Pursuant to the draft of the Act amending the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Ordinance Act and some other laws of September 17, 2018, which is to become effective as of the beginning of 2019, the government is planning an extension of the scope of the anti-avoidance rule to situations where achieving a tax benefit is not the sole main purpose of a particular action.
The current regulations allow to apply the anti-avoidance clause when an action has been taken primarily to achieve a tax advantage. I.e., obtaining a tax advantage should be the taxpayer’s main purpose. As a result of the implementation of the ATAD EU Directive, the draft amendment provides for a possibility to apply the rule even when the main, or one of the main purposes of actions taken is to achieve a tax advantage, i.e., even when the action has a few equivalent purposes, and the prospect of achieving a tax advantage contradictory to the scope or aim of the tax law is only one of them.
The planned amendment introduces a uniform definition of a tax advantage in the Tax Ordinance Act, construed as a benefit resulting from an arrangement, consisting in:
- a) preventing a tax liability from arising, a deferral of tax liability, a reduction of tax liability,
- b) generating a tax loss or an increase thereof,
- c) generating a tax overpayment or a right to a tax refund, or an increase thereof,
- d) lack of obligation to collect tax by the taxpayer when it results from the circumstances indicated in point a).
The current provisions provide for the definition of a tax advantage for the needs of a single chapter of the Tax Ordinance Act. Pursuant to the binding definition, a tax advantage is construed as:
- a) preventing a tax liability from arising, a deferral of tax liability, a reduction of tax liability, or generating a tax loss or an increase thereof
- c) generating tax overpayment, or a right to a tax refund, or an increase thereof,
The analyzed changes will result in a considerable extension of the scope of the anti-avoidance rule. They may lead to a situation where even business- and economically-justified activities of the taxpayer can be determined as tax avoidance, if they are related to obtaining a tax advantage, unless it is insignificant. The provision formulated this way may result in limited possibilities of making use of many aspects of legal tax planning, aimed at choosing the most economically viable method of carrying out one’s business goals. This wording may lead to certain concerns of entrepreneurs that the application of the anti-avoidance rule can also apply to actions taken for business reasons, where a tax advantage is only an additional benefit, especially as the evaluation of the main purposes of certain activities may differ from the taxpayer’s and the tax office’s point of view.
