New Polish legislation implementing the EU mandatory disclosure rules (MDR) introduced by EU Directive 2018/822 of 25 May 2018 is effective from 1 January 2019. The Polish legislation is much broader than the EU Directive and apply both to cross-border and domestic arrangements. There will be significant fines for failure to report or other non-compliance with the MDR, so businesses should take steps to comply with new regulations.
The new MDR provisions have been further explained in the explanatory notes published on 31 January 2019 by the Polish Ministry of Finance. As a rule, compliance with the explanatory notes should give taxpayers in Poland a protection similar to the one provided by individual tax rulings, so taxpayers should follow the guidelines to minimize the potential risk.
What should be reported?
Generally, the new rules require businesses or their advisors to report to the tax authorities:
- all cross-border tax arrangements which fall within certain hallmarks and
- all other tax arrangements, if a “qualified user” is involved.
An arrangement is defined as action or group of related actions, including the planned actions, with at least one party being a taxpayer or which may result in or are expected to result in an obligation to pay or lack of obligation to pay tax.
The criterion of “cross-border tax arrangements” is fulfilled when an arrangement concerns at least two jurisdictions.
The criterion of “qualified user” is fulfilled when: (i) user’s revenues or value of assets exceed in the current or previous financial year EUR 10 m; (ii) the arrangement concerns assets or rights which value exceeds EUR 2.5 m; (iii) taxpayer is related to a person that meets the above thresholds.
The new rules are likely to cause many problems in interpretation. Firstly, we’re seeing that businesses are uncertain on which transactions they (or their advisors) are required to report. There is still no clear guidelines indicating which operations should be reported.
We believe that the Polish explanatory notes will be helpful in fulfilling the new obligations and they will greatly affect the practice of applying MDR regulations in Poland. General issues related to the purpose of regulation are discussed in this document as well as more detailed interpretation on a number of specific issues is given. The businesses should follow these rules to minimalize the risk of infringement of the new provisions.
Secondly, businesses in Poland have been surprised by how wide the rules are in scope and that there is no “de minimis” on what needs to be reported. The rules are likely to capture a number of straightforward transactions including simplifying intra-group debt, managing their FX exposures, business reorganisations or transfers and existing financing arrangements. These may well be transactions businesses aren’t seeking external advice on, meaning that the obligation is on the business to capture and report the relevant information. Businesses therefore need to work through what governance and processes they have in place to ensure that they are capturing and reporting the right information at the right time.
What should be done?
First of all, the taxpayers should be proactive in deciding which transactions may be impacted. The taxpayers should establish the processes and controls which need to be put in place to identify and report the relevant transactions.
In many instances, it will be the taxpayers (and not the advisors), that will be obliged to report the arrangements. In order to address potential risks stemming from the MDR provisions proper internal processes should be designed and initiated which would evaluate the scope of future reporting obligations.
Secondly, the taxpayers have to think about the tools and technologies which are needed to collect, analyse and store the data required for the submissions, and what the process will be for reporting.
Thirdly, anyone undertaking transactions involving Poland should consider the impact of the new rules.