called “generic hallmarks” (broad and imprecise set of features, including i.a. situations when documentation and/or structure of the activities does not need to be substantially customized for implementation depending on the beneficiary, there is an undertaking to comply with a condition of confidentiality as concerns the way in which the scheme can secure a tax advantage, schemes where the intermediary is entitled to receive a success fee, etc.), or
- regardless of what is the main benefit of the scheme (tax or non-tax-related) - if it meets at least one of numerous other criteria - for example:
(i) has an impact on deferred part of income tax or on deferred tax assets or provisions which is materially relevant to the entity from accounting perspective and this impact exceeds PLN 5m per year,
(ii) concerns non-withholding of tax in the amount exceeding PLN 5m per year, which withholding tax would have been levied if double taxation treaty or tax exemption would not be applied.
When will cross-border schemes be subject to mandatory disclosure?
Cross-border schemes will be subject to mandatory disclosure, regardless of whether the beneficiary is a qualified entity, in a situation when:
- the main or one of the main benefits that the beneficiary expects to derive from the scheme is a tax advantage (understood analogously as in case of domestic schemes) and additionally the scheme fulfills criteria of at least one of the so called “generic hallmarks” (the set of these conditions is to some extent narrower than with respect to domestic schemes), or
- regardless of what is the main benefit of the scheme - if it meets at least one of numerous different criteria listed in the amendment, for example:
a) the scheme involves tax-deductible cross-border payments to related entities located in tax havens,
b) the same income or property benefits from method of elimination of double taxation in more than one state,
c) there is a non-transparent structure of legal ownership or it is difficult to determine the beneficial owner,
d) the scheme involves a transfer of “hard-to-value intangibles”.
Who will be obliged to report?
Mandatory disclosure obligation will as a rule burden the intermediary (understood as each person which develops, offers, makes available, implements or manages the implementation of the arrangement – in particular a tax advisor, legal counsel or attorney-at-law), and in specific situations the beneficiary (the person to whom the scheme is made available, who is prepared for its implementation or performed an activity related to implementation of the scheme). In addition to the above, in a situation when the scheme will not be reported neither by the intermediary nor by the beneficiary, the mandatory disclosure may additionally burden a so-called supporting entity (a broad definition including i.a. each person who has undertaken to provide assistance, support or advice regarding development or implementation of the scheme - for example a notary public).
Mandatory disclosure rules are different for the so-called standardized schemes (repetitive, possible to be implemented or made available to more than one beneficiary without the need to change essential assumptions of the scheme) and for non-standardized schemes.
What obligations will be imposed on beneficiaries?
The beneficiary will be obliged to report the scheme when:
- the given scheme is subject to disclosure, and the beneficiary has not been informed by the intermediary that the scheme has already been reported (as described in justification to the discussed amendment – e.g. in cases when the beneficiary has developed and implements the arrangement on his own and does not cooperate with any intermediary);
- with respect to non-standardized schemes, if the beneficiary will be informed that the intermediary will not disclose this scheme (as it would violate the professional secrecy obligation binding the intermediary, from which the beneficiary did not release it) - in such case, the intermediary shall provide the beneficiary with specific data that is subject to mandatory disclosure.
In the above situations, the beneficiary will report within 30 days from the day following the day in which the scheme will be made available, from the day following the day of preparation for implementation of the scheme or from the day of performing the first activity related to implementation of the scheme - depending on which of these events occurs first. Making available of the scheme is understood very broadly and includes i.a. providing the beneficiary with information about the arrangement in any form, including by e-mail, phone or in person.
Regardless of the obligation to report (which will usually burden the intermediary), in each situation when the beneficiary will apply a scheme, it will be obliged to provide the Chief of National Fiscal Administration with so-called information on application of the tax-planning scheme, within the deadline for filing the tax return concerning the settlement period in which the beneficiary performed any activities that are part of the scheme or obtained a tax benefit resulting therefrom. The disclosed information will include i.a. the NSP of the scheme and the amount of the tax benefit resulting from the scheme, obtained in the given settlement period. Therefore, each application of a tax-planning scheme will be compulsorily disclosed by the beneficiary to the fiscal administration.
The abovementioned information will be submitted under penalty sanction for perjury for making a false statement and will be signed by a taxpayer being a natural person, and in the case of taxpayers being legal persons - by all members of the taxpayer's managing body.
What are the sanctions for non-reporting?
The amendment foresees fines for failing to fulfill obligations related to reporting of the tax-planning schemes. The court may also order, in such cases, a penal measure of prohibition to perform specific business activity.
In the case of intermediaries, entities that employ intermediaries or that actually remunerate intermediaries, the revenues or costs of which exceeded in the previous financial year PLN 8m, the provisions impose an obligation to implement a so-called internal procedure determining the rules of conduct in the field of reporting. The amendment also introduces fines up to PLN 2m (in specific situations – up to PLN 10m) in case of non-implementation of internal procedure by obliged entities.
It should be noted that taking into account the broad definition included in the amendment, entities obliged to implement internal procedure will include not only tax advisors, legal counsels or attorneys-at-law, but in specific cases also other entities (i.a. banks or financial institutions, but also companies having internal tax departments).
When will the reporting obligation come into force?
The relevant provisions are to enter into force on 1 January 2019, whereas the reporting obligation will be partly retroactive – obligation to report will also cover schemes with regards to which the first activity related to their implementation was performed:
- in the case of domestic schemes – after 1 November 2018,
- in the case of cross-border schemes – after 25 June 2018.
Information about retroactively disclosed schemes will have to be reported by the end of June 2019 (if the disclosing entity will be the intermediary) or by the end of September 2019 (if the disclosing entity will be the beneficiary).
Alert podatkowy 14/2018