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Reporting obligations for multinational enterprises as of January 2016

2016-01-29

Last year in August we informed about draft changes regarding transfer pricing documentation, arising from the need to implement the code of conduct on tax documentation, announced in the Resolution of the EU Council and the OECD Guidelines. On 23 November 2015, the Polish Act of 9 October 2015 amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other laws was published (Journal of Laws of 2015, item 1932), which amended, inter alia, the regulations on transfer pricing. Although originally it was proposed that all amendments should enter into force already at the beginning of 2016, in the end the majority of them was postponed to the year of 2017.

The regulations effective as of 1 January 2016 relate to reporting and implement the recommendations under BEPS (Base Erosion Profit Shifting) actions. Article 27.6 of the CIT Act imposes additional administrative obligations on selected large entities operating globally. They apply to entities which:

1) satisfy the criteria for a parent company and do not satisfy the criteria for a subsidiary, within the meaning of the Polish Accounting Act,

2) are responsible for consolidating financial statements, within the meaning of the Polish Accounting Act,

3) have a foreign establishment or one or more subsidiaries outside the territory of Poland, within the meaning of the Polish Accounting Act,

4) whose consolidated revenues, within the meaning of the accounting regulations, within and outside the territory of Poland, in the previous tax year exceeded the amount equivalent to EUR 750,000,000.

The additional requirements include also an obligation to file with the tax office a report on the amounts of earned revenues and paid tax and places where the activities are conducted by subsidiaries and foreign establishments which are members of the capital group, in the tax year, within 12 months of the end of the domestic entity’s tax year for which the report is filed. The report will have to follow a form to be specified, by way of a Regulation, by the Minister of Finance. Such report, relating to the so called country-by-country reporting, will be the source of information for the tax authority about the operation of a multinational enterprise in different tax jurisdictions and is to be used for analysing a risk of understated taxable income with respect to transfer pricing, exchanging information with competent authorities of foreign countries as well as facilitating the preparation of correct reports by the taxpayers.

The transitional provisions to the amending Act indicate that regulations on reporting obligations are applicable as of the tax year beginning after 31 December 2015. At the same time, the legislator has  indicated that the report for the tax year beginning after 31 December 2015, but no later than before 1 January 2017, will have to be filed by entities whose consolidated revenues, within the meaning of the Polish Accounting Act, earned within and outside the territory of Poland, will exceed in that tax year (but not in the previous one) the amount equivalent to EUR 750 million (provided that the other three conditions stipulated in Article 27.6 of the CIT tax are met at the same time).

The taxpayers who will satisfy the statutory conditions for imposition of the reporting obligation will have to file the first report at the earliest by the end of 2017. So it is no surprise that on the date of this information release the implementing Regulation specifying the form of report has not been yet published by the Minister of Finance.