MDR Assessment

The Head of National Revenue Information (so called “KIS”) consistently refuses to initiate proceedings to issue individual interpretations regarding the tax schemes regulations (MDR). Previously, this approach was accepted by administrative courts. Recently, however, more and more courts are on the taxpayers’ side, recognizing that the MDR regulations may also be subject to individual interpretations.
Admittedly, the judgments favorable to taxpayers are not final, but they give hope that the first individual interpretations of the MDR regulations will appear soon.

The possibility of having an interpretation on the MDR regulations is important, considering protection against fiscal penal liability for failure to comply with the reporting obligations provided for in Art. 80f of the Fiscal Penal Code aspect (for example, failure to provide information about the tax scheme may be sanctioned with a fine of up to 720 daily rates, i.e. after taking into account the maximum daily rate - almost PLN 25 million).

The MDR regulations are not tax regulations…

The MDR regulations, which have been introduced on January 1, 2019 raise a number of doubts. The Head of KIS consistently refuses to initiate proceedings concerning the individual interpretations of these provisions, stating that they are not strictly related to the emergence of a tax obligation and do not affect its amount. In the opinion of the Head of KIS, MDR regulations should not be subject to official interpretation, via individual interpretation.

The negative approach of the courts and the recent change
Previously, the administrative courts shared the view of the Head of KIS ( judgment of the Provincial Administrative Court in Poznań of December 5, 2019, file number I SA / Po 825/19 and the judgment of the Provincial Administrative Court in Opole of February 12, 2020, file reference number I SA / Op 528/19).

In recent months, the unfavorable line of jurisprudence has started to reverse, and the courts more and more often take a side of taxpayers and repeal the decisions of the Head of KIS refusing to issue interpretations in matters related to MDR.

Recently, such a position was taken by, Provincial Administrative Court in Warsaw (see judgments of April 29, 2020, file reference number III SA / Wa 2458/19 and of April 30, 2020, file reference number III SA / Wa 2474/19), Provincial Administrative Court in Poznań and Provincial Administrative Court in Gorzów Wielkopolski.

According to the statements presented in those rulings, the MDR provisions are tax law provisions and them being a subject of individual interpretations shouldn’t be questioned - especially (as the courts note) that they raise numerous doubts, and failure to fulfill them is associated with the risk of criminal fiscal liability. According to the courts, the value of protection against liability under the Fiscal Penal Code supports the possibility of obtaining interpretative protection in this area.

On January 29 2021, the Ministry of Finance published the answer to another question regarding the interpretation of the regulations on reporting tax schemes (MDR). The Ministry of Finance referred to whether the banks, while being a supporter, are obligated to obtain an additional declaration regarding the customer's compliance with the qualified beneficiary criterion.

According to the tax explanations of January 31, 2019 – considering information on tax schemes (MDR), in situation, in which there is no other information or reasons for considering that the qualified user criterion is fulfilled, "for evidentiary purposes, it could be sufficient, to receive a declaration from the beneficiary stating that in his case the qualified beneficiary criterion has been met” (page 16).

In the published questions and answers, the Ministry of Finance clarified that the Tax Ordinance regulations do not directly impose on the banks as supporters an obligation to verify whether the beneficiary meets the qualified beneficiary criterion.

At the same time, it was indicated that, based on the regulations of the Tax Ordinance, the supporter is obliged to exercise due diligence generally required in the activities performed, taking into account the professional character of the activity, area of specialization and the subject of the activities performed. Consequently, according to the Ministrys’ statement, "banks may use the documentation collected during business activities and adjust procedures for obtaining documents according to the possible assumptions about the possibility of meeting or not meeting the qualified beneficiary criterion by their customer".

According to the Ministrys’ statement, if performed due diligence, appropriate procedures, etc., do not raise any doubts on fulfillment of the qualified beneficiary criterion, obtaining the declaration in question is not necessary.

It was also stipulated that “we can not exclude situations in which obtaining a declaration may be useful for evidence purposes in order to demonstrate that due diligence has been performed. An example of such a situation may be the lack of relevant information even if appropriate procedures have been performed”.

On August 26, 2021 the Ministry of Finance (so called “MF”) changed one of the answers to the questions regarding the interpretation of the provisions on reporting tax schemes (MDR). This change will have a major importance for the tax schemes reporting in practice. The MF claimed that the "corrections" made by the submitting entity on the reports with errors by supplementing them, will not no longer be accepted.

According to the original answer to question no.3, “In case of providing the Head of National Revenue Administration (so called “ the Head of KAS”) with information or notifications containing mistakes, the Head of KAS should be provided with the supplement to the incorrect information. It is not possible to provide the Head of KAS with a different letter explaining the reasons for the correction. This supplement is submitted on the request of the Head of KAS”. This statement, supported by the practice of National Revenue Administration and reporting entities, meant that any mistakes or gaps in the information on the tax scheme could be "corrected" / supplemented by submitting supplements to the information on the tax scheme previously provided to the Head of KAS.

