Last updated: 17.01.2025
What Is a Reportable Tax Arrangement under Mandatory Disclosure Rules?
Under the provisions of the Tax Ordinance Act, in certain cases taxpayers are obliged to submit an information regarding qualifying tax arrangements to the Head of National Tax Administration.
The reporting obligation applies to reportable tax arrangements. A “reportable tax arrangement” other than a cross-border one (the so-called domestic one) is considered to be an arrangement that:
- meets the main benefit test and has a generic hallmark,
- has a specific hallmark, or
- has other specific hallmark.
In the case of cross-border tax arrangements the reporting obligation refers only to arrangement which satisfy the cross-border criterion and:
- meet the main benefit test and have some of the generic hallmarks, or
- have a specific hallmark.
The Ministry of Finance (MF) has published explanatory notes regarding the application of regulations related to the obligation to provide information on tax schemes. Compliance with the MDR explanatory notes provides taxpayers with a protective power on principles similar to individual tax ruling. However, the explanatory notes do not constitute a source of law.
The explanatory notes have a significant impact on the practice of applying the MDR regulations. The explanatory notes extensively discuss both general issues related to, for example, the purpose of the regulations, as well as present its interpretation on a number of specific issues.
Mandatory Disclosure Rules (MDR) Procedure in Poland
What is an MDR Procedure?
An MDR procedure is an internal compliance framework designed to ensure the proper disclosure of tax arrangements. According to the Ministry of Finance, its purpose is to:
- Help promoters fulfill their disclosure obligations efficiently,
- Define responsibilities of individuals involved in reporting tax arrangements,
- Ensure correct information flow to the Head of the National Revenue Administration.
Who Needs Internal MDR Procedure?
Legal entities and organizational units must establish an MDR procedure if they:
- Act as promoters, employ promoters, or pay them remuneration,
- Had revenue or expenses exceeding PLN 8,000,000 in the preceding fiscal year.
Promoters are not limited to tax or legal advisors but may include holding or parent companies providing intra-group advice. Even if not legally required, adopting an MDR procedure can help streamline MDR compliance.
Key Elements of an MDR Procedure
An effective MDR procedure should outline:
- Actions to prevent non-compliance,
- Measures for proper disclosure of tax arrangements,
- Document storage policies,
- Reporting obligations to tax authorities,
- Employee education on MDR regulations,
- Internal reporting of potential non-compliance,
- Internal audits to ensure compliance.
The procedure should be tailored to the entity’s nature, size, and activities.
Penalties for Non-Compliance
Failure to implement an MDR procedure when required can result in penalties of up to PLN 2,000,000. If a court finds a promoter (a natural person) employed by or remunerated by the entity guilty of violating disclosure obligations, the penalty may increase to PLN 10,000,000.
What is the Main Benefit Test?
The main benefit test will be satisfied if it can be concluded that obtaining the tax advantage is the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement.
The main tax benefit test should be considered from the point of view of three conditions:
- occurrence of the tax benefit;
- condition of the tax benefit to be the main or one of the main benefits;
- condition related to the alternative course of action – as a rule, the main tax benefit test will not be met if, on the basis of the existing circumstances and facts, it can be assumed that the entity reasonably acting as a result of applying lawful arrangements does not have or did not have any alternative, reasonable way of proceeding, even if actions undertaken result in achieving a tax advantage.
The main tax benefit test is considered met only if all the above conditions are met jointly.
How Generic Hallmarks define a Reportable Tax Arrangement?
According to MDR regulations – generic hallmarks occur if e.g. the following circumstances apply:
- there is substantially standardised documentation and / or structure and is available to more than one relevant beneficiary without a need to be substantially customized for implementation;
- whereby a participant in the arrangement takes intentional steps which consist in acquiring a loss-making company, discontinuing the main activity of such company and using its losses in order to reduce its tax liability, including through a transfer of those losses to another jurisdiction or by the acceleration of the use of those losses;
- there is a change in the classification of income (revenues) to another source of income (revenues), or a change in taxation rules, which results in actual lower taxation, exemption or exclusion from taxation;
- activities lead to circulation of cash, with the involvement of intermediary entities that do not perform significant economic functions, or to actions that cancel each other out or offset or lead to obtaining a state identical or similar to the existing one before performing these activities or have other similar characteristics,
- it includes cross-border payments (settled as tax deductible costs in Poland) between related parties and in the country of the place of residence, registered office or place of effective management of the recipient:
- does not impose any corporate tax or imposes corporate tax at the rate of zero or almost zero or,
- the payment benefits from a full exemption from tax or benefits from a preferential tax regime.
Identifying Specific Hallmarks – when is an Arrangement Reportable?
An arrangement that has a specific hallmark can be a reportable tax scheme even if it does not meet the main benefit criterion. In a result, a positive verification of the fulfilment of the requirement of a specific hallmark means that the arrangement should be qualified as a non-cross-border standardised scheme subject to reporting, regardless of the fulfilment of the main benefit criterion.
