Reporting of tax schemes (MDR)

Reporting of tax schemes (MDR) – for whom?

Reporting of tax schemes (MDR) at KR Group

Reporting of tax schemes (MDR) – KR Group offer

FAQ

• What is a tax scheme?

  A tax scheme is defined very broadly, but it can be assumed that it is an arrangement or action meeting certain criteria which may lead to obtaining a tax benefit and is subject to the MDR reporting obligation to the tax authorities.

• Who does MDR apply to?

  Who does MDR apply to?

  The reporting of tax schemes (MDR) applies to you if:

  • you include cross-border payments to a related party as tax-deductible costs and the recipient of the payments is resident, domiciled or managed in a country that engages in harmful tax competition;
  • you make depreciation write-offs in respect of the same fixed asset or intangible asset on which depreciation write-offs are also made in another country;
  • you have income or assets that benefit from methods aimed at avoiding double taxation in more than one country;
  • you transferred assets and the remuneration determined by two countries for this purpose for tax purposes differs by at least 25%;
  • you transferred rights to hard-to-value intangibles;
  • you have an opaque legal ownership structure or the beneficial owner is difficult to identify;
  • you use a simplification introduced unilaterally in a given country in the application of regulations related to transfer pricing;
  • a transfer of functions, risks or assets takes place between related parties and this affects the expected annual financial result of the transferring entity;
  • the reporting obligation arising from the Act on the exchange of tax information with other countries was circumvented.

• Can a tax ruling be obtained in the area of MDR?

  The Director of the National Revenue Information refused to issue an individual tax ruling, which further hampered the taxpayer in classifying their activities in terms of MDR. However, in the ruling of the Supreme Administrative Court of 28 January 2021, case no. I FSK 1703/20, the court put forward the thesis that tax schemes may be the subject of tax rulings. The Director of the National Revenue Information (Director of KIS) issued the first individual tax ruling in history concerning the obligation to report tax schemes (MDR) only in July 2024.

• The MDR tool - is it worth it?

  Yes, KR Group offers a proprietary, one-of-a-kind certification system that periodically checks whether tax schemes have occurred in the company – MDR Check. Our experts assume responsibility for continuously checking whether tax schemes exist in the organisation and analyse arrangements that may be considered a tax scheme.

• When do you need MDR support?

  The topic of reporting tax schemes (MDR) should be considered when, in the company:

  • the taxation rules have been changed (e.g. a 9% CIT rate is applied instead of 19%);
  • the classification of income to a different income source has been changed (e.g. income from non-agricultural business activity has become income from capital gains or vice versa);
  • you encountered sucess fee or an obligation to maintain confidentiality as to the manner in which the arrangement allows a tax benefit to be obtained;
  • you used significantly standardised documentation or undertook activities taking a significantly standardised form;
  • you acquired a loss-making company, the main activity of such company was discontinued and the losses of such company were utilised;
  • actions were taken leading to a circular flow of documents through the involvement of intermediary entities not performing significant economic functions;
  • actions were carried out that cancel each other out or lead to a state identical or similar to the state existing before those actions were taken;
  • cross-border payments between related parties were included as tax-deductible costs, and in the country of the recipient’s residence, registered office or management:
    • no corporate income tax is levied, or corporate income tax is levied at a zero rate or a rate of less than 5%;
    • such payments benefit from a full exemption or are subject to preferential taxation rules.

• Does the use of tax reliefs or exemptions constitute a tax scheme?

  According to the tax explanations, the use of tax reliefs or exemptions does not constitute a tax scheme, provided that the primary purpose of establishing the entity was not to benefit from tax preferences.

• Can the payment of a dividend to a foreign shareholder be a tax scheme?

  Yes, if the value of the dividend exceeds PLN 25,000,000.

• Can a transition from employment to self-employment be a tax scheme?

  Yes, provided that a person is engaged on a self-employment basis despite the absence of independence and economic risk, with full subordination to a single entity.

• Can a change of business form from a capital company to a partnership be a tax scheme?

  According to the opinion of the tax authorities, this change is classified as a tax scheme. However, there are arguments in favour of such a change of business form not constituting a tax scheme.

• What are the potential penalties for failure to fulfil obligations?

  Failure to report a tax scheme to the Head of KAS, delay in providing information or irregularities in MDR reporting may result in criminal fiscal liability and the imposition of high financial penalties on the company. Penalties, including for failure to implement a procedure for preventing the non-reporting of tax schemes by obligated entities, may amount to as much as PLN 10,000,000.

  The Fiscal Penal Code also provides for sanctions. The regulations provide for fines (over PLN 44,790,000) for failing to report a scheme or for late submission of a report, as well as other conduct penalised under Article 80f of the Fiscal Penal Code. A fine is also provided for using an invalid tax scheme number (up to PLN 7,200,000).