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By Jan Stojaspal

Snapschot

• Positive safeguarding opinion related to retail incentive scheme

• Opinion could encourage other companies

Poland's first positive safeguarding opinion, which protects tax structures from challenges based on the general anti-avoidance rule, could signal more companies to use the tool as part of tax planning.

In the opinion, the head of the National Fiscal Administration ruled an international retail chain's actions didn't equal tax avoidance. The name and location of the company wasn't published. The company has about 4,000 employees and has stores in Poland and in other countries, according to the opinion.

A positive ruling “gives hope that these opinions will at last start to function as a real instrument for the taxpayers to obtain protection against the possibility of applying the anti-avoidance rule by the tax authorities to their settlements,” Dariusz Malinowski, a tax litigation partner at KPMG in Poland, told Bloomberg Tax in a Feb. 1 email. “For quite a long time, this possibility remained more in the sphere of theory, than practice.”

Safeguarding opinions became available in July 2016 as the country's general antiavoidance rule came into force. But only 14 applications have been submitted thus far, due to concerns ranging from fear of an audit to mistrust of the tax authority or worries over security proprietary information.

Unlike a tax ruling, which only considers matters related to the interpretation of tax law, safeguarding opinions, being related to GAAR and its tax-avoidance aims, must decide whether there is an economic justification aimed at counteracting avoidance of tax to a particular tax structure. The GAAR empowers tax authorities to regard the tax consequences of transactions mainly designed to obtain a tax benefit as if an alternative appropriate transaction had taken place, and transactions without economic or business rational other—than tax avoidance—can be disregarded completely.

Agreeing with Retail Chain

The opinion was issued Dec. 28, and was released publicly on the National Fiscal Administration's website in late January.

At question in the case was whether store manager was correct to pay a 19 percent capital gains tax on income from an incentive scheme that required him to invest 50,000 euros ($62,217) of his own money but also gave him access to a performance bonus that was based on how his store performed against other stores in the chain.

Tax officials agreed the bonus should be treated as capital gain, Dariusz Zasada, the deputy director in the Department of Key Entities at the Polish Ministry of Finance, told Bloomberg Tax in a Feb. 1 telephone interview.

“On one hand, there was remuneration based on an ordinary employment contract, on the other hand, there was this specific investment contract, and the question from the taxpayer and the company was should we qualify income from such an investment as an employment connected remuneration and tax it according to a progressive scale of up to 32 percent, or treat it as capital gains and tax at 19 percent,” he said.

Time to Adjust

Of the remaining 13 applications, three received a negative opinion, meaning the structuers described violated GAAR; two are still in the pipeline; and the rest were either terminated or withdrawn before an opinion was issued, according to Zasada, who leads a team of experts that drafts safeguarding opinions on behalf of the head of the National Fiscal Administration.

He said it isn't a “disappointing number” of applications, because companies are still getting used to the system. For example, in the first few years that advance pricing agreements were introduced in Poland, very few companies requested them, he said.

Each time a safeguarding opinion is issued it “will help taxpayers understand how this institution works and understand what is our understanding of allowed and disallowing tax planning under GAAR,” he said. “Therefore, I hope taxpayers will be more open to using this tool and ask about tax consequences in advance. This message also applies to multinationals.”

More positive safeguarding opinions are needed for companies to get comfortable, said Andrzej Zubik, a Warsaw-based attorney and tax adviser specializing in tax dispute resolution at PwC Poland.

But it is an answer to those, who thought “the intention of the Ministry of Finance and the tax administration is to always deny these applications,” he told Bloomberg Tax Jan. 31.

“It's not the case,” he said. “We see that if there are good business arguments, they are willing to give approval. Psychologically, this is very important.”

‘Last Resort’

Still, Zubik said it's unlikely applications for safeguarding opinions will come anywhere near the thousands of individual tax rulings that are applied for and issued every year.

The application for a safeguarding opinion costs 20,000 zloty ($5,990) versus 40 zloty ($12) for an application for an individual tax ruling.

GAAR cases are also relatively rare.

The tax law “even says that if there is any other instrument that applies to a particular situation, GAAR should not be used. GAAR is an instrument of last resort,” Zubik said.

Worth the Risk?

Some companies may decide that applying for a safeguarding opinion is not worth the risk, according to Piotr Wyrwa, a tax consultant at RSM Poland.

“One of the biggest problems is the concern that taxpayers have to tell everything without being sure what will come from it,” he told Bloomberg Tax Jan. 31. “Either they receive a safeguarding opinion, or someone comes and makes a tax audit.”

“You have to realize that the tax authorities can come to do a tax audit even if you ask for a safeguarding opinion,” he said. “They can come the next day after you apply for a safeguarding opinion.”

Still, GAAR has yet to be invoked in Poland to challenge a structure during a tax audit, Zasada said.

“GAAR applies to personal and corporate income tax, and because it was introduced in 2016, the first full tax year where it finds its application is 2017,” he said. And tax returns for 2017 have yet to be submitted, he said.

To contact the reporter on this story: Jan Stojaspal in Prague at correspondents@bloomberglaw.com

To contact the editor on this story: Penny Sukhraj at psukhraj@bloombergtax.com

For More Information

The positive safeguarding opinion is available, in Polish, at https://sip.mf.gov.pl/faces/views/szczegoly/szczegoly-karty-pism.xhtml?dokumentId=-149398&poziomDostepu=PUB&indexAccordionPanel=-1#tresc