Changing its position, the MF indicated that “In case of providing the Head of KAS with information on the scheme or a notification containing mistakes, the entity, on its own initiative, does not have the right to submit supplements of information and notifications about the tax scheme and to supplement the incorrectly submitted signature on the form ". At the same time, it was underlined that the information or notification may be supplemented only on request of the Head of KAS, and that the supplements submitted by the entity without the request of the Head of KAS have no legal effects and will not be considered.

The MF indicated that if the submitting entity will notice that the information or notification submitted have mistakes or was incorrectly signed (before the request for supplementation by the Head of KAS), he should re-submit the original information or notification, adding in the "Additional explanation" field the reasons for the submitting "another" information or notification.

It seems that the position taken by the Ministry of Finance won’t only change the approach commonly adopted by the submitting parties, but may also result in far-reaching consequences, for example the Head of KAS invalidating some of the supplemented information.

On December 22, 2020 the Ministry of Finance published answers to next questions regarding the interpretation of the regulations on reporting tax schemes (MDR).

The most important issues raised in the questions are presented below.

Obligation to re-report cross-border tax schemes

According to the statement of the Ministry of Finance, the obligation to re-report laying on entities that previously submitted information about the cross-border tax scheme (MDR-1 information) applies to tax schemes in which the first activity related to the implementation of the tax scheme was performed in the period from June 26, 2018 to June 30, 2020

The MDR-1 information provided by the entity should be up-to-date at the time it is submitted, based on the information that the entity possesses and to its best knowledge. As a rule, entities are not obliged to actively look for information about the arrangement.

In accordance with the regulations of the Tax Ordinance, if the tax scheme has not been reported due to the solutions provided for in the so-called Anti-Crisis Shield, and re-reporting is mandatory, it is sufficient to provide MDR-1 information once on the current Ministry of Finance’ website.

Defining the rules for determining in which EU Member State the obligation to provide information on a cross-border tax scheme should be fulfilled.

According to the statement of the Ministry of Finance, an entity which proves that the cross-border tax scheme was correctly submitted to the competent authorities in another EU Member State is exempt from the obligation to report it in Poland. For this purpose, before the expiry of the deadline for submitting the information in Poland, the entity should provide evidence of the correct submission of information to the competent authorities in another EU country.

The “evidence” should be considered any kind of confirmation which unquestionably shows that this obligation has been fulfilled.

If there are significant differences in the content of the information in question (also compared to the information required under the MDR regulations in Poland), in Poland there may be an additional obligation to submit information on the cross-border tax scheme on the MDR-1 form.

Obligation to re-submit quarterly information on a standardized tax scheme (MDR-4)

In order to fulfill the obligation, it will be sufficient to submit one MDR-4 information on the tax scheme, covering the entire period from June 26, 2018 to June 30, 2020 containing the full range of data (including data from previously submitted MDR-4 information as well).

On August 23, 2019 at the Government Legislation Center website, a draft on the amendment to the Corporate Income Tax Act, the exchange of information with other countries, as well as some other acts was published . The amendment to the regulations provides changes in the reporting of tax schemes.

The scope of the amendment to the regulations

The draft published by the government and submitted for public consultation is related to the implementation of the European ATAD 2 directive, as well as supplementing the regulations resulting from the MDR directive. The changes introduced are aimed at preventing discrepancies in the qualifications of hybrid structures, leading to a double deduction or deduction without recognition in income. The amendment includes solutions that will give tax authorities the option to refuse to deduct a given payment, costs or loss or to impose an obligation to recognize the payment in the taxpayer's income. The draft also includes, adding to the legal system, regulations introducing four categories of discrepancies in the qualifications of hybrid structures.

Changes in the scope of MDR

The proposed act complements the regulations that are in force from January 1, 2019 in the field of reporting tax schemes, which are the implementation of the MDR Directive. The amendment requires the Head of the National Tax Administration to provide information on cross-border tax schemes to the tax authorities of the Member States, as well as to the European Commission. It also specifies the scope, manner and date of submitting such information.

Draft also provides changes in the field of retrospective provision of information on cross-border tax schemes. Currently, promoter or the beneficiary is required to report retrospectively. The amendment proposes the supporter to also be required to report retrospectively. This will apply to those tax schemes of a cross-border character that have not yet been reported by promoters or beneficiaries.

Moreover, changes provide the extension of the list of territories or countries using harmful tax competition. It will be extended to include the EU list of non-cooperative jurisdictions for tax purposes.

Binding from January 1, 2019 amended regulations of the Tax Ordinance, introduced mandatory reporting of the so-called tax schemes (MDR). Pursuant to the regulation provided in Art. 86a § 1 point 1 lit. c of the Tax Ordinance, other specific hallmark is met if the non-resident's income (revenues), resulting or expected in connection with the implementation of the arrangement, will exceed the total amount of PLN 25,000,000 during the calendar year.

The Ministry of Finance explained the doubts, stating in response to the DGP question that "making another payment during the same calendar year on the same account to the same entity (non-resident) does not lead to a separate obligation to report the tax scheme".