MDR: duty first, explanations later

In light of the extensive uncertainty regarding fulfilment of the duty to report taxation schemes (MDR – mandatory disclosure rules), which enters into force on 1 January 2019, the Ministry of Finance is currently preparing explanations on the application of related regulations. Consultations are currently underway, including a meeting with the representatives of various entities which took place on 11 December. The initial version of these explanations should be available before Christmas.

The numerous new duties include the requirement to introduce and apply an internal procedure to prevent non-fulfilment of the information obligations regarding tax schemes used by the entities which employ promoters of the schemes (tax advisors, legal counsels, attorneys etc.) or actually pay remuneration if the revenues or costs of such an entity exceed PLN 8 million per year.

Considering the wide scope of the regulation, uncertainty existed as to whether or not the obligation applies to all entities having a turnover in excess of PLN 8 million and paying remuneration, for example, to tax advisors in consideration for any activity whatsoever, such as payment for preparing a tax return settlement. As the period for preparing and implementing the procedure ends on 1 January 2019 and failure to do so is punishable with a penal fiscal liability of up to PLN 2 million (or even PLN 10 million in some cases), the issue generate much anxiety.

During the consultation meeting, representatives of the Ministry of Finances explained that the remuneration mentioned in the regulation should be understood as remuneration paid in connection with a relationship which resembles an employment relationship. The procedure only needs to be implemented by entities which employ promoters and make decisions which affect the performance of reporting liabilities by other entities.

In other words, apart from tax consulting entities and law firms, the implementation of the related procedure from 1 January 2019 will be required, for example, by companies in a capital group which employs or cooperates with internal tax consultants who are responsible for group tax settlements and provide tax schemes to other companies within the group. In light of the wide definition of a tax scheme which must be reported (in the opinion of the Ministry, this also includes tax releases and discharges arising from tax regulations, such as accelerated or degressive depreciation method, R&D release or IP box), the obligation to prepare and implement an internal procedure from 1 January 2019 will apply to many companies which are not engaged in professional tax consulting.

If you wish to know whether/how the new regulations may apply to your company, please contact us.

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