Change of Country-by-Country Reporting regulations in Poland

Analysis

Transfer Pricing: Change of Country-by-Country Reporting regulations in Poland

The act of parliament on the exchange of tax information comes into force on April 4

Tax Alert 1/2017 | 30 March 2017

On March 27 the Act of 9 March 2017 on the exchange of tax information with other countries (hereinafter: the Act) was published in the Journal of Laws. The Act will come into force on Tuesday April 4. The purpose of the Act was to regulate in a single act the issues related to the exchange of tax information as well as to implement, among others, the Council Directive 2014/107/EU, Council Directive (EU) 2015/2376 and Council Directive (EU) 2015/2376 amending directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation to the Polish legal framework.

The major changes introduced by the Act concern, among others, Country-by-Country Reporting (hereinafter: CbCR), referred to in the Act as providing information about a group of entities. The Act extends the obligations of Polish taxpayers that are members of large capital groups by additional reporting obligations with regard to providing information about a group of entities, and it introduces the obligation to submit to the Head of the National Tax Administration a notification specifying which entity from the capital group will be responsible for preparing this information.

Until now matters concerning CbCR have been regulated in the CIT Act, however, on the effective date of the Act the provisions of the CIT Act concerning CbCR obligations are revoked.

Regulations valid until now

Until now, pursuant to Article 27.6 of the CIT Act, national entities related to national or foreign entities on the basis defined in Article 11.1.1 and Article 11.4 of the CIT Act:

  • which met the criteria defining the parent unit and did not meet the criteria defining the subsidiary within the meaning of the provisions of the Accounting Act,
  • which were the units that consolidated the financial statements within the meaning of the provisions of the Accounting Act,
  • which had a foreign permanent establishment or one or more subsidiaries within the meaning of the provisions of the Accounting Act outside of the territory of the Republic of Poland (hereinafter: RP),
  • whose consolidated revenues within the meaning of the provisions of the Accounting Act, on the territory of RP and outside its territory, exceeded in the previous tax year an equivalent of EUR 750 million

were obliged to submit to the tax office a report on income and paid tax as well as places of business, subsidiaries and foreign permanent establishment owned by the capital group (hereinafter: Report). The obligation was to be fulfilled within 12 months from the date of the national entity’s tax year for which the report was due.


Such wording of the regulations imposed the obligation to submit the Report only on the Polish entities that are parent units. The new Act considerably extended the scope of Polish entities being a subject to the obligations related to CbCR. 

“In the age of globalization the need for mutual assistance among individual tax administrations in the exchange of broadly understood tax information becomes increasingly important”.

Justification to the Act on the exchange of tax information with other countries

New Act – extension of the CbCR obligations in Poland

Obligation to provide information about a group of entities

Provisions of the Act, like the to-date valid regulations of the CIT Act, include the obligation to submit information about a group of entities by the parent units with their registered office or management on the territory of the RP. The new Act, however, extends the range of entities being a subject to the obligation of preparing and submitting CbCR. In particular, if within the group there is no other unit appointed as the unit obliged to provide CbCR, pursuant to the Act, the obligation in this respect will be extended also onto the unit which belongs to a group of entities and is not the parent entity, which has its registered office or management on the territory of the RP or has its registered office or management outside the territory of the RP, but operates on the territory of the RP via a foreign permanent establishment when at least one of the following conditions is met:

  • the parent unit of this group of entities is not obliged to provide the information about the group in the country or on the territory where it has registered office or management,
  • the competent authorities of the parent unit country did not conclude a relevant agreement with the RP authorities on the exchange of tax information (they are not party to the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports),
  • tax jurisdiction of the parent unit suspended the automatic exchange of information on the group of entities or failed to fulfill the obligation to provide such information and the parent unit was notified of this fact.

In practice this means that also Polish entities which belong to international groups (and which are not the parent unit within the group) may be obliged to submit the CbCR.

It is worth highlighting that in the case when an entity being a part of a group of entities does not receive from the parent unit data required by information about a group of entities, this unit is obliged to submit the information it possess and to inform thereof in the submitted CbCR.

Obligation to submit a notification

Moreover, the Act also introduces a new obligation for all units covered by the CbCR obligation which have their registered office or management on the territory of the RP or operate via a foreign permanent establishment on the territory of the RP. These units will be obliged to submit a notification in which they inform the Head of the National Tax Administration that:

  • they are the parent unit (appointed unit or another unit submitting the CbCR) or
  • they indicate the unit submitting the CbCR, specifying the country or territory where the CbCR will be submitted.

“(…) on 27 January 2016 the Republic of Poland signed the Multilateral Competent Authority Agreement, which will be the basis for the cooperation and information exchange within the OECD. Besides Poland, 30 other states signed the agreement at that time”.

Justification to the Act on the exchange of tax information with other countries

The implementing rules of the new Act 

The implementing rules of the new Act, that is the Ordinance of Finance and Development Minister concerning the detailed scope of data to be included in information about a group of entities (hereinafter: the Ordinance) together with the appendix including instructions for completing the information about a group of entities, shall be published after the entry into force of the Act. So far only the draft Ordinance has been published.

