On 1 January 2019 new regulations introducing the reporting obligation under the Mandatory Disclosure Rules into the Polish tax system came into force. The new provisions raise many questions and, contrary to the initial statements of the Ministry of Finance, the new law will have very far-reaching implications for "ordinary" taxpayers.
One issue is particularly problematic, namely the classification of dividend payments exceeding PLN 25m as tax arrangements. In the MDR Guidelines, the Ministry of Finance points out that “an arrangement is, in principle, a step or a set of steps whose result is the obligation to make payment which meets the condition indicated in the hallmark rather than the very payments which are the consequence of the implementation of the arrangement“. The Ministry of Finance’s officials argue (unofficially) that the very adoption of a resolution on dividend payment constitutes an arrangement and, therefore, as long as the amount of dividend exceeds the aforementioned threshold, such an arrangement may be classified as a reportable tax arrangement. This conclusion is based on a literal interpretation of the term arrangement, which means any action where at least one party is the taxpayer or which impacts or may impact creation (or lack thereof) of the tax obligation.
There are, however, some arguments in support of the standpoint that the dividend payment as such (resulting from an appropriate resolution) should not be classified as a reportable tax arrangement. First of all, dividend payment by a company is an economic transaction inherently linked with an investment in that company. The rules for taxing dividend income are laid down in tax regulations. The dividend payment resulting from a shareholders resolution has no features of a sophisticated tax engineering. It is not easy to find reasonable arguments in support of an obligation to report such activities. Although the MDR Guidelines issued by the Ministry of Finance explain that the reporting obligation is not applicable only to aggressive tax planning, this primary purpose of the MDR provisions should be taken as an important indication when interpreting these rules.
Bearing in mind that that the MDR Guidelines explain that a stand-alone payment may have to be reported as an element of a reportable tax arrangement, then the logical consequence is that the dividend payment itself does not constitute a reportable tax arrangement. It is, however, impossible to make a dividend payment without adopting a resolution beforehand. Consequently, the idea that a dividend payment itself is not a reportable tax arrangement, whereas a simple technical action necessary to make such payment constitutes a tax arrangement indeed, does not seem to be reasonable. What is more, if such a notion is acknowledged, the consequences may be far more reaching and result in qualifying as a reportable tax arrangement any payment which, by its very nature, must be proceeded by some kind of technical action, such as transfer order in case of e.g. interest payment.
The standpoint presented by the Ministry of Finance is not justified also when taking into consideration the scope of information obtained when such "tax arrangements" are reported. In the case of a dividend payment, such a notification would include nothing more than details of the payment resolution and the amount of the payment. Consequently, the tax authorities would not obtain any additional information other than that contained in tax returns and forms filed by taxpayers under the current provisions (e.g. IFT-2R reports, CIT-10Z or CIT-6R returns).
It seems that the idea behind identifying hallmarks that take into account income / revenue earned by non-residents and / or payments subject to withholding tax in Poland (Article 86a paragraph 1 point 1 letters b) and c) of the Polish Tax Ordinance Act) was to identify restructuring, such as changes in the shareholding structure aimed at obtaining tax exempt dividend payments in the future, instead of having to report dividend payments made under the existing shareholding structures. Reporting dividend payments within the existing shareholding structures, which were not modified after the deadlines specified in the MDR provisions, may be considered as against the substance and intended purpose of the interim provisions (which aim at excluding arrangements implemented prior to specified dates from the reporting obligation). It should, therefore, be expected that the Ministry of Finance will provide a clear solution to this problem in the new version of the MDR Guidelines.
The above example shows that qualifying a particular arrangement as a reportable tax arrangement may often be problematic, even in the case of a relatively simple business transactions, such as dividend or interest payments.
What is more, bearing in mind severe penalties for failure to comply with the reporting obligations, many businesses and professionals providing tax and legal advisory services, tend to take a cautious stand and unreasonably qualify many arrangements as reportable tax arrangements. This, in turn, means that the tax authorities are overloaded with reports on alleged tax arrangements, however, they are unable to examine all the reports within the deadline set by the MDR provisions, and, therefore, delays are growing (see below figure).
At the same, the promoters’ activities may have far-reaching consequences for the taxpayers (users). Taxpayers who during the tax period (in case of VAT it will usually be a month) performed any action, being a part of a tax arrangement, or obtained a tax benefit as a result of such tax arrangement, must fulfil the reporting obligation by providing information on the utilization of a tax arrangements – MDR-3 form – to the tax authorities.
The aforementioned form, like all other MDR forms, must be submitted electronically (in the form of an XML file). In case of taxpayers, being legal persons, such XML file must be signed by all members of the management board and, additionally, sent to the tax authorities by one of its members (it is not possible to use a proxy for this particular reporting).
Many taxpayers may face a situation where a potential promoter incorrectly decided that the transaction, in which the client had been involved, constituted a reportable tax arrangement. If this is the case, there might be a doubt whether the user (taxpayer) should submit the information on the utilization of a tax arrangement (MDR-3 form). It seems that the user should be free to assess whether a particular arrangement indeed constitutes a reportable tax arrangement, and once it is decided that there is no reportable tax arrangement, the taxpayer should not be required to submit the aforementioned form. This conclusion is supported by the fact that the provisions requiring the user of a reportable tax arrangement to file the information on its utilization do not stipulate that such an information must be disclosed even if the user disagrees with the promoter's standpoint (such solution, however, is envisaged in the case of reporting the tax arrangement - Article 86c paragraph 2 of the Tax Ordinance Act). Secondly, if the user knowingly submits information on utilization of a tax arrangement, which, in the user’s opinion, does not constitute a reportable tax arrangement, it could be viewed as making a false statement, whereas information on utilization of tax arrangement is submitted under penalty of perjury (Article 86j paragraph 7 of the Tax Ordinance Act).
Notwithstanding the above, taking into account the fact that the new provisions are unclear and there are no official guidelines issued by the Ministry of Finance regarding this issue whatsoever, the taxpayers (users) should exercise due care each time when assessing transaction which potentially may constitute a reportable tax arrangement.
Michał Mrozik, Manager in the International Tax Team at KPMG in Poland
Natalia Stępień, Consultant in the International Tax Team at KPMG in Poland
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