Poland in the era of tax transparency: four key issues on obligatory publishing of tax strategies
Last week, the Polish Lower Chamber of Parliament (Sejm) approved a bill amending the Corporate Income Tax Act. The bill is yet to be approved by the Upper Chamber (Senat), and to be effective as of 1 January 2021 it should be published in the Official Journal as late as by 30 November 2020.
In the meantime, it is worth taking a closer look at one of the most significant changes which imposes new transparency / compliance obligations for the biggest CIT payers in Poland, i.e. the obligation to publish a tax strategy.
Obligation to publish a tax strategy – who is affected and what are the key obligations?
The obligation to prepare and publish a report on the implementation of a tax strategy is to apply to:
- Tax Capital Groups (regardless of the amount of revenues);
- Taxpayers whose revenues in the tax year exceed EUR 50 mln.
These are the same entities whose tax results are published each year by the Ministry of Finance.
The publication obligation may also apply to limited partnerships and limited partnerships - provided that they become taxpayers (see here) and their revenues will exceed EUR 50 mln. However, the obligation to publish reports will not apply to entities that are parties to a Co-operative Compliance program.
Reports on the implementation of the tax strategy are to be publicly available on the company's website, the address of which should be provided to the head of the Tax office of the competent taxpayer. The report will have to be published at the latest by the end of the 12th month after the end of the tax year. The penalties that may be imposed for failing to deliver a website address may be up to PLN 250 k (c.a. EUR 55 k).
What exactly should be covered by the report on tax strategy?
The proposed regulations indicate a whole range of elements that should be included in the report on implementation of the tax strategy - from those that seem relatively easy to collect in the organization (such as information on submitted interpretations applications), to those that will require in-depth analysis, and may not be straightforward at first glance.
In particular, taxpayers will be required to present:
- a description of the taxpayer's approach to processes and procedures for managing the performance of obligations arising from tax law and ensuring their proper performance, as well as voluntary forms of cooperation with the National Revenue Administration (NRA);
- a description of the taxpayer's approach to the fulfillment of tax obligations in the territory of Poland along with information on the number of MDR reports submitted to the head of the NRA, broken down by taxes to which they relate;
- information on restructuring activities planned or undertaken by the taxpayer that may affect the amount of liabilities of his/her or its related entities.
unless the information is covered by the requirements of commercial, professional, industrial or production process secrecy. In practice, the analysis of what information can be considered as confidential, and whether the company has appropriate instruments to protect such data, should be part of the process of determining the company’s tax policy.
Practice of preparing a tax strategy and our experience based on the Co-operative Compliance program
Developing a company's tax strategy that will be published publicly should be a carefully considered process. The mere indication that the taxpayer aims at timely and reliable tax settlements will not be sufficient if the actual arrangement of tax processes within the company does not support this statement.
Based on our experience in preparing our clients to apply for the Co-operative Compliance program - writing down the processes in force in a given entity often involves first structuring them (and sometimes in extreme cases re-designing them).
In this case, cooperation between the company’s various team members is inevitable, i.a.,:
- Managing persons – who shape the organizational structure, as well as the principles / indicators that the company should follow (including the acceptable level of risk);
- Persons directly supervising and executing tax settlements - who effectively prepare and sign the tax reports, and
- Representatives of operating departments who provide input tax data and support settlements from the documentation angle.
At the same time, this process requires the significant involvement of employees - each procedure should be "tailored" for a given company to make sense in practice. Similar conclusions can be drawn based on the practice of preparing procedures for WHT, MDR or VAT due diligence. So, it is worth not leaving this to the last minute, and spreading the work out over time.
One of the elements of the report will be a description of the processes and procedures related to the so-called performance of the tax function. The way it is presented in the report may raise interest from the tax authorities, which increasingly often expect taxpayers to present written procedures related to taxes, and often verify the actions indicated in the procedures.
Tax transparency – looking for the opportunities
On one hand, without doubt the obligation to publish a tax strategy will be a significant new compliance burden. On the other hand, the obligation will be imposed on entities whose tax results are made public each year by the Ministry of Finance. These data are raw, but now companies may be given the opportunity to add their "narrative" to them. Regulations should enter into force on 1 January 2021. Therefore, it is worth looking at the processes and management of the tax function in the company, considering what information is appropriate for the tax strategy, what information is protected by secrecy, where are the “blind spots” that we do not see sometimes, and where the potential tax risk lurks. Contrary to appearances, such "tidying up" may also have positive a result at the end of the day - ensuring the comfort of management and work in the company's tax area.
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