On August 23rd, 2019, the Parliament received a bill on the settlement of disputes regarding double taxation and the conclusion of price agreements (No. 3788). The proposed act, in addition to new regulations in the field of the abovementioned issues, assumes supplementing the Tax Ordinance with section IIB ‘Cooperation’. The provisions in the newly designed section are truly groundbreaking and innovative for the Polish tax law system.
According to the proposed wording of art. 20s. § 1 of the Tax Code, the Head of the National Tax Administration (KAS) may conclude with the taxpayer, at taxpayer’s request, a collaborative arrangement in the field of taxes falling within the jurisdiction of the National Tax Administration, known as the ‘cooperation agreement’.
The proposed solutions are part of the so-called horizontal monitoring, already existing in several countries across the world, including Netherlands, France, Spain, United States or South Korea. In principle these mechanisms aim to follow the recommendations of the Organization for Economic Cooperation and Development (OECD) in the field of cooperation between public administration and entities of strategic importance to the economy of a given country.
The assumptions of the project provide that taxpayers, who in the previous tax year generated revenue equivalent to EUR 50 million in PLN, could voluntarily enter into ‘cooperation agreement’ with the head of KAS. Conclusion of such accord could provide the taxpayer with a new form of cooperation with tax authorities, and thus – additional protection against the negative effects of tax disputes. It is worth emphasizing that as per draft bill, the regulations regarding the content of the contract between the taxpayer and the authority are not rigid and, therefore, voluntary, flexible and informal, based on mutual trust. Following taxpayer’s intent to conclude such contract (this can occur both on his own initiative and after receiving a proposal for cooperation from the authority), the head of KAS will verify the current internal procedures related to the applicant’s compliance with tax obligations. What is vital, during such initial tax audit, the head of KAS will base his assessment on the opinion of independent, external entities such as tax advisers or auditors.
To ensure transparency of the activities of the Head of KAS, the refusal to conclude a cooperation agreement would be issued in writing together with justification. The reasons for refusal should be communicated to the taxpayer for him to knows due to which objective reason the tax authority cannot enter into cooperation agreement.
As mentioned above, the draft contains a number of general assumptions that cooperation agreements should meet, however, the course of the cooperation would be individualized for each taxpayer taking into account the specificity of his business and internal procedures. It is worth pointing out that the draft provisions limit the scope of concluded cooperation agreements to taxes remaining within the competence of the National Tax Administration. This means that such agreements will not encompass local taxes as local governmental institutions shall remain as competent authorities.
The core premise of agreements on cooperation will be guaranteeing legal certainty in exchange for the entity’s transparency towards the tax administration by concluding “Tax Agreements”, binding both parties to the legal relationship and ensuring that both parties will comply with the provisions contained in the agreements. The conclusion of such arrangement would give the taxpayer an opportunity to obtain a uniform and binding position of the authority for given case in a simplified manner. The draft provides for the conclusion of agreements in the following matters:
1) interpretation of tax law provisions;
2) previous price agreements;
3) exclusion of the application of art. 119a § 1 (clause against tax avoidance);
4) the amount of tax liability forecast for the next tax year in
corporate income tax;
5) other, necessary to ensure proper implementation of the cooperation agreement.
At the same time, in the event of the taxpayer’s disagreement with the authority’s position, the application of other procedures provided for by the Tax Code would not be excluded.
From the taxpayer’s point of view the decision to cooperate with KAS would be beneficial as reducing the tax risk of business operations while ensuring that the tax administration produces binding opinions on an ongoing basis and, as a result, allowing entity to avoid potential, costly and prolonged court and administrative proceedings.
In conclusion, the Program for Cooperation between Taxpayers and Tax Administration Bodies proposed by the Ministry of Finance will, on one hand, result in the possibility of obtaining explanations and the position of authorities ‘on a regular basis‘ before submitting the tax declaration and reducing administrative obligations in the enterprise, and on the other, reduce the cost of tax collection for the state budget. The price that taxpayers will have to pay for obtaining additional certainty as to the correctness of their tax settlements will undoubtedly be the need to submit to full supervision of tax authorities. The direction set by the Ministry of Finance should be assessed positively, however, according to OECD guidelines, the introduction of horizontal monitoring solutions must involve the introduction of mechanisms that guarantee certainty and uniformity in the application of tax law for parties to agreements. This will undoubtedly contribute to building mutual trust between tax administration and taxpayers. The provisional date of regulations’ entry into force was set for 1st July 2020.