Information on the tax strategy – what should it contain?

photo freepic The amendment of the Income Tax Act will introduce an obligation from the new year to provide information on the tax strategy. We look closely at what such a report should contain.

Act dated 28 November 2020 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Flat-rate Income Tax Act on certain revenues generated by individuals and certain other acts (hereinafter referred to as the Amending Act), will introduce an obligation to draw up and make public information on the tax strategy implemented for the tax year. It will result from Article 27c Act dated 15 February 1992 on corporate income tax (Journal of Laws of 2020, item 1406, as amended, hereinafter referred to as the CIT Act.

It will apply to those entities under Article 27b(2)(1) and 2 the CIT Act, i.e.:

• 1) tax groups of capital, regardless of the amount of revenue achieved,
• 2) taxable persons other than tax groups whose income during the tax year exceeds the equivalent 50,000,000 EUR[1].

What, however, should the above information about the tax strategy be, and what should it contain? Some hint is the items listed under Article 27c(2) The CIT Act, i.e.:

1) information on the taxable person’s use:

• (a) processes and procedures for managing and ensuring the proper implementation of the obligations under tax law,
• (b) voluntary forms of cooperation with the authorities of the National Tax Administration;

1. information on the implementation of tax obligations by the taxpayer in the territory of the Republic of Poland, together with information on the number of information provided to the Head of the National Tax Administration on tax schemes, broken down by the taxes concerned;
2. information on:

(a) transactions with related parties whose value exceeds 5% the balance sheet total of assets within the meaning of the accounting rules, established on the basis of the last approved financial statements of the company, including non-resident entities of the Republic of Poland,

(b) planned or undertaken by the taxpayer restructuring measures likely to affect the tax liability of the taxpayer or associated entities[2];

4) information on requests made by the taxable person for:

• (a) the general tax interpretation,
• (b) the interpretation of individual tax legislation,
• (c) binding rate information (WIS),
• (d) binding excise information (WIA);

1. information on the tax settlement of the taxpayer in territories or countries applying harmful tax competition, as indicated in the implementing acts issued on the basis of Article 11j(2) CIT Act and on the basis of Article 23v(2) Act dated 26 July 1991 on income tax on individuals and in the notice of the Minister responsible for public finances issued on the basis of Article 86a(10) Tax Ordinance.

This does not include information covered by commercial, industrial, professional or production secrets. Information on the tax strategy pursued should also take into account the nature, type and extent of the activity carried out.

In view of the above, the information on the tax strategy in question contains quite detailed data on the tax matters of the taxpayer, especially as, in the case of the tax capital group drawing it up, it will have to include the aforementioned information in respect of the tax group and each company in its composition.

An additional controversy is the obligation to publish such information. The taxpayer is obliged to publish it in Polish (or in translation into Polish) on his website by the time of the end twelfth the month following the end of the tax year. What if the taxpayer does not have a website? In this case, the information should be made available in Polish on the related party's website.

A fairly severe fine will be imposed on the taxpayer for failing to comply with this obligation – 250,000 PLN. It will be imposed by the Governor of the Tax Office competent for the taxpayer.

Overall all added Article 27c The CIT Act raises some questions (not necessarily rhetorical and certainly worth discussing). After first: since the collection of information under Article 27c(2) The CIT Act is an open collection (in particular), so what additional information should the taxpayer publish?

A reminder of the nature, nature and size of the activity is not a valuable tool, unfortunately. After second: Should this kind of sensitive data be posted on the website on which any person with access to the Internet can enter – including the taxpayer's competitors?

And after third: Why did the legislator foresee such a high fine for failing to publish?

To the extent that this obligation will prove cumbersome for the taxpayers mentioned in the added provision, we will see next year.

Author: Michał Zdanowski, tax consultant At Russell Bedford Poland. Graduate of the Faculty of Law and Administration of the University of Warsaw, Graduate of the Postgraduate Tax and Tax Law Studies of the University of Warsaw, Graduate of the Postgraduate Accounting and Finance Studies of the Warsaw School of Economics.

During his studies, he gained experience in law and tax law firms. Since September 2013 is associated with the law firm Russell Bedford Poland. It specialises in documenting transactions between related parties.