By Dr. Monika Laskowska, Center of Tax Analyses and Studies, Warsaw School of Economics
On 6 November, Poland’s President signed a law implementing a new cooperative compliance program in Poland for large corporate taxpayers (also referred to as horizontal auditing).
This is a new tax institution in Poland that introduces collaboration between taxpayers and the tax authorities.
The program is available to taxpayers with tax turnover of over 50 million euros, which amounts to about 2,700 taxpayers in 2019, according to Ministry of Finance data.
However, the program is facultative and, in the initial pilot phase, only 20 taxpayers will be allowed to participate.
The form of this cooperation will be outlined in an agreement between the taxpayer and the Head of the National Fiscal Authority.
Incentives to enter the program
New Polish law offers several incentives to enter into program, namely, the program provides an informal way for taxpayers to cooperate with the Head of the NFA; partial exemption from local tax authorities competence; preliminary tax return calculation in the form of an agreement with a forecast of tax liabilities; permanent tax auditing, which allows for relief from interest in case of a tax return adjustment after audit; and a delay in the commencement of fiscal offence procedures.
The new program also accelerates procedures for advance pricing agreements and provides a 50% reduction of the application fee, reduces fees for binding tax rulings and opinions on the general anti-avoidance rule, and provides for relief from mandatory disclosure regime reporting for domestic transactions.
A preliminary audit is required to enter the program. The scope of the audit, as well as the agenda, must be agreed to by the head of the NFA. The audit will proceed using delegated tax office employees.
Procedures will depend on developed practice
The new law assumes that details of the procedures will be developed as the Polish tax administration gains experience during the pilot phase.
Three such details appear to be crucial to the success of the project. First, permission to enter into the program will depend on the result of the preliminary tax audit. The effectiveness of conducting such an audit will have an important role in creating interest among taxpayers.
The preliminary tax audit will cover two full tax years plus the period before issuing the application for participation in the program. The audit will focus on the tax functions of the taxpayer rather than adjustments to the tax return. This means that it should include tax compliance procedures as well as the effectiveness of internal fiscal control in the organisation (i.e. proper description of the procedures and processes for tax compliance).
As mentioned, delegated tax office employees will conduct the audits. However, the provisions do not provide full a Chinese wall, as the delegated employees won’t be able to participate in an ordinary tax audit for only three years. The time to assess tax liabilities in Poland is five years from the end of a year in which a tax return is submitted.
Second, the program guarantees limited access to confidential taxpayer information during the course of the procedure. However, the taxpayer is obliged to prove that the information provided is of entrepreneur secrecy nature.
Third, the agreement with the Head of NFA is signed for an indefinite period of time, however without legal succession. Termination of the agreement can be done by denunciation of the agreement by either the taxpayer or the Head of NFA.
A notice of termination enters into force with an immediate effect. There is no possibility to appeal against a notice of termination. Such immediate termination can involve ex-post risk of a tax audit with retrospective effect if the Head of NFA identifies new circumstances.
Despite these potential drawbacks, interest in the program is high and a large number of taxpayers have expressed their willingness to participate.
–Monika Laskowska is associated with the Center of Tax Analyses and Studies, Warsaw School of Economics.
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