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Should your company report domestic tax schemes in accordance with MDR?
The provisions of the DAC6 Directive have obliged EU Member States to implement the provisions imposing mandatory disclosure of information about tax schemes (Mandatory Disclosure Rules – MDR). In implementing these regulations, the Polish lawmaker has decided to additionally extend the scope of duties imposed on promoters, beneficiaries and supporters, e.g. by adding further hallmarks and taking into account activities performed within the Polish territory.
These regulations have obliged legal entities and organisational units without legal personality who are promoters, employ promoters, or effectively pay them remuneration to adopt an internal procedure for counteracting non-performance of the mandatory obligation to disclose information on tax schemes. Such an MDR procedure is necessary if the revenue or expenses displayed in accounting records (within the meaning of accounting regulations) exceeded the equivalent of PLN 8,000,000 in the year preceding the fiscal year.
Despite the fact that MDR regulations have been in effect since January 2019, most entities still have a problem with properly fulfilling the mandatory disclosure obligations.
Important! Some entities still mistakenly believe that these regulations do not apply to them! Who is subject to the obligation of reporting tax schemes then? We explained this issue in our blog article.
Since when have the identification and reporting of tax schemes been obligatory?
The Polish MDR regulations came into force on 1 January 2019. However, it must be pointed out that the reporting obligation also applies to situations where the first action related to the implementation of a tax scheme was carried out:
- after 25 June 2018 – for cross-border tax schemes,
- after 1 November 2018 – for domestic tax schemes.
If an entity has taken first actions related to a tax scheme after the dates indicated above, it will be obliged to report this scheme, despite the fact that the actions had been performed before the regulations came into force.
How to identify a tax scheme?
Tax scheme is a particular kind of activity (or a series of interconnected activities) which:
- fulfils the main benefit test and has a generic hallmark,
- has a specific hallmark,
- has a different specific hallmark.
In determining whether or not a particular activity – e.g. withdrawal of funds, entering into or amendment of an agreement, transformation of a company, or its capitalisation – may be considered a tax scheme, it should be verified if the activity bears any of the hallmarks. In addition, in the event a generic hallmark is present, it should be verified if the main benefit test is satisfied.
What to do if our activities fit the definition of a tax scheme?
If our activities fit the definition of a tax scheme, we should determine if that specific tax scheme must be reported – and if yes, by which entity and within what time limit. It applies particularly to the so-called domestic tax schemes.
What role might an entity play within the framework of MDR?
The regulations on tax schemes specify three kinds of entities (regardless of whether they are a natural person, legal person, or an organisational unit without legal personality) that are obliged to report tax schemes: promoter, beneficiary, and supporter. The reporting obligation by an entity belonging to a particular category frequently depends on whether or not an entity belonging to a different category has fulfilled this obligation.
How do RSM Poland experts assist in fulfilling the obligation to report tax schemes (MDR)?
RSM Poland specialists have practical experience in advisory relating to tax schemes. Thus, we can offer comprehensive support in this matter. As part of our services:
During dedicated online tax training for key employees, we look at issues related to the identification of tax schemes, tasks connected with the roles of promoter and beneficiary, time limits for submitting the reports and their scope, and potential consequences of failure to fulfil the obligations.
The training in reporting under MDR is the first step in the MDR procedure implementation process.
The meeting in the form of a Q&A session allows us to identify potential risks to the company within the scope of reporting in accordance with MDR. After the session, we deliver a report which contains potential areas covered by the reporting obligation as well as our recommendations on how to proceed further. The report also outlines our recommendations regarding the adoption of a mandatory MDR procedure.
The Q&A session may be part of training on reporting under MDR.
In accordance with the Tax Ordinance Act, promoters and entities employing promoters or effectively paying remuneration to promoters are obliged to implement an MDR procedure. Its objective is to counteract non-performance of the obligation to disclose information on tax schemes.
In developing a dedicated MDR procedure, we gather information about decision centres which can make decisions on tax schemes, as well as take into account the nature of a particular organisation. The content of the MDR procedure will include both the necessary elements set out in the Tax Ordinance Act and additional items, specially designed and custom-made to meet the needs of a particular client.
We also develop a standard procedure which fulfils all the legal requirements, but does not take into account the structure of your organisation.
Due to the complex MDR provisions (and lack of interpretation in this regard), we will verify the extent to which MDR regulations are to be applied in your organisation. We will review if tax schemes occur in your organisation, and analyse whether the reporting obligations are fully met.
After the analysis, we will deliver a report indicating potential areas covered by the reporting obligations as well as our recommendations on how to proceed further.
After implementing the MDR procedure, the taxpayer is obliged to comply with it, not only within the scope of fulfilling the reporting obligations, but also, among other things, disseminating the knowledge of MDR among employees.
To verify compliance with the MDR procedure, we review the company's documents and processes. We conclude the audit of compliance with the MDR procedure with a report containing the most important findings and recommendations.
Depending on their role (promoter, supporter, beneficiary), natural persons, legal persons, and organisational units without legal personality are obliged to disclose information on tax schemes to the Head of the National Revenue Administration. To comply with this obligation, entities must fill out relevant forms (MDR-1, MDR-2, MDR-3, MDR-4), and submit them within statutory time limits.
The MDR forms, particularly MDR-1 and MDR-3, are very complex and require a lot of information to be provided. To reduce the risk related to the reporting of tax schemes, we prepare MDR forms which will be compliant with substantive and technical requirements.
The regulations on mandatory reporting under MDR are among the most complex in the Polish tax system. Even the Explanatory Notes of the Ministry of Finance contain more than 100 pages, with further updates announced. Therefore, we take over some obligations related to the coordination of the reporting process from our clients.
As an MDR officer:
- we analyse, on the basis of information delivered by the client, whether or not an arrangement qualifies as a tax scheme,
- we verify whether or not a tax scheme is subject to reporting,
- we prepare information necessary for reporting under MDR,
- we indicate which entities are obliged to report and reporting deadlines,
- we write replies to the letters of the Head of the National Revenue Administration.
The range of activities carried out within the scope of the MDR officer service does not include administrative work or document archiving.
Why is it worth recruiting the support of RSM Poland experts with the verification of the obligation to report tax schemes?
Taking into account the nature of Polish law, the support of a tax advisor is often indispensable in analysing tax schemes. This is because taxpayers operating in Poland may face a number of problems, the biggest of which include the following:
- difficulty in the interpretation and practical application of the regulations on the reporting of tax schemes (MDR),
- broad scope of application of the regulations on the reporting of tax schemes (MDR), which cover virtually every kind of tax as well as every employee and department,
- differences between the Polish regulations and the provisions of the DAC6 Directive and regulations applicable in other EU countries,
- necessity to carry out ongoing analyses due to statutory reporting deadlines,
- increased activity of tax authorities as regards the analysis of reported tax schemes and a growing number of summonses issued in this matter,
- heavy penalties and high personal risk to management board members and employees for violating the regulations on the reporting of tax schemes.
