Applications for advance tax rulings – changes

by Katarzyna Brzozowska, Agnieszka Szczotkowska

24 June 2019

Changes to the scope of information to be disclosed by applicants in applications for advance tax rulings have been introduced by the act of 4 April 2019 amending the act on exchange of tax information with other countries and certain other acts.

The lawmakers wanted to introduce those changes from January 2019 but the introduction was postponed due to this year’s record-high number of legislative tax amendments.

Transactions with foreign parties

The April’s amendments introduce changes particularly important for those who make transactions with foreign parties or transactions which have cross-border effects. According to newly added Article 14b(3a) and (3b) of the Tax Act, an applicant for an advance tax ruling must specify:

• country or territory of residence of the individual,
• identification details of the legal person or the organisational unit with no legal personality
  or
• countries/territories where cross-border effects have occurred or may occur. Such information does not need to be disclosed only in applications for advance tax rulings concerning individual matters of a natural person and in respect of customs duty and VAT.

Legal protection offered by the advance tax ruling will cover transactions, groups of transactions or other dealings insofar as the application specifies the countries, territories and details referred to in Article 14b(3a).

Transactions having cross-border effects

While it is easy to identify a transaction with a foreign party (just get its identification details), you may find it more difficult to identify a transaction having cross-border effects. The lawmakers have not defined the term. In the statement of reasons behind the statute they have explained that cross-border effects are neutral and should be interpreted literally, that is, as an event that has effects in two countries, e.g. in connection with business in another country). One example could be a ruling confirming that a permanent establishment in the meaning of a double tax treaty exists in the other state or not.

If you fail to specify the information referred to in Article 14b(3a) and (3b) of the Tax Act, your application will not be processed. If you disclose only a part of the required information, the protection offered by the ruling will not cover you. The changes no doubt extend the taxpayer's obligations because now when you want to apply for an advance tax ruling, you first need to obtain additional information about the chain of transactions, including foreign ones.

Automatic exchange of information – new definitions

The legislative amendments have also modified e.g. the definition of a group of entities introduced for the purposes of provisions on the automatic exchange of tax information about group members. The current definition no longer refers to the Accounting Act. Moreover, it now includes a deemed listing provision. The lawmakers have also changed the threshold amount triggering the obligation to prepare CbC-R (Country by Country Reporting) and the calculation method of that amount if the financial year is other than 12 months. According to the modified statute, if the consolidated financial statements are denominated in Polish zloty, the threshold amount is PLN 3.25 billion. If the consolidated financial statements are denominated another currency, the old threshold amount of EUR 750 million remains in force. The threshold amount of EUR 750 million is calculated according to the rules applicable in the country of residence of the parent company, that is, by converting the amount into euro according to the rules applicable in that country.

Further changes to CbC Reporting include the requirement to prepare additional information and explanations also in English, and the option to amend the reports already filed (please note that the CbC-R form allowed amending data also before the legislative changes).

Changes to the Criminal Fiscal Code (CFC)

The amended act has also modified the CFC – there is now a so-called privileged criminal offence and more lenient penalties for breach of the act on exchange of tax information with other countries (if the offence is of a lesser magnitude, the perpetrator is subject to a penalty as for a fiscal misdemeanour). 

The objective of the new regulations

The regulations have been amended mainly to bring Polish laws in line with Community law, including the guidelines on the Common Reporting Standard (CRS), which Poland undertook to follow by signing the Competent Authority Agreement on 29 October 2014, the BEPS standard (Action 13 – Transfer Pricing Documentation and Country-by-Country Reporting) and the guidelines of the Organisation for Economic Co-operation and Development.  The Ministry of Finance claims that the changes will streamline the exchange of information in countries considered tax havens.