Mandatory Disclosure Rules

On January 1, 2019, the Mandatory Disclosure Rules (MDR) came into force. Below is an abbreviation of the main principles only.
Reports are submitted to the head of the National Tax Administration (KAS) electronically.
Reports should be submitted electronically on the forms mentioned and by entities listed below:
MDR-1 Information about the Tax Scheme - submitted by a promoter, user or supporting entity, within 30 days,
MDR-2 Notification Concerning Tax Scheme - submitted by a promoter or supporting entity;
MDR-3 Information of the User on the Tax Scheme – submitted by the user together with the declaration for a given period
MDR-4. Quarterly Information on the Provision of a Standardized Tax Scheme - submitted by a promoter or a supporting entity.

Reporting the Scheme to the head of KAS
After reporting the scheme on form MDR-1 or MDR-3,  the head of KAS allocates to the scheme  an NSP Number (Tax Scheme Number). The entity (promoter, beneficiary or supporting entity) who obtains the NSP number,  informs the other interested entities about it, thus freeing the remaining entities from the obligation to submit the MDR-1 (in relation to the scheme that already has the NSP number assigned).
A non-cross-border scheme is not reportable, if it concerns a user for whom the criterion of qualified beneficiary (KKK) is not met.

Definitions:
The criterion of qualified beneficiary (KKK) is considered fulfilled if the revenues or costs of the user or the value of assets of that entity within the meaning of accounting regulations, established on the basis of bookkeeping, exceeded in the previous year or in the current financial year the equivalent of EUR 10,000,000 or the arrangement provided or implemented concerns items or rights with a market value exceeding the equivalent of EUR 2,500,000 or if the user is an entity related to such an entity (related in terms of transfer pricing regulations).

Promotor (intermediary) - is a natural person, legal person or organizational unit without legal personality, in particular a tax advisor, advocate, legal adviser, bank employee or other financial institution advising clients, also in the case where he has no place of residence, registered office or management in the territory of Poland. The entity acts as a promoter, if in the scope of performed activities:
o    designs  an arrangement,
o    offers an arrangement,
o    provides an arrangement,
o    implements the arrangement, or
o    manages the implementation of the arrangement

User (relevant taxpayer, beneficiary) - is a natural person, legal person or organizational unit without legal personality:
o    to whom the arrangement is made available,
o    for whom the arrangement is implemented,
o    which is prepared to implement the arrangement,
o    who carried out an action to implement the arrangement.

Supporting entity (assistant) - a natural person, a legal person or an organizational unit without legal personality, in particular a statutory auditor, notary public, bookkeeper, accountant or financial director, bank or other financial institution, as well as their employee who, with due care generally required in the activities performed, taking into account the professional nature of the activity, the area of specialization and the subject matter of performed activities, undertook to provide, directly or through other people, help, support or advice regarding the development, marketing, organization, making available for implementation or supervision of the implementation of the arrangement.

Tax scheme - it means an arrangement which:
a) fulfils the main benefit criterion and has a general hallmark,
b) has a specific hallmark, or
c) has another specific hallmark;

Cross-border scheme - shall mean an arrangement that meets the cross-border criterion and:
a) meets the main benefit criterion and has any of the general hallmark, or
b) has a specific hallmark;
An agreement that applies only to VAT, excise duty or customs duty in the territory of a Member State of the European Union does not meet the cross-border criterion.

Standardized tax scheme - it means a tax scheme that can be implemented or made available to more than one beneficiary without having to change its essential assumptions, in particular regarding the type of activities undertaken or planned under the tax scheme.

Changes to the income tax acts will become effective in year 2015, but now is the time to prepare for them

The Act changing  the Income Tax Acts was signed by the President on 16 September,2014. Most of the changes will become effective as of 1 January 2015.  Below we present the major ones.

Changes and modification to the thin capitalization rules

The change that will affect the taxpayers the most, are the new thin capitalization rules. Taxpayers  will have several  regimes  to choose from. The present rules that cover loans granted only by DIRECT shareholder and direct sister-shareholder may be applied also in year 2015 if the loan is transferred in 2014.  If not, then next year there will be two new regimes: one based on 1:1 ratio of debt to the so called "own equity", which includes i.a. paid-in share capital plus reserve capital plus retained earnings. This regime covers loans granted by related entities, either directly or INDIRECTLY. The second regime  which you can choose, provides a limit on the interest that can be tax deductible - the limit is calculated  basing on the published reference rate on loans (at present 2.5%) plus1.25%   times   the tax value of assets (excluding intangibles).   Interest arrived from this formulae is further  limited in each year to 50% of the  operating profit for that year. This second model would cover ALL loans, irrespective whether received from a related entity or not.

More details can be obtained from our advisers.  The businesses should review their present and planned activities to  account for the impact of these changes on their businesses and chose the regime most suitable for them. Therefore,  you should plan your actions still this year.

Introduction of the CFC rules in Poland

These rules will apply on the income of  the foreign company whose shareholder is a tax resident of Poland. The tax rate shall be 19% and it will be payable by  the shareholder. The shareholder will have the obligation to keep a register and accounting of its foreign company according to Polish accounting  regulations.  Additionally, the shareholder will have to file in Poland an annual tax return for the foreign  company.

Which companies qualify as CFC? This is the initial big question and the rules in this respect are vast.

