Agnieszka Gliwińska

Tax adviser (Poland)
Senior Associate
Phone: +48 71 606 04 04

New EU rules on cross-border tax avoidance and evasion came into force on 25 June 2018.  They enable tax authorities to automatically exchange information about the so-called cross-border arrangements. This refers both to intermediaries assisting in arrangements that lead to tax avoidance and evasion, and to taxpayers themselves.

The new rules are introduced by Council Directive (EC) 2018/822 amending Directive 2011/16/EU, which became effective on 25 June 2018. The Directive extends the applicable rules of information exchange between the EU Member States and provides national tax authorities with mechanisms for this purpose. This will speed up response times to identified harmful tax practices.  The purpose of the new provisions is to deter cross-border taxpayers from applying aggressive tax-planning arrangements. Currently many taxpayers take advantage of differences between tax systems and transfer their profits to countries offering more favourable tax regimes.

Who will be affected by the new cross-border tax avoidance and evasion laws?

The Directive introduces a new reporting obligation towards tax authorities. This obligation rests mainly with intermediaries involved in tax arrangements. An intermediary is anyone who: 

  • designs,
  • markets,
  • organises, 
  • makes available for implementation, or 
  • manages  

the implementation of a tax-avoidance scheme.

The above obligation may also apply to persons providing assistance or advice on tax avoidance. This refers to persons who, having regard to the relevant facts and circumstances and based on available information, know (or could be reasonably expected to know) that they are involved in aggressive tax avoidance practices.

An entity or individual will have to submit reports as an intermediary if they meet the following conditions:

  • are resident for tax purposes in an EU Member State;
  • have a permanent establishment in a Member State through which the tax avoidance services are provided;
  • are incorporated in, or governed by the laws of, a Member State;
  • are registered with a professional association related to legal, taxation or consultancy services in a Member State.

In consequence, also e.g. attorneys-at-law, notaries, tax advisers, financial advisers, auditors or accountants may be considered intermediaries and as such may be obliged to submit relevant reports. 

The reporting obligation may sometimes apply to taxpayers themselves. Such is the case where the taxpayer develops a tax-planning scheme in-house, without the assistance of intermediaries. The taxpayer will also have to file a report if he exempts his intermediary from the reporting obligation due to e.g. a professional privilege. The reporting obligation will arise on taxpayers to whom an arrangement has been made available or who are ready to implement an arrangement or have implemented the first step leading to such an arrangement.

What tax avoidance cases does the new obligation apply to?

The reporting obligation will apply to cross-border arrangements. Cross-border arrangements are tax-planning structures that may lead to tax avoidance and evasion.

A cross-border arrangement is an arrangement concerning either more than one EU Member State or an EU Member State and a third country, where at least one of the following conditions is met:

  • it is made between or among participants that are residents in different jurisdictions;
  • one of the participants is resident for tax purposes in more than one jurisdiction. In such a case, one or more of the participants in the arrangement carries on a business in another jurisdiction through a permanent establishment;
  • one or more of the participants in the arrangement carries on an activity in another jurisdiction without being resident for tax purposes or creating a permanent establishment situated in that jurisdiction. 

Reportable will be standardised arrangements, i.e. those which need not be substantially customised for implementation by a taxpayer, as well as all other arrangements.

Main benefit test

The Directive names explicitly the hallmarks of cross-border arrangements which indicate a risk of tax avoidance and evasion and thus create the reporting obligation. Cross-border arrangements should be notified to tax authorities if they satisfy the main benefit test. This means that the taxpayer must inform tax authorities about an agreed and ready to implement structure (or scheme) if the main or one of the main benefits of such a structure (scheme) is to obtain a tax advantage. 

The Directive divides the hallmarks fulfilling the main benefit test into generic and specific hallmarks. 

The generic hallmarks include, among others:

  • an arrangement where the taxpayer or a participant in the arrangement undertakes to comply with a condition of confidentiality which may require them not to disclose to third parties, including tax authorities, how the arrangement could secure a tax advantage;
  • an arrangement where the intermediary sets a fee for the arrangement and that fee is made dependent on the amount of the tax advantage derived from the arrangement or whether or not a tax advantage is actually derived from the arrangement.
  • The specific hallmarks include, among others:
  • an arrangement whereby a participant intentionally acquires a loss-making enterprise in order to reduce his tax liabilities;
  • an arrangement that results in converting income into capital, gifts or other categories of revenue which are taxed at a lower level or exempt from tax;
  • an arrangement which includes fictitious transactions and involves interposted entities.
  • There are also specific hallmarks related to cross-border transactions.
  • They include arrangements involving deductible cross-border payments made between associated enterprises, where the recipient is resident in a jurisdiction:
  • which does not impose any corporate tax;
  • which imposes corporate tax at the rate of zero or almost zero; 
  • where cross-border payments are either tax-exempt or enjoy a preferential tax treatment.

It should be noted that also other hallmarks, regardless of how they are related with a tax advantage, will create the reporting obligation. They include, e.g. transfer pricing arrangements.

What information will be reported?

Under the Directive, tax authorities of EU Member States will have to collect transaction-related information and communicate that information to their peers in other Member States. Such information will include, among others:

  • identification details of intermediaries and taxpayers;
  • details of the hallmarks that make the cross-border arrangement reportable;
  • a summary of the content of the cross-border arrangement;
  • the date of starting the implementation of the cross-border arrangement;
  • the value of the cross-border arrangement.

By when should Member States prepare for the new laws?

The final deadline for transposing the Directive into national law is 31 December 2019. By that date all EU Member States must adopt the relevant implementing provisions. The Directive will apply from 1 July 2020, but the first report on tax avoidance to be submitted to tax authorities will cover arrangements already in existence on 25 June 2018.

At the same time, it should be noted that the reporting obligation may arise much earlier than on 1 July 2020. The new reporting provisions may be introduced into Polish law as early as 1 January 2019. Currently, Polish Sejm is discussing amendments to the Polish Tax Act introducing a new chapter regarding information about tax avoidance and evasion schemes. The provisions processed in Parliament stipulate that cross-border tax avoidance schemes will have to be reported by 31 March 2019 and the reporting obligation will apply to tax-avoidance schemes implemented between 25 June 2018 and 31 December 2018. 

Rödl & Partner will be happy to assist you in adapting your business to the new laws. We will keep you informed about the legislative progress in this area.

Our tax advisers in Gdansk, Gliwice, Cracow, PoznanWarsaw and Wroclaw are at your service in this respect. We are also at your service to answer any other questions you may have with respect to tax advisory services in Poland.