Tax strategies – new obligation and new opportunities

by Marcin Muchowski

19 March 2021

Certain taxable persons will be obliged to disclose in 2021 how they pursue their tax strategy by filing a special statement with the tax office and publishing it on the internet.

Who must publish a tax strategy?

Tax strategy must be published by:

• taxable persons whose revenue exceeded the Polish zloty equivalent of 50 million euro in the previous year,
• taxable persons being members of a tax-consolidated group.

So according to publicly available data, that obligation concerns approx. 3,200 entities.

In the tax strategy statement taxable persons will have to describe how they pursued their tax strategy in 2020, i.e. retrospectively.

Taxable persons whose fiscal year is the same as the calendar year must prepare the statement by the end of 2021. For taxable persons with different fiscal years the deadline is the end of the 12th month of the end of the fiscal year.

What is a tax strategy?

There are different definitions of a tax strategy. It seems that the most reasonable solution is to use the definition provided in the documents describing the rules of the so-called co-operative compliance programme which is dedicated to the largest enterprises that will decide to work with tax authorities on accounting for taxes on an ongoing basis.

According to that definition, tax strategy of an entity describes the tax vision and mission, as well as tax goals, at the same time taking into account their influence on attaining the entity’s business goals.

Considering the individual elements of the definition, that term may be understood as follows, and such understanding of that term originates also from the documents describing the Working with the NRA Programme:

1. Mission is the reason why we choose to follow a certain approach to account for taxes. In other words, these are values which we follow in terms of taxes.
2. Vision is the how we see our present and future tax accounting.
3. Tax goals are taxable person’s individual preferences in accounting for revenues and expenses.

According to professional literature, tax strategy should deal, among others, with the following issues:

• the organisation’s approach to limiting the tax risk and the so-called risk appetite, that is the desired level of tax risk which the entity is prepared to accept in its business activity;
• readiness to include tax items which the tax administration can challenge / refuse to approve;
• the level of involvement of the taxable person’s managing body in the decision-making related to tax planning.

What is the content of the tax strategy statement?

When it comes to the tax strategy statement itself, the CIT Act specifies the following obligatory information to be included in the statement:

• processes and procedures for due performance of tax obligations;
• voluntary forms of working with NRA’s bodies – this applies to very few entities;
• tax obligations in Poland – information about what taxes the entity pays in Poland and why;
• information on transactions with related parties to the total exceeding 5% of the balance sheet total of assets in the meaning of accounting regulations;
• information on accounting for taxes in tax havens;
• planned or implemented restructuring which affects taxable person’s or related parties’ taxes;
• information about applications for advance tax rulings and for binding (VAT and customs) rate information filed by the taxable person;
• information about taxable person’s performance of tax obligations under Mandatory Disclosure Rules.

The tax strategy statement should not include trade secrets, industrial secrets, professional privilege or production processes.

How to prove good care in tax accounting?

It is worth describing in the tax strategy statement the measures that your organisation takes to duly fulfil its tax obligations, such as:

• tax procedures in place,
• methods of self-controlling the correctness of tax accounting internally (e.g. by commissioning tax reviews performed by third-party advisers),
• methods of increasing tax knowledge of employees and measures used to recruit highly qualified staff.

Of course, the scope of information to be included in the statement must be adapted to each organisation on a case-by-case basis.

New regulations – opportunities

New regulations prompt an opportunity to review the existing tax processes, supplement them with issues following from the new regulations or to develop a compendium of practices useful in case of employee turnover.

Therefore, introduction of the rules of tax compliance may be recommended not only to entities which must prepare the tax strategy statement by law, but also to all taxpayers who have a lot of processes performed by heavily staffed tax or accounting departments.

Introduction of tax governance (tax compliance) may be considered an element of a more broadly understood corporate compliance (compliance with law, clear communication with investors etc.).

If you have any questions concerning the challenges and opportunities brought by the new regulations, you are welcome to contact Rödl & Partner’s experts.