Based on the latest World Bank’s “Doing Business” report Polish tax system is one of the most complicated and complex systems within the EU. In general, significant time investment is needed to fulfill tax obligations in Poland.
Polish legal provisions are often not formulated in clear way. Moreover, changes in the interpretation of the provisions are happening often compare to other jurisdictions, even without any modifications of the wording of such provisions. The approach of tax authorities, as well as the position of administrative courts may vary significantly depending e.g. on the region of the country. As a result, applying the tax law in practice is challanging and may expose the entrepreneurs to numerous tax risks.
The main challenges related to the Polish regulatory environment, that should be taken into consideration, are: (i) dynamic legislation changes, (ii) lack of the constant and coherent standpoint of tax authorities, (iii) restrictive, pro-fiscal approach of tax authorities, (iv) excessive formal obligations and (v) penalties of significant nature.
It is also worth noting that due to government politics aimed at counteracting tax and fiscal frauds, as well as at limiting the “grey zone” and closing VAT gap, recently rapid amendments of tax provisions and standpoint changes are becoming more and more common.
Based on the recent information provided by i.a. the Ministry of Finance, the most important goals of the amendments in the Polish tax law are to: (i) counteract tax and financial frauds, as well as other irregularities; (ii) make the taxpayers’ settlements more transparent and (iii) fight against the “grey zone”. Even if such actions are, in general, oriented on unfair or illegal activities and entities, all entrepreneurs are obliged to fulfil new requirements.
- The Ministry is focused on improvements in the processes of automation of tax reporting, i.a.
- introduction of a new obligation of data reporting based on SAF-T standard;
- submission of tax information and VAT returns only with use of electronic means of communication;
- planned introduction of new databases: (i) Central Register of Invoices and (ii) Electronic Receipt Database;
- planned introduction of split payment mechanism.
- Furthermore, the tax authorities are introducing their own complex IT tools and software aimed at enhancing the processes of tax data analysis.
Implementation of IT Systems
- The rapid pace of legislative changes and their level of complexity, force entities to implement many changes in IT systems, necessary to comply with tax reporting obligations.
- The notable examples of the legislative changes are, i.a. new SAF-T reporting obligation, submission of tax information only in electronic way or planned introduction of new electronic databases.
- Based on the example of SAF-T, Polish tax authorities require more detailed data compared to other EU Member States.
- To handle the above obligations connected with tax data reporting, it is recommended for tax and accounting departments to closely cooperate with other departments (especially IT). Unfortunately, not all settlements required from the taxpayers can be automated, as some of the tasks (i.a. corrections of VAT invoices, processes of obtaining confirmation of receipt of corrective invoices) can be only executed manually.
- As a result of the recent introduction of the new approach to transfer pricing documentation, preparation of the required documentation will be more complicated and time consuming.
- More detailed analysis of the transaction’s terms and conditions (including reliable benchmark) will also be required.
- It is recommended to review the process of gathering TP documentation to ensure that the required data can be obtained, processed and submitted within the time limit established by tax provisions.
- The general anti-avoidance rule which has been recently implemented may require increasing of the caution procedures (as some of the transaction may be considered by tax authorities as leading to tax avoidance).
- Reviewing the business model in terms of potential violations of GAAR and collecting documents confirming real business purpose of the performed transactions is therefore highly recommended.
- Polish colleagues observe the increased number of various controls aiming especially on verification of the potential participation in VAT frauds of any kind. It is quite common that the tax authorities charge the legitimate taxpayers with the alleged participation even if they have not been aware of this fraud. The proceedings in this matter are rather complicated and long-lasting. Moreover, these proceedings may also impede the business activities as the participation in the VAT fraud may lead to deregistration of the entity.
- To mitigate such risks, taxpayers should implement efficient procedures of verifying their contractors; nevertheless, tax authorities did not present any guidance in this matter. It is also advised to perform internal tax audit on regular basis, to identify any possible irregularities in advance and to mitigate them before tax control is started.
- Proper management of control activities is especially significant, taking into account the fact that even minor discrepancies, misunderstandings or differences in the interpretation of tax provisions may cause long lasting proceedings which may take approx. even up to 4-5 years. Furthermore, alleged tax arrears have to be paid once the decision of tax authorities is delivered. Appealing in court does not prevent the tax authorities from collecting the supposed arrears.
- Tax management is also crucial due to the fact that the legislation process is often very dynamic. New regulations can be introduced with limited consultations with experts and business representatives. The taxpayers have also very limited time for implementation of the new regulations – the changes may come into force on a day of their publication in the Official Journal.
- Therefore, it is recommended to constantly monitor the legislation procedures to be able to: (i) identify any potential risks related to the planned amendments and address this issues in the legislation process as well as to (ii) implement new regulations in time.
- It also worth emphasizing, that even minor issues with tax compliance quality may result not only in the identification of tax arrears but also in the personal liability of the responsible persons for the fiscal crime/ offence. The personal liability includes e.g. persons being responsible for managing the business (members of the management board), supervising tax and accounting departments, proxies or attorneys-in-fact. Risk that employees of lower levels may be also liable in some cases also cannot be excluded. The punishments for the fiscal crime/ offence include fines amounting up to PLN 20 mln and/ or imprisonment.
- The most reliable way to mitigate the abovementioned risk of personal liability is implementing precise procedures, which would distribute the responsibilities and professional duties between the people engaged in the tax settlement process.
In case of any further doubts or queries please feel free to contact one of the following person:
Kamil Januszek // +48326040233 // firstname.lastname@example.org
Joanna Poznańska // +48519504240 // email@example.com
Litigation & CIT
Maciej Machera // +48519507620 // firstname.lastname@example.org
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