MDR: Other specific hallmarks

From the article you will learn:

• Do other specific hallmarks result from the DAC6 directive?
• May displaying other specific hallmark result in the occurrence of a cross-border tax scheme?
• Can transfer pricing simplifications resulting from the Guidelines of the Organisation for Economic Co-operation and Development be considered specific hallmarks of tax schemes?

What is the role of hallmarks in the tax scheme?

According to the definition in the Tax Code, a tax scheme is an arrangement that:

1. has a generic hallmark and meets the criterion of the main benefit (both these conditions should be met jointly),
2. has a specific hallmark (in this case the arrangement does not even have to meet the criterion of the main benefit), or
3. has other specific hallmarks (which also exempts the arrangement from the need to meet the main benefit condition).

It is therefore worth knowing that the Polish legislator has defined in the Tax Code something more than just the generic and specific hallmarks of tax schemes indicated by the DAC6 directive.

What are other specific hallmarks and are they also included in DAC6? 

When implementing the DAC6 directive into the Polish legal system, the legislator decided to add several additional hallmarks to the Tax Code that were not indicated in the EU directive. If the arrangement meets any of these hallmarks, then – in accordance with Polish regulations – there will be an obligation to report MDR.

A group of additional features are the so-called other specific hallmarks indicated by the legislator in Art. 86a § 1 point 1 of the Tax Code.  

Other specific hallmarks are that the occurrence of the information obligation depends on exceeding certain amount thresholds.

Importantly, in the case of an arrangement with other specific hallmark (as in the case of an arrangement with a specific hallmark), the tax scheme does not have to meet the criterion of the main benefit.

It is also important to remember that other specific hallmarks will constitute the domestic scheme. 

What other specific hallmarks do we distinguish?

The Polish legislator distinguished 4 other specific hallmarks.

Art. 86a § 1 point 1 letter a – the impact on the deferred part of income tax or deferred tax assets or reserves, resulting or expected in connection with the implementation of the arrangement at the beneficiary, is significant for a given entity within the meaning of accounting regulations and exceeds the amount of PLN 5,000,000 during the calendar year.

In the case of the indicated hallmark, the taxpayer must analyse how the arrangement affects the deferred part of income tax or deferred tax assets or reserves of the beneficiary. 

Importantly, the Tax Code indicates that both conditions must be met jointly. This means that the impact on the deferred part of income tax resulting from or expected in connection with the implementation of the arrangement must be significant for the beneficiary within the meaning of accounting regulations and exceed the total amount of PLN 5,000,000 during the calendar year.

Art. 86a § 1 point 1 letter b – the income tax payer would be obliged to collect tax exceeding PLN 5,000,000 during the calendar year if relevant double taxation avoidance agreements or tax exemptions would not apply to the payments resulting from or expected in connection with the implementation of the arrangement.

This hallmark will apply in a situation where the hypothetical tax that the payer would collect would exceed PLN 5,000,000 during the calendar year, if appropriate double taxation avoidance agreements or tax exemptions provided for in national laws were not applicable.

In order to verify whether a given hallmark has been met, it is necessary to calculate the amount of hypothetical tax to be collected by the payer.

Art. 86a § 1 point 1 letter c – the income (revenue) of the taxpayer, who is a non-resident within the meaning of the income tax acts, resulting or expected in connection with the implementation of the arrangement, exceeds the total amount of PLN 25,000,000 during the calendar year.

The above other specific hallmark will be met if in a given calendar year the non-resident's income (revenue) exceeds PLN 25,000,000.

To check whether such a situation has occurred, you should add up all paid or expected income (revenue) that a given tax non-resident received (and will receive) in the calendar year. These incomes are added up regardless of their source.

Importantly, only the non-resident's income (revenue) for which a limited tax liability arises in Poland (such as interest, dividend) is added up. This means that in the case of this specific hallmark, commodity transactions are not aggregated.

Art. 86a § 1 point 1 letter d – the difference between the Polish income tax that would be due in connection with the execution of the arrangement from the beneficiary who does not have its registered office, management board or place of residence in Poland, if they were a taxpayer who is a Polish resident within the meaning of the income tax acts, and the income tax actually payable in the country of the registered office, management board or place of residence of the beneficiary in connection with the execution of the arrangement, exceeds the total amount of PLN 5,000,000 during a calendar year.

The last other specific hallmark concerns the situation where the difference between:

• the Polish income tax that would be due in connection with the execution of the arrangement from a beneficiary who does not have its registered office, management board or place of residence in Poland (and calculated in such a way if the beneficiary was a taxpayer) and  
• income tax actually payable in the country of the registered office, management board or place of residence of the beneficiary in connection with the execution of the arrangement, 

exceeds the total amount of PLN 5,000,000 during the calendar year.

To verify whether the indicated other specific hallmark has been met, it is necessary to add up the hypothetically calculated tax that would be paid by the beneficiary in a given calendar year in connection with a given arrangement.

Additional Polish hallmarks can significantly complicate the obligations related to reporting tax schemes

As you can see, verification of other specific hallmarks introduced by the Polish legislator requires preparation of calculations – including the amount of hypothetical tax – which may generate problems and make it more difficult for entities to detect potential tax risks. We recommend using the services of tax advisors who are well acquainted with local regulations to all entrepreneurs operating in Poland who want to be sure that they are properly complying with the reporting obligations imposed by the regulations in their business activities should.