Preventing tax abuse and planned amendments to the regulations on transfer prices

Recently the Polish Ministry of Finance has presented a new bill introducing amendments to the Tax Ordinance and proposed amendments to the income tax regulations.

Deferral of the effective date of the general anti-abuse clause

On May 4, 2015 the Polish Ministry of Finance published a draft amendment to the Tax Ordinance, which does not include planned regulations aimed at preventing tax evasion (a so-called anti-abuse clause). However, the deletion of the provisions concerning the clause does not mean that the Ministry is giving up the idea of penalizing taxpayers applying artificial tax structures. The clause is going to be regulated in a separate law, following additional legal analyses.

Special anti-abuse clause in the regulations concerning dividends

In the meantime, in a separate bill, the Ministry of Finance is proposing the introduction of a special clause concerning tax evasion to the regulations on tax exemption of dividends. In the draft amendment of income tax laws the Ministry of Finance proposed regulations prohibiting tax exemptions on dividends paid, if the dividend distribution is connected with the contracts or transactions, the main purpose of which was to achieve tax exemptions on the dividends and which did not reflect the actual economic reality. The introduction of the above clause is dictated by the need to adjust Polish laws to EU requirements (Directive 2015/121). The scheduled effective date of the amendments is December 31, 2015, hence they may be potentially applicable to dividends paid for the year 2015.

Amendments to the transfer prices regulations (implementation of the OECD guidelines)

In its struggle against tax abuse the Ministry of Finance is introducing new rules of documenting transactions between affiliated entities. By the same token, the Ministry is adjusting Polish laws to the OECD guidelines developed to prevent tax evasion. The scheduled effective date of the new laws is January 1, 2016.

The key amendments relate in particular to the scope and method of preparing transfer pricing documentation. Generally, the amendment amounts to:

  • a change of the group of taxpayers required to prepare transfer pricing documentation (taxpayers generating total income or expenses of less than EUR 2 million will not be required to prepare such documentation);
  • changing the scope of the documentation (in addition to transactions, transfer pricing documentation should also include other events recognized for accounting purposes, the obligation to take into account the taxpayer’s description, including the structure of the taxpayer and a detailed description of the transaction);
  • the introduction of a deadline for drawing up the documentation (not later than the date of filing the tax return for the relevant tax year);
  • changing the definition of related entities – the required shareholding will be increased from 5% to 20%;
  • introducing an obligation to draw up a benchmarking study in the case of taxpayers whose revenues or expenses exceed EUR 10 million in total;
  • introducing an obligation to prepare transfer pricing documentation at the level of the corporate group (master file) for taxpayers whose revenues exceed EUR 20 million and who are forming the corporate group;
  • the obligation to enclose with the tax return for the relevant tax year a simplified report on the transaction / other events with affiliates or tax havens - in the case of taxpayers whose total revenues or costs exceed EUR 10 million;
  • the introduction of a reporting requirement by country - for entities whose consolidated revenues exceeded EUR 750 million.

Summary

The above indicates that the Ministry of Finance does not intend to withdraw from its planned struggle with tax abuse. Though the anti-abuse clause was formally excluded from the draft amendment to the Tax Ordinance, the Ministry is undertaking actions on other fronts, in particular in the field of transactions between affiliates. Hence, the continuation of the ministerial works on the introduction of the general clause preventing tax evasion as well as intensified inspections concerning transfer pricing should be expected.