The significant changes in the tax environment and the growing expectations for fiscal transparency have prompted the legislature to streamline the existing provisions on the system for reporting tax schemes (MDR), thereby eliminating some procedural ambiguities. According to ministerial announcements, the main aim of the amendments is to improve the readability, clarity and consistency of the reporting system and more closely align it with that in force in the wider EU.
The changes therefore cover a number of key areas – from redefining the concept of a tax scheme itself, to changes in reporting obligations, to easing sanctions for non-compliance. We take a look at the main directions of these changes and their practical implications for both taxpayers and tax advisors.
New MDR reporting – what to expect
One of the most important changes is the exclusion of tax schemes from the list of issues that can be covered by a request for a tax ruling.
As a result, tax schemes will no longer be subject to individual tax rulings. The Ministry justifies this change by referring to the collision of two separate procedures: the issuance of tax rulings and the allocation of a tax scheme number (Polish: ‘NSP’) by the Head of the National Revenue Administration.
Currently, if a taxpayer first obtains a tax ruling and then applies for an NSP, the ruling in practice limits the ability of the Head of the National Revenue Administration to independently assess the scheme as part of the process of allocating an NSP.
The amendment removes the definition of ‘facilitator’ and introduces a single concept of ‘promoter’. It also provides for a general obligation to file information on the application of a tax scheme (MDR-3 report) only once a year, which, together with the possibility of stating the estimated amount of the tax benefit, should simplify the whole procedure.
In addition, the new rules allow the reports to be signed by attorneys-in-fact, which in practice means that taxpayers will be able to delegate this obligation to their tax advisors.
Another change is the alignment of the definition of tax schemes with the conceptual scope set out in Directive 2018/822, including the modification of the lists of hallmarks. The Ministry of Finance announced a real revolution in this respect, which should lead to a significant reduction in the number of hallmarks, but the planned amendment in its current form does not reflect this.
An example of the planned changes is the modification of one of the specific hallmarks listed in Article 86a § 1(13)(c) of the General Tax Code (in the proposed version – Article 86a § 2(9)(d)), i.e. the same income or assets benefiting from methods to avoid double taxation in more than one country.
The amendment clarifies the obligation to report tax schemes in a situation where an entity benefits from reliefs or exemptions on income or assets to avoid double taxation in more than one country (by adding a reference to ‘reliefs’ and ‘exemptions’).
The aim of these amendments is to have clearer and more unambiguous criteria for recognising tax schemes, which should facilitate their identification and reporting.
In practice, however, instead of limiting the number of hallmarks, the proposed provisions introduce numerous additional criteria, e.g. in the proposed Article 86a § 2 (9)(f) the specific hallmark of having the potential effect of undermining the reporting obligation under the laws on the exchange of tax information, has been expanded to include six additional complex conditions.
The amendments also include revisions to the provisions on penalties for failure to comply with MDR reporting obligations, including a reduction in penalties for evasion from 720 to 240 daily rates (from a maximum penalty of PLN 44,792,640, which is one of the highest in the EU, to approximately PLN 10 million).
Domestic MDR tax schemes
The amendment also introduces changes to the reporting of domestic tax schemes.
Reporting entities will not have to re-file information on arrangements already reported under other obligations, such as transfer pricing reporting (TPR) or non-resident information.
Such a solution will indeed reduce double reporting and allow for some administrative simplification.
On the other hand, one effect of these changes is also the possibility for the Minister of Finance to issue an ordinance exempting from the reporting obligation those schemes that contain the hallmarks but, due to their nature, should not be reported to the Head of the National Revenue Administration.
This solution seems to be the one that goes furthest towards fulfilling the promises made by the Ministry of Finance of reducing the reporting requirements for domestic schemes.
As highlighted by the Deputy Minister of Finance, it is expected that following the amendment the number of MDR-3 reports on implemented measures will decrease by 90%, i.e. from the current 15,000 to around 1,500.
MDR evolution
Due to their complexity, breadth and lack of precision, the current rules on the reporting of tax schemes often make it impossible to clearly define who is liable for fulfilling the reporting obligations and to what extent.
However, the planned changes are mainly formal and will not, contrary to what has been announced, bring about a revolution in this area. The amendments are intended to tidy up the existing rules and remove certain procedural ambiguities in order to increase the transparency and consistency of the reporting system. In practice, however, they broaden the conceptual scope of the reporting requirements and introduce new procedural solutions (the possibility for the Minister of Finance to issue an ordinance exempting certain schemes from the reporting obligation).
Most importantly, many of the rules affecting taxpayers’ obligations have changed. It is therefore advisable to prepare properly, particularly in terms of implementing new internal procedures, assigning appropriate responsibilities to employees and possibly adjusting existing working practices.
In short, simplification has been announced to be greater than it is, but as a major overhaul of the entire reporting system is taking place, it is important to prepare thoroughly.
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