The draft Ordinance emphasize that, the information about a group of entities should contains the information listed below:

  1. the aim of submitting the information about a group of entities (submitting the information, updating of the information, adjustment of the information);
  2. unique identification data of the entities constituting a group of entities (name of the entity being a part of a group, tax identification number, address);
  3. name of a group of entities;
  4. indication of financial reporting year;
  5. indication of the currency in which the values included in the information about a group of entities are expressed; 
  6. data about entities being part of group of entities [value of realised revenues, realised profit (loss before taxation), income tax paid, income tax due, share capital, undistributed profit from previous years, amount of employees, fixed and current assets] – by the country or territory;
  7. indication of the business activity undertaken by entities being a part of a group (divided by the country or territory);
  8. additional information or explanations especially concerning sources of data used during completion of information about a group of entities.

The annex to the draft Ordinance contains detailed instructions for filling in CbCR, in particular specifying the provisions of the draft Ordinance in order to facilitate the process of transmission of information for entities.

Said documents can be found on the Internet at the following addresses (in polish language version):

Model report in the form of an electronic document will be included in The Public Information Bulletin on the website of the Ministry of Finance

Time-limits

Time-limits for the submission of CbCR

With regard to entities which are parent units[1] and with regard to the reporting financial year[2] starting after 31 December 2015, however not later than before 1 January 2017 – the CbCR should be submitted within 12 months from the last day of this financial year (i.e. in the case where the reporting financial year coincides with the calendar year, the CbCR for 2016 should be submitted by the end of 2017).

With regard to both entities which are parent units[3] and entities which are not parent units[4] and with regard to the reporting financial year starting after 31 December 2016 – the CbCR should be also submitted within 12 months from the last day of the reporting financial year (i.e. in the case where the reporting financial year coincides with the calendar year, the CbCR for 2017 should be submitted by the end of 2018).

The Act allows voluntary filing of CbCR by polish unit which is not parent entity (and therefore is not obliged to submit the CbCR for 2016) for reporting period starting after 31 December 2015, however not later than before 1 January 2017, if this unit is appointed by a group of entities provided that this unit submits the notification and gathers all necessary data.

It is worth highlighting that the CbCR shall be submitted to the Head of the National Tax Administration by electronic means of communication.

Time-limits for the submission of the notification

With regard to the reporting financial year starting after 31 December 2015, however not later than before 1 January 2017 – the notification should take place within 10 months from the end of this financial year.

With regard to the reporting financial year starting after 31 December 2016, the notification should take place on the last day of the reporting financial year of a given group at the latest.

[1] This applies to entities which were covered by the obligation for the submission of CbCR under CIT Act.

[2] The Act defines the reporting financial year as the financial year for which the annual consolidated financial statement is made, regarding which the CbCR is submitted.

[3] This applies to entities which were covered by the obligation for the submission of CbCR under CIT Act.

[4] This applies to entities which were not covered by the obligation for the submission of CbCR under CIT Act.

„The unit (…) shall submit information about a group of entities to the Head of the National Tax Administration by electronic means of communication. Information about a group of entities shall be prepared on the basis of a model electronic document published in the Public Information Bulletin on the website of the Ministry of Finance”.

Article 83 of the Act on the exchange of tax information with other countries

Sanctions

The Act provide for pecuniary penalties for the failure to fulfill the obligations described above. In particular, the unit which belongs to a group is punishable by a pecuniary penalty if:

  • it failed to fulfill the obligation to submit the CbCR (in this case only the parent unit or the appointed unit are subject to the penalty) or
  • it failed to provide the notification.

The pecuniary penalty is imposed by the Head of the National Tax Administration by way of decision, in an amount not higher than PLN 1 million (the amount will depend on the type and scope of breach, to-date operations of the unit and its financial possibilities).

Importantly, the Act amends the Treasury Penal Code, in particular new Article 80d is added introducing the penalty of a fine of up to 240 daily rates (i.e. in 2017 up to PLN 6 400 000) for submitting untrue information on the group of entities.

Conclusions

In view of the above, we recommend that the Companies which are parent units in an international capital group:

  • identify whether the international capital group led by this entity is subject to the obligation to prepare the CbCR;
  • check and keep the term to notify the Head of the National Tax Administration that the company is the parent unit submitting the CbCR;
  • check and keep the term to submit the CbCR to the Head of the National Tax Administration.

We recommend that Companies which are not parent units in an international capital group:

  • identify whether the international capital group to which the given entity belongs is subject to the obligation to prepare the CbCR;
  • get in touch with the group in order to identify the unit responsible for preparing and submitting the CbCR;
  • check and keep the term to notify the Head of the National Tax Administration which company is the reporting unit and specify the jurisdiction in which the CbCR will be submitted.

“Any person acting on behalf or in the interest of the taxpayer, contrary to the regulations of the Act of 9 March 2017 on the exchange of tax information with other countries, submits untrue information for the purposes of information about units making up a group of entities is punishable by a fine of up to 240 daily rates”.

Article 80d of the Treasury Penal Code introduced by the regulations of Article 95 of the Act on the exchange of tax information with other countries 

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