Definition of tax scheme (MDR) and its types

From the article you will learn:

• What a tax scheme is?
• What types of tax schemes we distinguish?

In accordance with the provisions applicable in Poland regarding reporting of tax schemes, there are three groups of entities subject to the reporting obligation. Taxpayers face severe financial penalties for failing to comply. To avoid negative consequences, it is worth familiarising yourself with basic information about MDR – including the definition of the tax scheme.

What is a tax scheme?

According to the definition in the Tax Ordinance, a tax scheme (MDR) is an arrangement that:

• meets the criterion of the main benefit and has a general hallmark (both conditions should be met jointly),
• has a special distinguishing feature, or
• has another special distinguishing feature.

So what is an arrangement in the light of the provisions of the Tax Ordinance? It is an activity or a set of related activities (including planned activities) in which at least one party is a taxpayer or has or may have an impact on tax liability (whether it arises or not).
To sum up, a tax scheme is an activity or a series of interconnected activities, where at least one party is a taxpayer or the activities result in the creation or non-creation of tax liability and which have a general, specific or other specific distinguishing feature, and in the case when it is general distinguishing feature, at the same time meets the criterion of the main benefit. 

What is a standardised tax scheme?

According to the definition, a standardised tax scheme is possible to implement or make available to more than one user without the need to change its significant assumptions, in particular regarding the type of activities undertaken or planned as part of the tax scheme.

Therefore, to put it simply, an arrangement that does not require additional analyses, opinions, modifications or significant changes in the case of its implementation among different users, in principle, meets the definition of a standardised tax scheme.

What is a cross-border tax scheme?

A cross-border tax arrangement will be an arrangement that meets the cross-border criterion and:

• meets the criterion of a main advantage and has any of the general hallmarks referred to in Tax Ordinance in Article 86a § 1 point 6 (a-h), or
• has a special distinguishing feature.

It is worth clarifying that a tax scheme that has another specific distinguishing feature cannot be considered a cross-border tax scheme.

The cross-border criterion is considered to be met if the arrangement concerns more than one EU Member State or an EU Member State and a third country and meets at least one of the following conditions:

• not all participants in the arrangement have their place of residence, registered office or management in the territory of the same country,
• at least one participant in the arrangement has its place of residence, registered office or management in the territory of more than one country,
• at least one participant in the arrangement conducts business in the territory of a given country through a foreign establishment in that country, and the arrangement constitutes part or all of the business activity of that foreign establishment,
• at least one participant in the arrangement conducts business in the territory of another country without having his place of residence or registered office in the territory of that country and without having a foreign establishment in the territory of that country,
• the arrangement may affect the automatic exchange of information referred to in Section III of the Act of 9 March 2017 on the exchange of tax information with other countries, or the indication of the actual beneficiary within the meaning of the Act of 1 March 2018 on counteracting money laundering and financing of terrorism.

However, the cross-border criterion will not be met if the arrangement concerns only value added tax, including VAT, excise duties or customs duties, levied in the territory of an EU Member State.

What is a national tax scheme?

Simply put, a domestic tax scheme is a scheme that does not meet the cross-border criterion.

It is worth noting here that a tax scheme with another specific distinguishing feature will always be considered a national tax scheme. However, a tax scheme that meets the main benefit criterion and has any of the general hallmarks or has a specific hallmark may be classified as a domestic or cross-border scheme, depending on the fulfillment of the cross-border criterion.

Proper identification of tax schemes that may occur in a given organisation is one of the elements of tax planning. It is worth conducting it with the support of an experienced team for which the issues of tax schemes are not a challenge.