A company is considered to be a CFC (Controlled Foreign Company) if:

Case One:      

the foreign company has its registered office or management in a tax haven mentioned in the decree,

Case Two:     

the foreign company has its registered office or management in a country which has not concluded a treaty with Poland or EU on information exchange,    

Case Three:   

the foreign company fulfills all of the three conditions below:

a.       the Polish shareholder holds directly or indirectly at least 25% shares (or voting rights or rights to profit)  of the foreign company for an uninterrupted period of 30 days,  – in short the shareholder test

b.       at least 50% of the earning of the foreign company is derived from passive income (e.g dividends, sale of receivables, interest, copyrights, IP, etc) – in short the passive income test

c.       at least one of the passive income is taxed at a tax rate lower than 14.25% or is exempt or excluded from taxation in that country, unless the exemption is based on the EU Directive on parent-subsidiary income – in short the low tax rate test.

There are exclusions from the above.

Companies tax resident in an EU or EEA country, are excluded from the CFC rules if they conduct in such a country genuine business activity.

Other companies may be excluded from the CFC rules (but not always from the obligation to keep in Poland the books of its foreign company) if their  annual earnings are below EURO 250 000 Euro OR if the controlled foreign company’s profitability on the genuine activity is below 10% and there is a treaty which allows for the exchange of information.

The CFC rules apply also to Branches and other PE structures.

More details  can be found in the Act or you we can assist in this review. You structures of doing cross-border business  should be reviewed before the rules become effective.

Changes to Transfer Pricing  rules

Only the provisions relating to who is subject to transfer pricing adjustments and to the scope of obligatory documentation is extended. The arm’s length principle and methods were left untouched. 

The main change is that from 2015 “organization units without a legal personality” will be subject to transfer pricing. This simply means that such business forms like: civil partnerships  (in short s.c.) and all kinds of other  partnerships which are transparent for income tax, now may have their income adjusted according to the arm’s length principle.

The other main change is that the documentation should be made in case when an agreement is signed to form a corporation without legal personality, to form a joint undertaking (joined venture) and similar cooperation agreements.  The documentation should describe the principles for the split of profits between the parties to such an agreement.

This documentation requirement applies in a situation when the parties to the agreement are related or when any  of them is a party resident in a tax haven.

The above is a summary of  the major changes in the income tax Acts – there are many other changes:  - small, but also important. These changes require the tax payer to review the business before 2015, to adapt to the impact they may have on the business.

Source: Hanna Szarpak, Licensed tax Adviser nr 446, TCA Advisers sp. z o.o. Warsaw, , www.tca.com.pl, 20140923

The above news is only for information purposes and has been summarized in a reader-friendly way, but in no  case is complete or precise. We do not take any responsibility to the maxium extent allowed by law,  for any action taken under this news. You should refer to the original Act or seek professional tax advice from professionals authorized to render tax advice under the Act on Tax Advice  of 5 July 1996 (Legal Journal of 2011, No 41 item 213 with amendments).  

18 December , 2015

The Ministry of Finance in Poland announced transfer pricing investigations in year 2016

The new Ministry of Finance announced that its priority will be to verify transfer prices between related parties.

Companies,  which will decide for a voluntary adjustment of their  tax returns will be able  to enjoy a interest on outstanding tax reduced by 50%. This reduction of the interest rates is introduced from 1 January 2016 – it applies to corrections of tax returns made no later than  6 months after the required date to file a tax return (art. 56a of the Tax Ordinance Act). However, this  benefit of a reduced interest of 50% shall also apply for correction made for past years. This special rule for the past years , so called 50% interest abolition  is offered until 30 June, 2016 (art 19 of the Act changing the Tax Ordinance).   So the Ministry of Finance is encouraging to file corrected tax returns for years 2011-2015 no later than 30 June, 2016.

The Ministry of Financed also announced that the tax authorities shall also focus on Quarter 4 of year 2015 to examine whether taxpayers have not booked in  December any charges to transfer the profit elsewhere.  The Ministry of Finance  says that such actions will be examined by tax authorities in Quarter 2 of year 2016.

TCA Advisers comment: the best way to prepare to these examination is to make  transfer pricing documentation for past years. Still for years 2015 and 2016 the present  rules  on transfer pricing documentation apply (the new rules according to BEPS, already passed by the Polish parliament,   shall generally apply  from year 2017). Still for year 2015 and 2016 benchmark study is NOT mandatory.

The above news is made for  information purposes only. It does not constitute advice or any activity as mentioned in the Act on Tax Advisers. TCA  Advisers does not take responsibility for any action taken on its basis. We encourage to seek advice from professional tax advisers, authorized to give tax advice under the law in effect.

New statistics from the Ministry of Finance regarding APA – advance pricing agreements

We have the most fresh statistics from the Ministry of Finance regarding APA. Since 2006 when APA was introduced to the Polish tax system there were 50 applications place by taxpayers: 41 were finalized in the form of a decision or a resolution of the tax authorities: of this number 36 were only with the Polish tax authorities, 5 were with two tax authorities – Polish and other state. 4 decisions were issued to prolong the previous APA.  2 applications  were withdrawn. 

The majority of the applications covered  a trans action between a dominating entity from another state – Polish  dependent entity.

Most frequently the recognized method was the Net Transaction Margin Method (NTMM).

It takes up to 6 months to reach the agreement  with the Polish tax authorities;  when two tax authorities are involved then it takes up to 12 months.

Before the application is placed, the taxpayer has the possibility to discuss beforehand with the authorities  about the purpose of the agreement, scope of data requested, and time when such an agreement can be reached.

Such an agreement does reduce the tax risk in transactions between related entities.

We recommend to try at least the consultation phase, which does not cost anything.

Such an application can be placed by a local entity or  an entity from another state.

Source: TCA Advisers, Internet site of the Association: cct.org.pl.