On January 1, 2019, Poland introduced obligations to report "tax arrangements" following the requirements mandated by EU Directive 2018/822 of May 25, 2018 (the EU Directive), which amended EU Directive on Administrative Cooperation 2011/16/EU.
The Polish reporting obligations are broader than the EU-mandated obligations in at least three aspects. First, the Polish rules entered into force on January 1, 2019 instead of July 1, 2020. Second, the Polish rules apply to domestic arrangements, which are not within the scope of reportable arrangements under the EU Directive. Third, the Polish rules impose reporting obligations not only on the "promoter" of tax arrangement ("intermediary") and relevant taxpayer, but also on any third party that assists with the implementation, for example, an auditor, accountant, notary public, CFO, bank or other financial institution (a "supporter").
In general, under the Polish Mandatory Disclosure Rule Act (MDR Act), a "tax scheme" has to be reported if it contains certain characteristics (referred to in the Directive as 'hallmarks') . There is a reporting obligation under the MDR Act, for example, when a tax scheme fulfils the "main benefit" test and contains at least one of the listed general features (such as, where the intermediary or relevant taxpayer is obliged to keep the tax scheme confidential or an intermediary is remunerated on a success fee basis). A tax scheme is also reportable when it contains certain features (for example, when the tax scheme contains deductible payments, but the income is not subject to tax or is favourably taxed), or when it involves a non-transparent legal/beneficial ownership chain. Additionally, the MDR Act provides for other specific conditions which must be fulfilled depending on the type of arrangement. It is important to note that tax arrangements do not have to involve "aggressive" tax optimization in order to be reportable under the MDR Act.
Generally, it is an intermediary who is primarily obliged to report the relevant tax schemes to the Head of National Fiscal Administration. The MDR Act defines an intermediary as "any person or entity which creates, offers, makes available, implements or manages the implementation of the tax arrangement". This definition includes a wide range of intermediaries such as tax advisors, legal attorneys, but also banks and financial institutions that may not be directly involved in providing the tax advice. The MDR Act imposes certain obligations (eg, preparation of the MDR procedure) not only in relation to intermediaries per se, but also in relation to entities hiring or remunerating intermediaries.
Under the MDR Act, an intermediary (or entity hiring or remunerating intermediaries) which has revenues or costs exceeding PLN 8 million in the previous accounting year, has to implement certain internal MDR procedures. The MDR procedures should contain, inter alia, a description of the actions to be implemented in order to fulfil the reporting obligations, procedures for documenting and storing information, methods for training employees on the MDR reporting obligations, and internal control and audit processes relating to MDR compliance.
The obligation to report under the MDR Act will shift to the relevant taxpayer where there is no 'in scope' intermediary involved, or where the intermediary is someone for whom legal professional privilege is available and that privilege has not been released by the client. In some circumstances other persons participating in the creation, implementation or supervision of the scheme may also be obliged to report a tax scheme. Importantly, an intermediary, a beneficiary and/or a supporter does not have to be a Polish tax resident to have a reporting obligation.
In the event that the first activity related to a reportable scheme occurs on or after January 1, 2019, the intermediary, supporter, or relevant taxpayer (depending on the circumstances) is obliged to report the scheme within 30 days after the day of said activity. There is also a reporting obligation under the MDR Act for (i) cross-border transactions where the first activity related to the scheme was initiated after June 25, 2018 or (ii) domestic transactions where the first activity related to the scheme was initiated after November 1, 2018. Such schemes must be disclosed by the intermediary or relevant taxpayer by end of June 2019 or September 2019, respectively.
Consequences of non-compliance
Any failure to meet a reporting obligation is a fiscal criminal offense which may be subject to a fine of up to PLN21.6 million (approximately €5 million).
An intermediary (or entity hiring or remunerating an intermediary) who fails to implement the required MDR procedures may be subject to a fine of up to PLN2 million (approximately €465,000). Where the lack of MDR procedures results in a failure to report a tax scheme and such failure is confirmed by a final court ruling, the fine may be increased to PLN10 million (approximately €2.32 million).
Since the mandatory disclosure rules are applicable not only to professional advisors, but also to taxpayers, and anyone involved in the process of creating and implementing a tax scheme, it is critical that businesses, owners and managers fully understand the MDR Act reporting obligations. And, unfortunately, there are no final official guidelines on how to interpret the new rules. However, the Ministry of Finance has published a draft version of the guidelines for public consultation. The Ministry of Finance has indicated that final version of the guidelines will be issued by mid-January 2019
The Polish requirements are also different from the EU Directive in a number of very significant ways. The effect of these differences, such as the requirement to report domestic arrangements and the requirement that intermediaries implement MDR procedures, are further complicated by the early implementation dates. Reporting intermediaries are well advised to take immediate actions with respect to these new compliance obligations, especially the obligation to establish MDR procedures. Lessons learned from the Polish implementation of the EU Directive are likely to be useful when other EU countries promulgate their own MDRs.