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Poland: Proposals for “simplified APA”

Poland: Proposals for “simplified APA”

A draft bill that addresses dispute resolution of double taxation issues and advance pricing agreements (APAs) was published 22 March 2019 on Poland’s legislative centre website.

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The draft bill intends:

  • To implement an EU directive (Council Directive (EU) 2017/1852) with regard to tax dispute resolution mechanisms
  • To provide for the availability and transparency of measures for dispute resolution of double taxation situations
  • To relocate the rules concerning APAs from the Tax Ordinance Act
  • To introduce a “simplified APA” into the Polish system

If enacted, the measures would be effective 1 July 2019.

Dispute resolution of double taxation

In transposing the directive into the Polish law, the draft bill would organize and increase transparency of the procedures for the elimination of double taxation.

A new procedure to improve and standardise the rules of the double taxation dispute resolution within the European Union, would relate to double taxation disputes that are connected with the interpretation and application  of agreements and conventions that provide for the elimination of the double taxation of income when Poland and other EU countries are involved. The draft bill’s measures would simplify access to the procedure for individuals and for small and medium-sized enterprises (SMEs) and micro enterprises, as defined within the meaning of the directive.

Advance pricing agreements

An explanatory memorandum to the draft bill states that the measures do not intend to change the overall concept of the APA system. Rather, it is proposed to transfer and relocate the APA rules that currently are contained in the Tax Ordinance Act (in Section IIA that, in English, is “Agreements for setting the transaction prices”). The proposed legislation would also implement changes to the procedure regarding conclusion of an APA and to reflect the experience gained from conducting APA proceedings.

The draft bill would allow foreign investors to apply for an APA in advance of establishing a subsidiary in Poland.

According to the draft bill, the head of the National Revenue Administration would be required to make public the aggregate information on an APA concluded with a taxpayer and with regards to the “simplified APA.”

“Simplified APA”

The draft bill would allow certain taxpayers to apply for a “simplified APA.”

Conditions required for “simplified APA”

“Simplified APAs” would be unilateral and addressed to a beneficiary. Taxpayers could apply for a “simplified APA” if one of the following conditions or types of transactions is involved:

  • Low value-added services
  • Fees for right to use a trademark or knowledge related to the experience gained, which could be used in industrial, commercial, scientific or organizational activities—or in other words, “know-how”

A taxpayer could not apply for a “simplified APA” if:

  • A controlled transaction was completed before the date of submitting the application.
  • The share of the taxpayer-applicant's income in revenue earned in at least two of the past three tax years was less than 1%.

The proposed measures also require that the taxpayer maintain a share of income (revenue) at a level not less than 1% for the first two years of the period for which the “simplified APA” would apply.

Lastly, any on-going tax proceedings, tax inspections, or customs and fiscal controls and proceedings before administrative courts would not affect a taxpayer’s ability to submit an application for a “simplified APA.” 

“Simplified APA” application

  • The information that would be required for a “simplified APA” would be limited (when compared to the “standard” APA application). For instance, to apply for a “simplified APA,” the taxpayer would need to present:
  • Information regarding the controlled transaction that would be the subject of the APA application, including a brief description of this transaction along with a justification that the taxpayer needs to conclude the controlled transaction and an indication of the method of setting the transaction prices with a brief justification for the choice and calculating the transaction price
  • Statements concerning the economic justification for the controlled transaction, signed by the managing director of the entity
  • A brief description of economic benefits that would result from conclusion of the controlled transaction, with an indication of the types of benefits expected to be achieved
  • A benchmarking study or an analysis showing compliance with the arm’s length results or a statement that the taxpayer has not prepared the benchmarking study or the analysis of arm’s length compliance, due to fact that the controlled transaction meets certain criteria under Polish tax law
  • A proposal for the period of time for validity of the “simplified APA”

Terms and fee for applying for “simplified APA”

According to the draft bill, the procedures for concluding a “simplified APA” would be completed within three months of the application. Once concluded, a “simplified APA” would apply for a maximum period of three years, with the possibility of renewal for the next three years (provided that there are no substantial changes to the taxpayer’s situation or the information relating to the “simplified APA”).

Currently, it is proposed that the user fee for applying for or renewing a “simplified APA” would be PLN 20,000 (approximately U.S. $5,200).

Converting APA applications to “simplified APA” application and vise a versa

The draft bill would allow for the possibility of converting applications for standard APAs to “simplified APAs” and vise a versa.

If the controlled transaction that would be the subject of the “simplified APA” application has a complex and complicated nature—such as when the controlled transaction is connected to the transfer of significant economic functions, assets, and risks between subsidiaries that in turn could affect income or loss of a national subsidiary—the head of the National Revenue Administration could redirect and convert the application under the standard APA rules.

The course of the APA procedure, however, would not be converted or redirected if involving a transaction that, on the date of filing the application for issuance of the “simplified APA,” was covered by (1) tax proceedings, (2) a tax inspection, (3) a tax investigation conducted by the tax inspection authority for the last two tax years, or (4) tax proceedings before the administrative court.

The draft bill also would allow for the possibility of converting a standard APA application into a “simplified APA” application when, for instance, the head of the National Revenue Administration finds that the nature of the controlled transaction subject to the APA application allows for the issuance of a “simplified APA” and the taxpayer agrees to this change. If the taxpayer satisfies certain statutory conditions, the change to a “simplified APA” could apply for an existing APA application pending on the date before the legislation is enacted. If the APA is converted into a “simplified APA,” the difference in the user fee would be refunded to the taxpayer.

Exemption from tax deduction limit (Article 15e of the corporate income tax law)

The exemption from the limitation that applies with regard to the tax deductibility (Article 15e of the corporate income tax law) regarding transactions covered by the APA or the “simplified APA” would apply with regard to the entire year for which the application for the APA or “simplified APA” is submitted and for the preceding year. In practice, this means that the taxpayer would be able to "recover" costs that would be excluded from its tax deductible expenses in 2018 (in accordance with Article 15e), provided that the taxpayer submitted the APA application before 2019 (assuming that the taxpayer obtains a decision on the APA or the “simplified APA” and regardless of date of the issuance of that APA decision).

Rescission when non-compliance with APA or “simplified APA”

When there is non-compliance by the taxpayer with the conditions under the APA or the “simplified APA,” the tax authorities could issue a decision about the expiration of the APA or “simplified APA” and this would be effective from the day of issuance of the relevant decisions. This rescission rule also could apply if the factual situation is found to be inconsistent with the information submitted for purposes of obtaining the agreement.


Read an April 2019 report [PDF 247 KB] prepared by the KPMG member firm in Poland

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