TAX Alert | February 2016 | General Anti Avoidance Rule

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General Anti Avoidance Rule

In accordance with the plans of increasing budgetary revenues, the Ministry of Finance is undertaking a series of legislative initiatives. One of them was the publication of a draft amendment to the Tax Ordinance Act on 30 December 2016. The amendment will introduce so called General anti avoidance rule (GAAR). The regulations will apply to transactions and activities, which aim to avoid payment of taxes or to generate
a tax overpayment. Currently the draft is subject to inter-resort consultations.
ENVISAGED LEGAL FRAMEWORK According to the content of the regulation, an action, which was predominantly taken to generate a tax advantage, contrary in the given circumstances to the subject-matter and objective of the action, will not result in a tax advantage, if its primary purpose was tax benefit. In light of the draft, tax authorities will be entitled to evaluate the tax consequences of a given action, so as to eliminate the taxpayer’s tax advantage. In the event of tax avoidance, tax proceedings will be obligatorily instigated or taken over for further conduct by the Finance Minister. Amongst the planned amendments we also find the establishment of a Tax Avoidance Council, appointed to issue written, non-binding opinions as to the application of the clause in a given case. The clause will be applicable above a PLN 100,000 threshold.
TAX AVOIDANCE CLAUSE APPLICATION CONSEQUENCES Application of the clause implies the determination of tax consequences on the basis of circumstances, which would come to pass if an “appropriate transaction” was performed. The above phrase describes such transactions, which another entity, acting reasonably and guided by aims compliant with the law, could make in the given circumstances. However, inasmuch as the circumstances of the given case indicate that achieving a tax advantage was the sole purpose for making the transaction, then the tax consequences will be evaluated on the basis of the circumstances which would ensue if it was not made.
SECURING OPINION

 

The author of the amendment foresaw the use of a safety mechanisms. Among these, particular attention should be paid to an option to submit a request for a securing opinionissued by the Finance Minister upon a request by the interested party (or parties). The aforementioned interpretations will pertain to a planned, started or executed transaction, as well as the set of related transactions. The fee for the request has been set at PLN 20,000, and the statutory period for issuing the interpretation is six months. It should be underlined that obtained by the taxpayers tax rulings within the scope of elements of the background which constitute tax avoidance will not result in legal consequences.
RETURNS AMENDMENTS

 

If the Finance Minister instigates proceedings there is an option to correct the tax return in the final phase of the clause application tax proceedings. Such actions aim to avoid tax punitive sanctions against the taxpayer. As in such case, apart from the obligation to pay the saved tax and possible interest on late payment the taxpayer will not be subject to additional sanctions.
ENTRY INTO FORCE AND INTERIM PROVISIONS The planned regulations will enter into force 14 days following the publication thereof. In accordance with the so called Regulations consequences assessment, the provisions are to enter into the Polish legal order in the Q1 2016, however it is difficult to predict an exact date.

The planned amendments will primarily pertain transactions executed after the introduction thereof, therefore all activities of taxpayers should be verified in the context of the new regulations. An analysis of transactions executed before the new regulations entered into force is also worth recommending, as, in line with the Justification of the draft, tax authorities will be able to apply the provisions of the clause to all tax obligations, which are within the statute of limitations, which suggest a departure from the prohibition of retroactive application of the tax law and an infringement of the principle of taxpayer’s trust with respect to the tax authorities.