According to plans of the Ministry of Finance, in case of a will to secure tax effects by an individual binding ruling taxpayers will have to apply for issuance of group binding rulings together with other related parties involved in a transaction. The scope of presented information in the description of background information will be much wider than in applications submitted to date. In addition, proposed regulations envisage, inter alia, the necessity to value benefits derived by entities as a result of the transaction and supplementation of descriptions of background information or future events in binding rulings issued to date, or otherwise tax rulings will expire.

The institution of individual binding rulings, although it has been amended in recent years, continues to be popular among taxpayers. Only in the first quarter of 2018 the National Fiscal Information issued approximately 6,000 individual binding rulings. As was reminded in the rationale to the amendment, an individual binding ruling gives to the taxpayer in fact guarantee that he will not face any negative consequences if he has complied therewith. Nevertheless, tax authorities have observed that the protective umbrella of binding rulings is sometimes abused. It often happens that participants of a sequence of events, e.g. during transformations, aimed at tax optimisation apply separately for individual binding rulings – in such case the National Fiscal Information has no possibility to make a comprehensive assessment of the planned sequence of events and the role of individual participating entities. Although the Tax Code in its current wording envisages the possibility to submit a joint application for an individual binding ruling, such election is facultative.

The above problem is to be solved, at least in theory, by binding rulings issued pursuant to group applications.

According to the proposed wording of regulations, if background information or a future event covers transactions or other activities made with participation of a domestic entity, a foreign entity or an entity that is to become a domestic entity or a foreign entity, a binding ruling will be issued only following an application submitted jointly by those domestic entities and foreign entities (related parties). In the case of the so called group application, the scope of information to be included when describing background information or future event will be extended as compared to “traditional” applications. The applicant will have to indicate, inter alia, the main derived and expected benefits arising directly and indirectly from transactions and other activities on which the achievement of such benefits is directly or indirectly dependent. In addition, the applicant will be also required to state the value of the enterprise, an organised part thereof or a property right covered by the application, if their market or nominal value on the date of submission of a group application amounts in aggregate to minimum PLN 10 million. In such case, the applicant will also have to quantify the above benefits. If the “valuation” of benefits or the value of the enterprise, an organised part thereof or the property right made by the taxpayer differs by at least 25% from actual values, the binding ruling obtained will be deprived of its protective function.   

According to the planned amendment, within 6 months of the date of its entry into force taxpayers will be able to update the binding rulings obtained previously which related to background information or a future event subject to the amended regulations (i.e. regarding transactions between related parties), by supplementing accordingly the background information or future event presented previously. Failure to provide such information will result in the expiry of the binding ruling which was issued previously to the taxpayer. In the case of taxpayers who continue to enjoy the protection obtained by way of binding rulings issued pursuant to the old regime and subject to the new regulations, such solution seems to be extremely adverse.

The regulations are to enter into force after 14 days of their publishing. At the moment the proposal of amendments is under social consultations.

Barbara Otrzonsek, Tax Consultant, ATA Tax Sp. z o.o.