One of the key amendments to CIT regulations brought by 2021 is introduction of a new reporting obligation, under which CIT payers must prepare and publish a report on the tax strategy executed in the given tax year. Despite the turbulent course of legislative process, which brought numerous uncertainties as to the moment of entry into force of the amended provisions, the obligation to prepare and publish a report on the implemented tax strategy entered into force on 1 January 2021.
Entities under the reporting obligation
The obligation to prepare and publish a report on the tax strategy executed in the given tax year shall be fulfilled by both individual CIT payers and tax capital groups. Individual CIT taxpayers become bound with the reporting requirement when their revenue exceeds EUR 50m in the tax year for which the report is due. In turn, in the case of tax capital groups, the reporting obligation is not dependent on a revenue threshold and applies both to the entire group and individual companies being part thereof.
An issue which may raise certain doubts among taxpayers is the potential extension of the new reporting obligation to foreign entities conducting business activities in Poland through permanent establishments registered in Poland (i.a. branches). Although not directly indicated by the regulation, it seems that the reporting duties also shall be fullfilled by such entities. Nevertheless, it is possible to satisfy the obligation by furnishing a Polish translation of the report or by publishing it on the website of a related entity within the meaning of the transfer pricing regulations (related entities are, among others, the taxpayer and its foreign taxable entity), if only the obligated entity does not have its own website. It seems, however, that in such situation, the reporting obligation will be limited to providing information on the tax strategy executed in relation to business activities conducted solely in Poland and not the one applied by the taxpayer in their country of residence. Yet, given the lack of accepted practice, it cannot be ruled out that the issue may become the subject of disputes with tax authorities.
Finally, it should be emphasized that the reporting obligation is not applicable to taxpayers being parties to cooperation agreements, within the meaning of Article 20s(1) of the Polish Tax Code.
Scope of information
Under the new provisions, the report on the executed tax strategy must cover a vast range of information on the taxpayer's approach applied to perform correct settlement of tax liabilities. The Act introducing the obligation to publish a report on the implemented tax strategy brings an open catalogue of information subject to disclosure.
- information on the processes and procedures ensuring performance of taxpayers' obligations arising from tax regulations and proper obligation implementation, as well as an overview of forms of the taxpayer's voluntary cooperation with the National Revenue Administration,
- information on the taxpayer's performance of tax-related obligations in the territory of the Republic of Poland (including the number of the reported tax schemes),
- information on transactions with related entities (also those not being Polish tax residents) within the meaning of transfer pricing provisions, the value of which exceeds 5% of the balance sheet assets, determined on the basis of last approved financial statement of the company,
- information on taxpayer-planned or taxpayer-performed restructurings which may impact the amount of tax liabilities of the taxpayer and/or related entities within the meaning of transfer pricing provisions,
- information on the submitted applications for tax rulings, binding rate information and binding excise information,
- information on tax settlements made in countries or territories that encourage abusive tax practices.
The scope of published information should consider the nature, type and size of the taxpayer's business. This means that it may be required to disclose other information than those listed above.
At the same time, information subject to trade secret, industrial secret, professional secret and/or manufacturing secret should be excluded from the strategy. However, given that the scope of the above exemption is rather vague and subject to individual interpretation, in order to avoid possible disputes with tax authorities, the possibility of use of the exemption should be subject to a detailed analysis, especially with respect to covering some data with the confidentiality clause.
Considering that the report on the executed tax strategy should also include information on procedures and processes related to the fulfilment of tax obligations, taxpayers should begin with introducing formalized tax procedures, ensuring proper implementation of the new reporting obligation. It is also recommended to draw up a draft of the executed tax strategy which will later serve as a basis for preparing the final report.
Pursuant to the new provisions, taxpayers will be required to prepare and publish a report on the implemented tax strategy by the end of the 12th month following the end of the tax year to which the report relates. In practice, this means that the initial report on the tax strategy executed in 2020 must be prepared and published by 31 December 2021.
Under the new provisions, the report on the executed tax strategy must be published on the taxpayer's website or on the website of a related entity, in case that the obliged entity does not have one on its own. At the same time, the taxpayer must provide the tax authority with the address of the website on which the information on the tax strategy employed by the taxpayer is published, within the deadline provided for report publication.
The report on the executed tax strategy should be made in (or translated into) Polish.
Failure in meeting the obligation to prepare and publish a report on the tax strategy executed in the given tax year shall be liable to a fine of up to 120 daily rates, pursuant to the Polish Criminal Fiscal Code. In addition, failure to provide the head of the competent tax office with information about the address of the website on which the report is published is subject to a financial penalty of up to PLN 250,000, imposed by the head of the tax office by means of administrative decision.
Grzegorz Wójcik, Manager, Corporate Tax Advisory, KPMG in Poland
Stanisław Woźniczka, Senior Consultant, Corporate Tax Advisory, KPMG in Poland