Polish MDR regulation provides for e.g. the following specific hallmarks:
- deductions for the same depreciation on the asset or intangible asset are claimed in more than one jurisdiction;
- relief from double taxation in respect of the same item of income or capital is applied in more than one jurisdiction;
- as part of an arrangement, the assets are transferred and the remuneration determined by the two states for tax purposes differs at least by 25%;
- an arrangement involving the transfer of intangible assets which are difficult to value;
- an arrangement involving an intragroup transfer of functions and / or risks and / or assets, if the projected annual earnings before interest and taxes (EBIT), during the three-year period after the transfer, of the transferor or transferors, are less than 50% of the projected annual EBIT of such transferor or transferors if the transfer had not been made.
Other specific hallmarks – additional criteria for MDR reporting
It should be also considered whether any of the other specific hallmarks may occur, which could potentially give rise to reporting obligations.
MDR Regulation in Poland provides for the following other specific hallmarks:
- the impact on the deferred tax asset or deferred tax liability resulting or expected in connection with the performance of the arrangement is relevant and exceeds in total PLN 5 million in a calendar year;
- tax remitter (paying company) would be obliged to collect a tax exceeding in total PLN 5 million if the relevant double taxation agreements or tax exemptions will be not applicable to the payment arising on the arrangement;
- income (revenue) of the taxpayers without a registered office or management board on the territory of Poland resulting or expected in connection with the arrangement, exceeds (regardless of the period and number of taxpayers) in total PLN 25 million;
- the difference between Polish income tax, which would be due in connection with the performance of an arrangement the beneficiary without a registered office or management board on the territory of the Republic of Poland, if the entity was a Polish taxpayer and the amount of the actual payment of income tax in the country of the registered office, management board or place of residence of the beneficiary in connection with the arrangement, exceeds in total PLN 5 million.
Tax Advisors and MDR – impact of the 2024 Constitutional Tribunal Judgment
The Constitutional Tribunal’s judgment has significantly changed MDR reporting in Poland. Professional confidentiality of tax advisors is now constitutionally protected and cannot be waived, even by clients themselves. This means tax advisors cannot be obliged to report tax schemes to tax authorities.
The change affects not only reporting of specific client arrangements but also extends to any information about tax schemes, even if it doesn’t identify particular clients. Tax advisors are now prohibited from sharing such information with tax authorities.
The reporting obligation hasn’t disappeared – it has shifted. While tax advisors acting as promoters can no longer report schemes, the responsibility now lies primarily with taxpayers themselves or other intermediaries who are not bound by professional confidentiality.
Tax advisors will continue to play a crucial role, but in a different way. They can and should:
- help identify reportable arrangements;
- prepare draft MDR reports for taxpayers;
- provide guidance on reporting obligations;
- support taxpayers in understanding their responsibilities.
The practical impact is that taxpayers need to be more proactive in their MDR compliance. They should establish clear internal procedures for identifying reportable arrangements and ensure they have proper support in fulfilling their reporting obligations.
Remember: While the reporting channel has changed, the MDR obligations themselves remain in force. Close cooperation between taxpayers and their advisors is now more important than ever to ensure proper compliance.
FAQ – Mandatory Disclosure Rules (MDR)
What are the mandatory disclosure requirements under the MDR regulations?
Mandatory disclosure requirements under the MDR obligate taxpayers to disclose reportable tax arrangements. These disclosure requirements apply to certain covered contracts, transactions, and arrangements that meet the main benefit test or specific hallmarks.
What role do subcontractors, employees, and internal audits play in MDR compliance?
Subcontractors and employees must be aware of reporting requirements and disclosure obligations under MDR regulations. Businesses should establish internal audit processes to detect significant overpayment issues, gratuity violations, fraud, and other potential wrongful conduct. Ensuring compliance with business ethics and data protection rules is critical to mitigating risks.
How does the Constitutional Tribunal judgment impact tax advisors and MDR compliance?
The Constitutional Tribunal judgment reinforced the protection of professional confidentiality, preventing tax advisors from being required to disclose tax schemes. However, the mandatory disclosure rules still apply, with the responsibility shifting to taxpayers and intermediaries not bound by legal privilege. Companies must reassess their compliance processes to avoid potential violations.
What steps should businesses take to comply with MDR regulations and disclosure requirements?
To comply with MDR regulations, businesses should:
- Conduct internal audits to assess transactions for mandatory disclosure requirements.
- Implement processes requiring disclosure of potential violations, gratuity violations, and fraud.
- Ensure subcontractors and employees understand reporting obligations under the new FAR clause.
- Work with legal counsel to assess the impact of new definitions in federal acquisition regulation and European Union MDR laws.
By maintaining compliance with disclosure requirements, businesses can prevent reputational damage, avoid legal liability under the False Claims Act, and demonstrate present responsibility in government contracting.
How does the Constitutional Tribunal judgment impact criminal and civil law obligations under MDR?
The Constitutional Tribunal judgment affects both civil and criminal law obligations by shifting MDR reporting responsibilities from tax advisors to taxpayers and intermediaries. Under the new general rule, tax advisors cannot disclose reportable tax arrangements, even if gratuity violations are found.
However, businesses must still ensure compliance by providing credible evidence, maintaining internal audit records, and filing the required MDR form by the specified date. Failure to comply may result in civil penalties or criminal investigations, depending on the severity of the violation and whether reasonable grounds for non-disclosure exist.
