Poland provides more details on plan to require large firms to publicize tax strategy

By Dr. Monika Laskowska, Center of Tax Analyses and Studies, Warsaw School of Economics

The Polish government on 16 September published a bill introducing its proposal to require large corporations to prepare and publish a report on execution of their tax strategy each fiscal year.

The new obligation, first announced 4 September, would apply to the 2700 largest Polish taxpayers, namely, corporations and tax groups that have combined tax revenue anywhere in the world of over 50 million euro (.5% of all corporate taxpayers).

Poland’s Ministry of Finance explained that imposing the new obligation increases the tax transparency of the largest taxpayers affecting those that play a significant role in the Polish market.

Publication of a tax report should loom large in the minds of citizens, providing information about tax approaches and the voluntarily taken steps a corporation has taken to collaborate with tax authorities.

Poland’s Ministry of Finance expressed their trust in the potential impact of these reports on citizens, stating they may guide consumption decisions and lead corporations to enhance their social responsibility.

Poland tax strategy report in detail

The bill poses a couple of obligatory elements (minimum standards) for the report. However, large corporations still have broad discretion on how they communicate in the report; no format or template is provided.

Taking into consideration the characteristics, kind, and size of taxpayer economic activity, the report should include a description of the taxpayer’s approach to the process and procedures for managing tax compliance and the tools used to assure the actual execution of this plan.

It is also expected that large corporations will publicly reveal all voluntarily undertaken collaboration with tax authorities.

Additionally, the publicly available report should cover a description of the approach taken by taxpayers to tax obligations, including the number of mandatory disclosure reports sent to the tax authorities with details about particular taxes.

The report should cover extra information on larger transactions among associated companies, planned or ongoing restructuring of the business that might have an impact on the tax liabilities of the corporation or of associated companies, as defined by Polish law.

Taxpayers are also required to include information on applications submitted for general and individual interpretations of the tax law (tax rulings) and for binding tax information on VAT and excise rates.

Last but not least, the report should cover information on tax accounts with entities from tax havens listed according to Polish law.

Large companies may exclude from the report the information of a confidential nature such as trade secrets, commercial confidentiality, business secrets, professional secrets, and industrial processes.

In the case of large tax groups, the report should contain all indicated information for the group as a whole and also for separate entities of the group.

The report should be prepared or translated into the Polish language and published on the publicly available website of the Polish taxpayer. The deadline for publication is the end of the ninth month after the deadline to submit the corporate tax return.

Thus, the first publications should be available by the end of 2022. The reports for the following years should be presented and collected on the same website.

If a Polish taxpayer does not own the website individually, it may use the website of an associated company. However, the publication still should be in the Polish language.

Taxpayers must send to the appropriate tax office the information on the website address.

Penalties

The Polish Ministry of Finance takes this proposal very seriously.

Thus, missing any of the abovementioned obligations will result in a penalty in the form of an administrative decision.

The penalty is set at about 230,000 euros. It’s not clear whether the taxpayer will pay this penalty for a failure to meet all obligations or for each separate mistake.

Horizontal monitoring

From July 2020, Poland launched a pilot for horizontal monitoring.

As the program did not win much of interest from taxpayers; the government is using all opportunities to raise the attractiveness of this program.

Thus, taxpayers that will sign a cooperation agreement with tax authorities will be exempted from the tax strategy publication obligation.

However, until then, they should also publish it on regular rules.

Areas of legal uncertainty

As the bill imposes an obligation on corporate taxpayers that meet the tax revenue threshold, under the current wording, even taxpayers with limited Polish tax obligations (i.e., that conduct economic activity through a permanent establishment) are within the scope of this law.

The threshold of 50 million euros of tax revenue should be calculated per taxpayer. This may, therefore, significantly increase the number of foreign companies (non-Polish incorporated business with limited tax liabilities in Poland) within the scope of this obligation.

Also, some partnerships are already recognized as corporate taxpayers. Further changes are proposed in the new bill (incorporation of limited partnership for corporate tax purposes).    

Modeling tax transparency on Australian and UK solutions

The Polish rules aim to be modeled on the Australian Voluntary Tax Transparency Code (TTC) and United Kingdom guidance.

From 2018, Poland’s Ministry of Finance has publicized on its website corporate tax data.  The data covers the largest taxpayers – those with revenue exceeding EUR 50 million from 2012. This list is annually updated every 30 September.

Similar to the Australian and UK approach, the Polish reports won’t be reviewed or any assurance provided to it by Polish tax authorities.

However, unlike the Australian rules, the publication of the report in Poland is obligatory for large taxpayers meeting the specified threshold. In Australia, only Australian-headquartered businesses and foreign multinationals that have operations in Australia are encouraged to adopt the TTC.

In comparison to the Australian and UK approach, the Polish rules are more focused on the company tax function, listing material transactions with associated companies, restructuring (without assessment of the tax risk level undertaken), and areas of potential collaboration with the tax authorities.

 In Australia, the approach is focused on the reconciliation of accounting profit to income tax paid and effective tax rate.

 In the UK companies are obliged to publish their full tax strategy (description of business management of tax risks, business attitude toward tax planning, level of tax risk, reasoning for seeking external tax planning advice, etc.). While in Poland, only a report on the execution of the tax strategy is required.

Despite the narrower scope of the Polish obligation, the new bill has already generated plenty of negative comments from business and tax advisors, mostly due to the commercial sensitivity of the required information.

In my opinion, the requirement to publish a list of transactions with associated companies and restructuring is questionable.

It can be assumed that the majority of such transactions will be exempt from publication due to the secrecy clause, and it won’t bring much useful knowledge to the public.

However, it would be more interesting to view the corporation’s discussion of the reasons behind its Polish effective tax rate in comparison to other jurisdictions.

Moreover, the threshold for qualified companies (i.e., 50 million euros) is very low. The majority of companies operating in Poland that meet the threshold, may not have revenues much greater than the threshold.  For these companies, the new obligation will only bring additional administrative burdens, while not much of public benefit will be provided.

In my opinion, the threshold should be reconsidered with attention taken to the size of companies within scope and limited to companies conducting significant business in Poland.