Cross-border reorganisations to be reviewed by the tax authorities

New powers for the Head of the NRA

The Project includes the introduction of provisions in the Tax Code in order to define the scope and nature of the Head of the NRA's participation in issuing an opinion on the legality of a cross-border reorganisation. According to the Project, any entity planning a cross-border reorganisation will have to request this opinion.

The subject of the opinion will be an assessment as to whether there is a reasonable presumption that the implementation of the cross-border reorganisation could:

• aim to avoid taxation (within the meaning of the Tax Code and any relevant double taxation treaties);
• be the subject of a decision issued with measures restricting contractual benefits, or
• lead to an abuse of the law (within the meaning of the VAT Act).

In addition, the opinion of the Head of the NRA will have to confirm that a company's financial obligations to the tax authorities, or any non-tax budget receivables of a public law nature, for the assessment or collection of which the NRA authorities are competent, remain satisfied or secured.

In the event that it has been determined that the implementation of a cross-border reorganisation could have the purpose of violating the conditions indicated above, the Tax authority will refuse to issue an opinion which could then result in the registration court's refusal to issue a certificate confirming the cross-border reorganisation's compliance with Polish law.

The request for an opinion will be subject to a fee equal to 50% of the minimum wage.

What to include in a request for an opinion?

In the request for an opinion, it will be necessary to provide, among other things:

1. 1. • a comprehensive description of the activities and relationships between the entities within the meaning of the transfer pricing rules,
      • the economic or business justification of the action,
      • the tax implications, including any expected tax benefits, and
      • the tax scheme number, or an explanation as to why the reconciliation was not notifiable under the MDR rules.

The application must include a statement from the company's management board members as to the location of the real estate owned by the company in the territory of Poland. The statement is made under criminal liability.

Opinion procedure

Under the proposed regulations, the Head of the NRA will be required to issue an opinion without any undue delay, no later than one month from the date of receipt of the request. In justified cases, this deadline can, however, be extended, but by no more than three months. The Head of the NRA will then be obliged to inform the registration court of the fact that there has been a deadline extension. However, the proposed regulations do not mention any sanctions imposable on the tax authority for issuing an opinion after the deadline.

When issuing an opinion, the Head of the NRA will be able to consult other authorities, including the Minister of Finance, the General Inspector of Financial Information, the Director of National Fiscal Information, as well as the heads of the tax and customs-fiscal offices competent for the company or the relevant local authorities.

The Head of the NRA will send the opinion, or its refusal to issue the opinion, to the registry court which, based on this, will decide whether to issue the certificate of the cross-border reorganisation’s compliance with domestic law. The decision of the Head of the NRA's refusal to issue an opinion will be appealable to an administrative court. In addition, the company will have the opportunity to reapply for an opinion in a new proceeding, especially if there has been a meaningful change in circumstances.

Please note that the issuance of an opinion will not constitute a final decision concerning the correctness of a company's tax settlements in connection with the reorganisation. These settlements will be open to review.

Expected effects of the changes

The proposed legislation will have a significant impact on the planning of reorganisations within corporate groups. Most notably, the time required in order to obtain the Head of the NRA's opinion concerning a planned reorganisation will need to be taken in account.

Crucial importance will be attached to the analysis of any cross-border reorganisations in terms of the tax benefits to be achieved and the economic rationale for conducting each transaction of this kind since the authority will always evaluate the reorganisation even before it has been implemented from the perspective of tax avoidance. The provisions aimed at preventing tax avoidance will also gain in importance.

The proposed regulations will place the burden on the taxpayer to prove that the transaction is not subject to the MDR provisions. If the reorganisation is not reported as a tax scheme, the taxpayer will have to explain its lack of reporting in every instance, despite having no obligation to do so.

Should you be interested in obtaining more detailed information on the described Project and its impact on any proposed restructuring activities, please feel free to contact us.

Authored by Andrzej DÄ™biec and Jan Starybrat.