The clause in question gives the tax authorities the right to determine tax without taking into account the tax benefits that a taxpayer achieved due to certain actions.
The tax consequences of these actions would be determined based on the state of affairs that could have occurred if adequate action was taken. Adequate action means what the taxpayer should have done if he was not acting in an artificial manner and had lawful goals other than achieving tax benefits contradicting the subject and aim of the Tax Act. Should achieving a tax benefit be found to be the only aim of the actions taken by the taxpayer, the tax consequences would be determined based on the state of affairs that would have occurred if the actions had not been taken.
Conditions for application
According to the draft, in order to apply the clause the following conditions must be fulfilled jointly:
- legal action was taken primarily in order to achieve a tax advantage, when the other objectives of the actions, indicated by the taxpayer, should be regarded as less important;
- a tax advantage is contradictory in given circumstances to the object and purpose of the tax law, in particular in the case of:
- not establishing a tax liability,
- a delay in the establishment of a tax liability or a reduction in its amount,
- an overpayment or the right to a refund,
- an increase of the amount of overpayment or tax refund.
- the taxpayer’s way of acting was artificial, for instance:
- in the case of unjustified sharing operations,
- in the case of the involvement of intermediaries, despite the lack of economic justification,
- if there are elements leading to obtaining a state that is identical or similar to the original one,
- if there are elements which mutually terminate or compensate,
- it the economic risk exceeds the expected benefits other than fiscal to the extent that a reasonably acting entity would not have chosen this course of action.
Limitation in use
According to the draft, the tax avoidance clause shall not apply if the tax benefit or the sum of the benefits of taxpayer’s activities does not exceed PLN 100 000 in the billing cycle.
The clause does not prohibit taxpayers from conducting business activity which is most tax favorable, nor does it limit this activity, if its continuation is inefficient due to its tax effects.
Resolving doubts may be difficult because these provisions relate to subjective categories, for instance the taxpayer’s mental attitude to the action, e.g. the taxpayer was acting in order to achieve benefits, the taxpayer did not act reasonably, and the conditions are imprecise and unclear, which gives the tax authorities a lot of room for interpretation.
A Tax Avoidance Council would be created to verify the position of the taxpayer, and would issue opinions on the application of the clause in individual cases. The tax avoidance clause shall not apply to entities that have obtained secure opinions or have applied for it, but their motion has not been settled within the prescribed period.
According to the draft, security opinions shall be issued, within 6 months, by the Minister of Finance upon motions submitted by a single entity or a group of entities. Additionally, the motion would be subject to a fee of PLN 20 000.
If a decision may be made on the basis of the tax avoidance clause, the Minister of Finance shall initiate tax proceedings or take them over to continue the tax proceedings or audit.
Entry into force
The clause will enter into force on 15 July 2016.