Marcin Muchowski

Tax adviser (Poland)
Phone: +48 22 696 28 00

The current legislation on mandatory disclosure rules stipulates administrative and criminal sanctions for non-compliances. The maximum penalties may reach over 20 million Polish zloty in criminal proceedings and 10 million in administrative proceedings. In this context, it is worth looking at the circumstances which may trigger the liability and how the penalties are calculated. You should also learn how to limit the risk of such penalties from tax authorities.

Procedure for preventing non-compliance with mandatory disclosure rules

The penalty for the lack of a procedure preventing non-compliance with the mandatory disclosure rules among the obliged organisations is set in Article 86m of the Tax Act. Since 1 January 2019 such a procedure has been mandatory in enterprises which are promoters, which hire promoters or pay fees to promoters, whose revenues or expenses (in the meaning of the accounting regulations) calculated on the basis of the books of account exceeded the equivalent of 8 million Polish zloty in the previous financial year.

Types of penalties for the lack of the procedure

The MDR regulations included in the Tax Act stipulate the following consequences for the lack of an internal procedure:

  • fine for failure to implement the internal procedure – up to 2 million Polish zloty;
  • fine for failure to implement an internal procedure if the fiscal offence consisting in non-fulfilment of MDR-related obligations has been confirmed by a final and binding court judgment – up to 10 million Polish zloty. 

The lesser of those penalties may be imposed if the entity is found to be obliged to implement the procedure, i.e. it is a promoter, hires a promoter or pays a fee to a promoter, and its income exceeds the statutory threshold. Tax authorities may establish this in any lawful way. Most often it may happen during a tax inspection or a combined tax/customs inspection or a preliminary tax inquiry, or during an investigation of company documents, purchase or sale of intangible services or transfer prices of transactions between associated enterprises.

The Head of the National Tax Administration (NTA) may impose the higher penalty if a court confirms that a crime against the mandatory disclosure rules (e.g. late disclosure or no disclosure, or no disclosure of benefits from arrangements) has been committed in a final and non-appealable judgment. Please remember that a crime is also confirmed if the perpetrator enters the plea of guilty, which is an oft-used option by people who deal with tax accounts as the judgment approving the plea of guilty is not disclosed in the National Criminal Register.

How is the penalty amount calculated?

The Head of NTA determines the fine in consideration of:

  1. severity, circumstances and duration of the violation of law;
  2. whether similar violations were committed in the past;
  3. the party’s contribution to the commitment of the violation of law;
  4. the party’s voluntary actions to avoid the consequences of the violation of law;
  5. advantages gained or losses avoided by the party;
  6. in the case of individuals – personal circumstances of the person to be fined.

The above guidelines treat differently a situation in which a taxpayer has requested a review of his practices and based on the findings has concluded that he is not a promoter, and tax authorities later disagree. If a taxpayer is able to demonstrate that he has taken reasonable steps to ensure compliance in this area, it will be an extenuating circumstance encouraging a lower fine than if the mandatory disclosure rules were never considered.

Minor weight of the violation

The Head of NTA may skip an administrative fine and only admonish the taxpayer if the weight of the violation is minor and the party has ceased the violating behaviour. It is up to tax authorities to assess if the violation is minor. Still, given the objective of the regulations this may mean situations when a tax scheme has brought no advantage yet or when a reportable scheme has no traits of aggressive tax optimisation.

It is worth considering an internal procedure to check if certain actions trigger the mandatory disclosure or require a procedure explicitly stipulated by the Tax Act.

Such an additional, non-mandatory procedure may form a part of the compliance policy and encourage tax authorities to reduce a fine on the grounds that the organization has hardly contributed to the violation of law. It may also help minimise the duration of violation and quickly remedy it in a safe way for the organisation and its employees.

Sanctions under the Criminal Fiscal Code

In introducing the MDR to the Polish legal system the lawmakers have stipulated penalties for:

  • non-fulfilment or late fulfilment of information obligations;
  • using an invalid TSN.

According to Article 80f of the Criminal Fiscal Code, a fine of up to 720 day-fine units may be imposed on anyone who being obliged to do so:

  • fails to report a tax scheme to the competent tax authority or reports it late;
  • fails to disclose details of the organisations with whom a marketable tax scheme has been shared, or discloses them late;
  • as a user fails to report a tax advantage derived from the scheme or the implementation of the scheme within the tax return filing deadline;
  • fails to inform the obliged entity of its obligation to disclose the tax scheme, or informs that entity after the statutory time limit;
  • fails to provide the obliged entity with details of the tax scheme or provides them late (Article 86f(1) of the Tax Act);
  • fails to inform the entities obliged to disclose a tax scheme that he will not disclose the tax scheme, or informs them about it after the statutory time limit; 
  • fails to ask the principal in a dedicated letter for a written statement saying that the arrangement is not a tax scheme, or asks for it late. 

How is the penalty amount calculated?

The day-fine unit for the fine calculation must not be lower than one-thirtieth of the minimum wage or be higher than the four-hundredfold minimum wage. In 2019, one day-fine unit can range from PLN 75 to PLN 30,000. Consequently, the fine can range from PLN 750 to PLN 21.6 million.

A fine of up to 240 day-fine units (maximum PLN 7.2 million in 2019) is reserved for those who use an invalid tax scheme number.

In the case of minor offences, a perpetrator is subject to a fine for a fiscal misdemeanour. A fine for a fiscal misdemeanour may range from PLN 225 to PLN 45,000 in 2019. This is considerably less than for a fiscal crime.

When determining the amount of the day-fine unit, the court takes into consideration the perpetrator's income, personal, family and financial circumstances and earning capacity. In practice, it translates into a hearing about the perpetrator’s financial situation, including his assets, income and subsistence costs. Other significant factors, e.g. regular medical costs or alimony, are also taken into account.

When can you be convicted?

Importantly, to speak of a conviction for the above-mentioned crimes, the perpetrator must be first identified and than proven to have acted wilfully.

In this context, implementation of an MDR procedure which describes how the employees should proceed especially in uncertain situations would be a major argument for concentrating the liability for errors in disclosures on people actually involved in that violation. This should help to avoid prosecution of crimes in respect of uninvolved individuals (e.g. a board member responsible for business development or marketing).

An MDR compliance procedure may affect also the assessment whether the perpetrator has acted wilfully. If a perpetrator follows the procedure and identifies a situation which is not clearly reportable and he concludes that it is not reportable, it is difficult to speak of wilful conduct aimed at intentional concealment of a tax scheme from tax authorities.

Preventive actions

One practical way to deal with accusations of malpractices in MDR is to make use of voluntary disclosure in which the perpetrator reports his crime, fixes the consequences and names accomplices. A valid voluntary disclosure would protect a perpetrator of e.g. late disclosure of a tax scheme from penalty.

In the case of an indictment for crimes related to mandatory disclosure rules, there is another device that can be used in addition to defence in a criminal court and arguing no fault or the penalty amount, namely the guilty plea. It is a special procedure available for fiscal crimes only in which, once certain statutory requirements are met (e.g. payment of the fine set by tax authorities), tax authorities ask the criminal court to admit the plea of guilty. If the court issues a judgment admitting the plea of guilty, the perpetrator is not labelled a convict and his details are not entered in the National Criminal Register.

If you are interested in more details of how to prevent malpractices in the mandatory disclosure of tax schemes or any of the other issues discussed here, please contact Rödl & Partner’s experts in Cracow, Gdansk, Gliwice, Poznan, Warsaw or Wroclaw.

Marcin Muchowski