In the draft Equalization Tax Act dated April 25, 2024, the drafters proposed mechanisms to address taxpayers’ uncertainties regarding the equalization tax by introducing specific safeguarding measures in the Tax Code. A taxpayer will be able to submit:
- a request for an opinion on the equalization tax or
- a request for a protective opinion on the equalization tax
These mechanisms provide a valuable solution for companies. Any company subject to the equalization tax will be able to submit one of these applications to clarify any concerns. We recommend considering these applications in advance, as they will be processed within 12 months, which could be significant for the company’s ongoing operations.
What differentiates an equalization tax opinion from a general tax interpretation?
Although an opinion on the equalization tax does not constitute an individual tax interpretation, this opinion (hereinafter: Opinion) is a “qualified” type of individual interpretation. Legislators dedicated a separate chapter in the Tax Code to the Opinion, citing the complexity of equalization tax issues and the unique nature of the Equalization Tax Act compared to other tax regulations.
The Opinion is distinguished by the following features:
- Narrowing the scope of inquiries to future events, including planned or initiated and ongoing activities;
- Allowing the authority to hold a consultation meeting to clarify the content of the application—an adaptable alternative to a formal request;
- Establishing an Equalization Tax Council (hereinafter: Council), modeled after the Anti-Tax Avoidance Council, to draft an advisory document on the correct interpretation of OECD equalization tax guidelines, including accounting, as applied to the case presented;
- Validity of the Opinion for five years from issuance (unless it is amended, repealed, or automatically expires within this period);
- Requiring a preliminary fee of 25,000 PLN and a main fee, which varies according to the application’s scope and complexity but cannot exceed 75,000 PLN.
Opinion on equalization tax - potential challenges
Obtaining an opinion on equalization tax may be more challenging than an individual tax interpretation due to higher fees, significantly longer processing times, and the inability to reference established interpretative practices (as opinions are only available for informational purposes). Distinguishing actual from future situations may also be difficult, as protective coverage is available only for future events (including planned or initiated and ongoing activities).
Furthermore, the application for an opinion must contain extensive documentation and information, including:
- a comprehensive description of the future event and the taxpayer's legal position on it;
- identifying information of group members, including tax identification numbers (if available) and countries of residence;
- type of group entities affected by the request;
- a description of the general corporate structure of the group;
- an outline of the taxpayer’s core business, including business activities and economic strategy;
- description of adopted accounting policies;
- intergroup agreements or other documents concerning the future event;
- identification of any additional documents or information needed to assess the taxpayer’s position.
Protective opinion on equalization tax
The draft Equalization Tax Act also provides for a “qualified” protective opinion on the application of equalization tax provisions (hereinafter: protective opinion), excluding the issuance of traditional protective opinions. Issued by the head of the National Revenue Administration, the procedure for this protective opinion is similar to that of traditional protective opinions, though it applies only to equalization tax taxpayers for future events (including planned or initiated and ongoing activities).
The required documentation and information for the application have been expanded similarly to the application requirements for an opinion on equalization tax. Fees and processing time also differ: the protective opinion application fee is 100,000 PLN, payable within seven days of submission, with a processing time of up to 12 months.
Which safeguarding mechanism to choose?
There is no clear answer to this question. Legislators indicate in the explanatory memorandum that the protective opinion includes a detailed description of activities and an assessment of compliance with tax regulations, suggesting a more formal nature and potential use in tax disputes. On the other hand, an opinion on equalization tax may not have the same legal weight as a protective opinion and might be considered more as guidance or interpretation. We are available to advise you on which option to choose and manage the entire process for obtaining one of the opinions proposed by legislators, thus assisting with risk management related to equalization tax.
