The risk of automatic expiration of individual tax rulings concerning related parties

The proposed amendments

The main novum is an introduction of a obligatory „group application” referring to a transaction or other activities involving related parties. In such a situation, the individual tax ruling is to be issued only on an application submitted jointly by these parties.

Importantly, in case of a group application, a comprehensive description of the factual state or future event will additionally cover the obligation to indicate, particularly, any obtained and expected main benefits, including tax benefits, that result directly or indirectly from the transaction or other activities.

It will also be required, inter alia, to indicate transactions or other activities, that are planned or ongoing, on which, directly and indirectly, depend main benefits. Moreover, it will be necessary to indicate the value of the main benefits and the period for which these amounts have been determined.

The sanction for the lack of required information is that the individual tax ruling does not provide protection with effect from its day of issuance – if the benefits (even indirect) and/or all transactions from which the benefits arise are not indicated in the group application. Furthermore, the ruling does not provide protection upon expiration of the period that was mentioned in the group application for which the value of the benefits have been determined (unless the group application is updated).

The group application shall not, however, refer to recurring transactions or other activities undertaken mainly with entities other than related parties, if the conditions of these transactions or other activities carried out with related parties do not differ from conditions applicable to other entities.

Individual tax ruling based on a group application shall be issued without undue delay, however, no later than 6 months from the date of receipt of the application. This means that the deadline for issuing this kind of ruling will be extended by 3 months in comparison with standard procedure.

The draft amendment also introduces the definition of the term „tax benefit”. Further, the draft amendment includes changes in the provisions concerning securing opinions – if the application for issuing a securing opinion covers a transaction or other activities involving related parties, the securing opinion will be issued only on an application submitted jointly by these entities.

We recommend to review any individual tax ruling received so far

The planned amendments have a crucial impact on individual tax rulings obtained so far by the taxpayers relating to transactions and other activities that involve related parties. In other words, the amendments affect individual tax rulings which have already been issued and – under the amended regulations – would be issued based on “group application”.

Pursuant to the draft amendment, such rulings expiry automatically on the date when the amending act enters into force, if additional information required for group application on the basis of the new provisions, is not provided within 6 months from that date.

Consequently, it is of crucial importance to review individual tax rulings received so far to assess whether there is a risk they would automatically expire within 6 months from the date when the amending act enters into force.

In the case of applications to issue individual tax rulings concerning related parties, that have been submitted but not yet examined before the date of entry into force of the amending act, the applicants will be summoned by the tax authorities to provide additional information required by the new regulations.

The status of the legislative process

The draft is now at the stage of public consultation. The Minister of Finance invited comments to the amending Act by 24th April 2018. As mentioned in the letter of the Minister of Finance, the short deadline of the arrangements results from the urgent need to adopt the proposed regulations. The draft amendment is an expression of continuing actions aimed to tight the tax system.

According to the amending act, the act is scheduled to enter into force 14 days after its publication.