Tax schemes reporting (MDR)

The tax schemes reporting (MDR) regulations require taxpayers to report on the tax schemes they use and implement internal MDR procedures. Failure to comply with these obligations carries severe sanctions.

Scope of Tax Advisory Service for Tax Scheme Reporting and MDR Procedures

• Audit of activities covered by MDR regulation,
• identification of functions, i.e. user, supportive, promoter,
• comprehensive substantive and technical preparation for MDR purposes,
• support in the process of implementing MDR procedures,
• conducting MDR training at the Client’s premises,
• preparing tax schemes submissions,
• representation in proceedings related to MDR,
• MDR Thematic Audit,
• audit the internal MDR process (MDR procedures).

Tax Schemes Reporting (MDR)

The primary purpose of the MDR regulations in force since January 1, 2019, is to provide the National Tax Administration (KAS) with information about the schemes used by taxpayers, for which there is an increased risk of aggressive tax optimisation.

According to the explanations of the Minister of Finance, this is a reporting obligation and may also apply to events that their participants do not necessarily perceive as related to tax avoidance.

Under Polish law, a tax scheme is considered to be an arrangement that meets at least one of the following conditions:

• It meets the main benefit criterion and has a general distinctive feature,
• has a special distinctive feature, or
• has another special distinctive feature.

Fulfilling the criteria of a tax scheme alone does not automatically create an obligation to report this fact to the Tax Office.

The emergence of this obligation – unless it is a cross-border tax scheme – will depend on whether the qualifying beneficiary criterion is met.

Only exceeding one of the thresholds contained in the qualifying beneficiary criterion – 10 million euros of assets or 2.5 million euros of income – causes the tax scheme (other than cross-border) to be subject to reporting obligation. Importantly, when determining the thresholds described above, the appropriate values ​​in the dominant entities are also taken into account.

The enigmatic form of the content of the MDR provisions leads to great difficulties in adequately recognising the status of their projects by the entities involved.

In response to this, our Firm offers a detailed examination of the taxpayer’s areas of activity in terms of MDR and direct indication of those where there are grounds to consider them as tax schemes and assistance in fulfilling the obligations arising from the MDR procedures.

Subjects of MDR

There are three types of entities that take or may take part in activities considered to be a tax scheme:

• Beneficiaries,
• Facilitators,
• Promoters.

The duties imposed on each of the entities listed vary depending on its legal situation. Therefore, it is essential that each taxpayer can assume any of these roles without even intending to do so.

In such a case, it is essential to correctly identify the role the taxpayer plays. Our Firm’s services provide an analysis of the Client’s activity, including the indication of its role under the MDR regulations, the clarification of the consequences and the provision of legal assistance in the reporting of tax schemes, in any case where the filing of the appropriate notification is required by law.

Internal MDR Procedure

Internal Tax Scheme Reporting Procedure is a corporate document that serves as a “road map” for the organisation, providing for the proper implementation of the requirements of the MDR.

In general, it should present the applicable rules of procedure relating to the MDR requirements, aiming to identify events that potentially should be reported and indicate the persons responsible for fulfilling this obligation – taking into account the nature, type and size of the activity carried out.

The entities obliged to implement the MDR procedure are legal persons and non-legal entities that are Promoters, employing Promoters or paying them remuneration, whose revenues or costs exceeded the equivalent of 8 million PLN in the preceding financial year.

Although the other participants in the arrangement – i.e. Beneficiaries and Facilitators – are not obliged to implement internal MDR procedures, having such a procedure is highly recommended due to the lack of precision of the regulations. This applies in particular to taxpayers who have been granted arrangements that bear the characteristics of tax schemes or have applied them or plan to apply them – and, in particular, recommend their application to other entities.

Our Law Firm offers comprehensive preparation for the purposes of implementing MDR procedures and support at each individual stage.

Tax Schemes (MDR) Audit

Audit of the tax schemes presented by you in terms of the obligation to report them. The assessment will be carried out in relation to the arrangements indicated/agreed with you. The scope of the MDR audit offer includes the following:

• identification tax schemes, including:
  • analysis of the events presented by you/agreed with you,
  • analysis of the concluded contracts – selected together with you,
• identification of features resulting in recognition of a given arrangement as a tax scheme,
• determination of the Company’s role in the identified scheme and its obligations related to reporting the scheme,
•  support in filling out MDR reporting forms and reporting the scheme.

Internal Audit of MDR Process (MDR Procedure)

We offer a service to conduct an audit of compliance with the Internal MDR Procedure in force in the organisation.

As part of the internal MDR process audit, we will verify the formal compliance of the implementation and compliance with the Internal MDR Procedure in the organisation.

The audit report will outline the results of the audit and include any conclusions and recommendations for improvement.

Why work with us?

• Reduce risk for Board Members, Financial Directors, Chief Accountants and managerial staff from the perspective of criminal, fiscal (KKS) and administrative liability for deficiencies or errors in the reporting of tax schemes.
• Demonstrate due diligence in the MDR area.
• Ongoing monitoring of the impact of regulations on the reporting of tax schemes on the company’s situation.
• Support of specialists with current knowledge and experience in the field of tax schemes.