Until the end of Q1 2019, advisors will be obliged to submit to the Head of the National Revenue Administration (NRA) first information regarding tax avoidance schemes. It will include arrangements introduced following June 25, 2018. In case of some arrangements, they may be exempt from this obligation, which consequently will have to be fulfilled by their clients.
The draft bill amending the tax law published on August 24, 2018 contains a proposal to introduce regulations concerning the Mandatory Disclosure Rules of tax schemes – hereinafter: MDR). It is related to transposition of the provisions of Directive 2018/822 of 25 May 2018, although proposed amendments take it one step further. The obligation to disclose arrangements will apply not only to cross-border arrangements, but also some domestic arrangements.
In accordance with the draft, the reporting obligation is to considerably improve the efficiency of tax authorities’ actions aimed at aggressive tax planning. MDR regulations go in line with the successively implemented policy of “tightening” the tax system, following the trend started with the introduction of GAAR over two years ago.
New chapter 11a of the Tax Ordinance Act (new articles 86a-86n), contains regulations imposing the obligation to submit to the Head of NRA information about tax schemes primarily on the so-called promoters (i.e., tax advisors, legal counsels and attorneys-at-law, employees of banks and other financial institutions). In some cases – discussed hereunder – this obligation will also be imposed on the clients of promoters (users in line with the terminology provided for in the Act).
In the case of marketable arrangements, which do not require disclosing the circumstances covered by professional secrecy, which can be used in the case of more than one user, the obligation will apply only to promoters. Whereas in the case of bespoke arrangements, dedicated to a particular user, it is the user who will have to provide the information about the details of the arrangement required by law to the Head of NRA, having obtained them from the promoter. The user is obliged to provide the information only when the promoter has not been relieved of the obligation to keep professional secrecy.
As far as definitions of tax schemes are concerned, the lawmakers, following the regulations provided for in Directive 2018/822, consider disclosable schemes to be the agreements aimed at obtaining a tax advantage which at once satisfy the main benefit test and at least one of generic hallmarks, or satisfy at least one specific hallmark, or one other specific hallmark (in the case of satisfying the specific hallmarks, the main benefit test does not have to be satisfied). What do these terms mean in practice?
- (the main benefit test) – is satisfied if it can be established that – having regard to all relevant facts and circumstances – the main benefit or one of the main benefits a person may reasonably expect to derive from an arrangement is the obtaining of a tax advantage. (example from the statement of reasons: e.g. an entity decides to expand its scale of operations by investing in a SEZ, while it can be established that it could invest in another location without achieving a tax advantage), this criterion is defined by the new article 86a § 2 of the Tax Ordinance Act;
- (generic hallmarks) – one of 11 features stipulated in new article 86a § 1 item 5 of the Tax Ordinance Act);
- (specific hallmarks) – one of 8 features stipulated in new article 86a § 1 item 12 of the Tax Ordinance Act);
- (other specific hallmarks) – one of 4 features stipulated in new article 86a § 1 item 13 of the Tax Ordinance Act);
Additionally, it should be noted that in the case of domestic arrangements, de minimis regulations have been provided. In that case, the reporting obligation will apply only if:
- revenue/expenses/value of assets exceeds PLN 20 million, or
- the arrangement applies to assets or rights with the market value exceeding PLN 20 million, or
- the arrangement applies to related entities as defined in the income tax regulations.
The tax scheme information will contain a broad scope of information (i.a. the aims of the scheme, estimated value of the tax advantage, all activities related to the implementation of the scheme, as well as other entities obliged to provide information about the scheme). This information will be submitted to the Head of NRA using an ICT system, which will assign a unique NSP no. to each scheme.
If the user applies the tax scheme in their tax settlements, they will be obliged to disclose that information in their annual CIT form, revealing, among others, the amount of tax advantage achieved using this scheme.
For the first time, the information about tax schemes will be disclosed by the “promoters” within 3 months of the entry into force of the amendments (i.e., by the end of Q1 2019) and will include arrangements implemented after June 25, 2018. When it will be the user that will be obliged to disclose information, as a rule, he will have three months more for the first report.
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The above notes regarding the new MDR are of preliminary nature and will be developed in our further publications. It is important to emphasize here that due to the unclear and casuistic nature of the regulations, assessing whether a particular tax scheme will be subject to the reporting obligation will require a thorough study of the above-mentioned reasons. Given the fact that in some situations the obligation will also apply to the clients of professional service providers, i.e., users, it is necessary to establish some rules of cooperation with advisors in this respect.
