The new provisions of the “Act of 16 October 2019 on resolution of disputes over double taxation and the execution of advance pricing agreements (the “Act”)” modify and consolidate the rules for APA execution and the procedures for resolving disputes over double taxation into a single legislative instrument.
Advance pricing agreements (APAs)
The new regulations concerning the execution of APAs have introduced a number of changes over the hitherto applicable regulations contained in section IIa of the Polish Tax Code), including:
• a change in the procedure for issuing APA decisions; in particular, it will be possible for an APA decision to cover the period since the beginning of the applicant’s tax year in which the application is submitted. Other benefits to the taxpayer include, without limitation, an opportunity to officially arrange a preliminary meeting with the tax authorities concerning an APA (so far, this has been an informal practice);
• a change in the scope of an application for an APA decision: even though the very scope of the information required to be disclosed in an application is essentially not changing, its individual elements have been brought in line with the regulations governing transfer pricing documentation. Also, a new requirement has been introduced whereby most elements of an application have to be attached to it in an electronic, editable form;
• an application for an APA decision can be submitted by a foreign investor planning investment in Poland.
The changes should streamline the process of issuing APA decisions; according to the Ministry of Finance’s estimates, this process currently lasts from 10 to even 35 months. Introducing the possibility of issuing an APA decision covering the period since the beginning of the taxpayer’s fiscal year in which the application is filed is certainly a solution benefiting the taxpayer.
Obtaining an APA decision is the only way to include the costs of acquisition of intangible services from related parties in excess of the limit arising out of Article 15e of the CIT Act (including those incurred in 2018 and 2019 – on the condition that an APA application is submitted by the end of 2019) in taxable costs.
Settlement of disputes relating to double taxation
The Act introduces a new procedure for resolving disputes concerning the avoidance of double taxation, which follows from the implementation of Council Directive (EU) 2017/1852. The new procedure is available solely to European Union members and may be applied in any case concerning double taxation (including a dispute concerning transfer pricing).
It provides for a series of simplified solutions for natural persons and small businesses (as defined in the Act), and introduces a time frame (the procedure should, in principle. last from 3 to 5 years from the moment of filing an application to initiate it), and an institutional framework and rules for accepting and examining an application initiating a mutual agreement procedure. The new procedure complements the hitherto available means of resolving double taxation disputes, including:
• proceedings conducted pursuant to the Arbitration Convention (exclusively in relation to transfer pricing); and
• proceedings conducted under double taxation treaties.
For the first time in Poland, the Act also introduces the possibility of entering into a co-operation agreement (horizontal monitoring solution) with the Head of the National Revenue Administration. This concerns taxpayers whose revenue exceeded EUR 50 million in the prior fiscal year. On the one hand, executing a co-operation agreement with the head of the National Revenue Administration means having to undergo tax audits, but on the other, it provides a taxpayer with several benefits such as:
• greater ease of receiving tax rulings and APA decisions;
• more certainty and mitigation of tax-related risks.