Given the multitude of obligations imposed on entrepreneurs and the constantly changing provisions of tax law, few entities remember that on January 1, 2019, regulations came into force imposing the obligation to submit information on tax schemes to the Head of the National Tax Administration (Mandatory Disclosure Rules).
MDR regulations – what is it?
The MDR regulations (an acronym for Mandatory Disclosure Rules) were introduced into the Polish legal system by the Act of 23 October 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Ordinance Act and amending certain other acts (Journal of Laws of 2018, item 2193), as a result of the implementation of Council Directive (EU) 2018/822 of 25 May 2018*, referred to as DAC6.
The amendment introduced Chapter 11a to the Tax Ordinance, devoted entirely to information on tax arrangements. Interestingly, the Polish MDR regulations go beyond the minimum scope specified by the DAC6 Directive. First and foremost, the Tax Ordinance provisions cover a broader range of taxes, introduce additional hallmarks, and do not apply solely to cross-border tax arrangements.
How to identify a tax scheme?
According to the legal definition, a tax scheme is an arrangement that is an activity or set of related activities (including planned activities) in which at least one party is a taxpayer or that has or may have an impact on the creation or non-creation of a tax liability. The MDR distinguishes three types of schemes that are subject to the reporting obligation:
- tax scheme,
- standardized tax scheme,
- cross-border tax scheme.
Additionally, for a given arrangement to be recognised as a tax scheme, one of the conditions specified in the Act must be met (Article 86a § 1 item 10 of the Tax Ordinance), i.e.:
- meet the criterion of the main benefit and have a general identifying feature,
- have a special distinguishing feature, or
- have another specific identifying feature.
The above enumeration should be understood separately in relation to a specific case.
Importantly, simply meeting the definition of a tax scheme does not automatically require reporting the tax scheme to the Head of the National Revenue Administration. This obligation – if such a tax scheme does not meet the definition of a cross-border tax scheme – will depend on whether the qualified beneficiary , defined in Article 86a § 4 of the Tax Ordinance, is met. Only exceeding one of the thresholds included in the qualified beneficiary criterion (EUR 10 million or EUR 2.5 million, respectively) will result in a tax scheme other than a cross-border tax scheme being subject to the reporting obligation.
The MDR regulations apply to direct taxes, indirect taxes (VAT, excise duty), local taxes (e.g., property tax), and other arrangements regulated by tax law. The regulations under review do not cover customs duties.
Which entities are subject to the reporting obligation?
The obligation to report tax schemes applies to three categories of entities:
promoter – i.e. a natural person, a legal person or an organizational unit without legal personality, in particular a tax advisor, a lawyer, a legal counsel, an employee of a bank or other financial institution advising clients, if within the scope of the activities performed:
- prepares the agreement,
- offers an arrangement,
- provides the developed agreement,
- implements the developed arrangement, or
- manages the implementation of the agreement;
user – i.e. a natural person, legal person or organizational unit without legal personality:
- to which the arrangement is made available,
- in which the agreement is implemented,
- which is prepared to implement the arrangement, or
- who performed the action to implement the arrangement;
supporting person – which is a natural person, legal person or organizational unit without legal personality, in particular a statutory auditor, notary, person providing accounting services, accountant or financial director, bank or other financial institution as well as their employee, who, while maintaining the diligence generally required in the activities performed, taking into account the professional nature of the activity, area of specialization and the subject of the activities performed, has undertaken to provide, directly or through other persons, assistance, support or advice regarding the development, introduction to the market, organization, making available for implementation or supervision of the implementation of the arrangement (Article 86a 1 item 19 of the Tax Ordinance).
The entities indicated above are obliged to provide information regardless of whether their place of residence, registered office or management board is located in the territory of the Republic of Poland, the territory of the European Union Member States or the territory of third countries.
It is worth noting that entities that are promoters, employ promoters or actually pay them remuneration, whose revenues or costs exceed PLN 8 million, are additionally obliged to introduce and apply an internal MDR procedure to counteract failure to comply with the obligation to provide information on tax schemes (Article 86l, paragraph 1 of the Tax Ordinance).
Sanctions for breach of MDR obligations
In the event of failure to comply with the obligations arising from the MDR regulations, taxpayers may face two types of sanctions:
- administrative sanctions for failure to conduct an internal procedure imposed on the basis of the Code of Administrative Procedure (fine of up to PLN 2 million);
- sanctions provided for in the Fiscal Penal Code – Article 80f of the Fiscal Penal Code (fine).
Final remarks
Taking into account the level of complexity of the matter under analysis and the fact that the MDR provisions have not yet been present in the Polish tax system, on 31 January 2019 the Ministry of Finance published Tax Explanations regarding the application of the provisions introducing the obligation to report tax schemes.
I would like to draw your attention to the content of Article 14n§ 4 item 1) in conjunction with Article 14k of the Tax Ordinance and the "do no harm principle" regulated therein. Therefore, compliance with the Explanations should not harm the taxpayer. However, it is worth remembering that the Explanations do not provide any protection per se. In other words, the fact of issuing and publishing tax explanations does not guarantee exemption from liability or the ability to invoke the do no harm principle. The taxpayer must comply with them. However, given the ambiguity and complexity of the provisions in question, simply complying with the Explanations can cause serious problems for taxpayers.
This article is for informational purposes only and does not constitute legal advice.
* Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (OJ L 139/1).
author:
