Precautionary Tax Scheme Reporting

The practice of precautionary tax scheme reporting has arisen with respect to arrangements based on generic hallmarks, as defined in Article 86a(1)(6) of the Polish Tax Code.

If a transaction contains a generic hallmark, it must meet the main benefit test to qualify as a tax scheme; however, it is not always clear whether a given transaction satisfies that test.

Challenges

Legal transactions tend to generate various benefits, including tax, business, and regulatory advantages, so identifying the main benefits of a particular transaction can be extremely challenging.

For this reason, reporting entities sometimes attempt to shift the burden of making such an assessment onto the National Revenue Administration by submitting an MDR report ‘only as a matter of precaution’ (even though the main benefit test has not been met).

Problems

This is obviously problematic for the National Revenue Administration, as it has to decide whether the reported arrangement constitutes a tax scheme and should be assigned a tax scheme number.

Therefore, in such situations, the reporting entity is instructed to make the required assessment and submit an amended report. The author is of the opinion that there is currently no legal basis for the precautionary reporting of tax schemes.

Difficulties

However, such provisions seem desirable given the complexity of tax regulations, the difficulties involved in applying the main benefit test, and the potential penalties for failing to submit an MDR report.

by Piotr Prokocki, Head of Tax, Penteris

Originally published 17.10.2023 in prawo.pl