The Ministry has provided a rationale behind changes to the sections of the Tax Ordinance Act related to issuing individual tax rulings. The amendments are to counter the abuse of tax rulings perpetrated by taxpayers operating within a group of related entities that employ aggressive tax planning strategies.
The obligation to jointly apply for an advance tax ruling will apply to activities whose performance involves related entities or entities which will become related as a result of performing the activities set out in the application. Pursuant to the draft bill, the regulation on the compulsory group application will also encompass advance tax rulings.
The purpose of the planned changes has been defined as:
- tightening the tax ruling system by introducing the obligation to apply for a tax ruling based on a group application in the event that the factual circumstances or a future event of the application include activities whose performance involves related entities or entities which will become related as a result of performing the activities set out in the application
- curtailing malfeasance that relies on entrepreneurs abusing individual tax rulings with the aim of reaping tax benefits.
The changes provide for creating a new category of a tax ruling application, the so called “group application”, compulsory for related entities. Apart from the standard elements of the application for an individual tax ruling, the group application filed by the parties concerned and accompanied by a statement of reasons will include new elements. The applicant will be required to:
- present additional elements of the factual circumstances or a future event, indicate the main benefits that have been reaped or are expected to be earned (including tax benefits)
- describe the existing or prospective relations between related entities covered by the group application and the activities performed, being performed, and to be performed, that directly or indirectly affect the earning of tax benefits
- indicate whether transactions under the factual circumstances or future events are or will be performed solely with related entities or with other entities as well.
The Draft Bill defines the term ‘tax benefit’ as:
- Tax liability not arising
- Deferring or lowering the tax liability
- Generating or overstating tax loss
- Accruing an overpayment or acquiring the right to a tax refund, or increasing the overpayment and the tax refund.
In the event that the value of the subject of activities (an enterprise, its organized part or property rights) exceeds a defined threshold, related entities will indicate the values of the subjects of transactions or other activities as well as the value of major benefits, including tax benefits, and the period for which the values have been determined or estimated. The applicants will be required to indicate the value of an enterprise, its organized part or property rights under factual circumstances or a future event whose market or face value as of the day of filing a group application amount to a minimum of PLN 10m.
The Draft also provides for the expiry of previously issued individual tax rulings involving related entities. They are to expire upon the enactment of the Bill, provided that no supplementary information is provided within six months of the Bill coming into force.