Provisions implementing the tax law circumvention rule have already been published
The Act of 13 May 2016 amending the Tax Regulations and certain other laws, of which we already wrote in our March Newsletter, was published in the Journal of Laws of 14 June 2016, item 846. The tax law circumvention rule will be an important tool for tax authorities in the fight against financial abuse and aggressive tax optimisation.
By invoking the rule, tax authorities will be able to deprive taxpayers of tax benefits, contrary in the given circumstances with the subject matter and objective of the provision stipulated by the tax law, if the way of proceeding was artificial, meaning that it would not be applied by an entity operating reasonably and guided by lawful goals other than achievement of a tax benefit which is contrary with the subject matter and objective of the provision stipulated by the tax law. Pursuant to the law, the objective is to achieve a tax benefit when other economic or business objectives indicated by the taxpayer should be deemed little material. Unfortunately, the legislator has not given any clear guidance when such other objectives are sufficiently “little material”. However, at the same time it noted the factors which justify the finding that a given transaction is artificial, such as:
- unjustified division of operations,
- engagement of intermediary entities without any economic or business rationale,
- elements leading to achievement of the status quo which is exactly the same or similar to the status quo before the transaction was made,
- mutually eliminating or offsetting elements,
- an economic or business risk exceeding expected non-tax benefits to such extent that it must be found that no entity operating reasonably would choose such way of proceeding.
The authority responsible for tax proceedings regarding tax avoidance will be in principle the Minister of Finance, who will issue decisions on the application of the rule. Taxpayers will have the right to apply for a security opinion that will exclude the Minister of Finance’s right to issue the above decision. But the taxpayer will have to pay for the opinion a quite high fee, amounting to as much as PLN 20,000.
The provision implementing the tax law circumvention rule to the Polish tax regime are to be applicable to a tax benefit obtained after the effective date of the amending Act, which – with certain reservations – becomes effective 30 days after its publishing (i.e. on 15 July 2016).
In our opinion, the implemented regulations are not precise enough so as to render impossible their abuse by the tax authorities and taking adverse measures in relation to transactions which in fact, based on objective premises, should not be treated as transactions effected in order to achieve a tax benefit, in an artificial way. Hence, we recommend that any optimisation measures be analysed in detail from the point of the new regulations. It is worth noting that the legislator does not prohibit tax planning as such – prohibited are transactions aimed at tax avoidance, achieved by the taxpayer taking measures artificial in nature.