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13 April 2018 OECD releases Poland's peer review report on implementation of Action 14 minimum standard On 12 March 2018, the Organisation for Economic Co-operation and Development (OECD) released the third batch of peer review reports relating to the implementation of the Base Erosion and Profit Shifting (BEPS) minimum standard under Action 14 on improving tax dispute resolution mechanisms.1 Poland was among the assessed jurisdictions in the third batch. Poland requested that the OECD also provide feedback concerning their adoption of the Action 14 best practices, and therefore, in addition to the peer review report, the OECD has released an accompanying best practices report. Overall the report concludes that Poland meets most of the elements of the Action 14 minimum standard. In the next stage of the peer review process, Poland's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored. In October 2016, the OECD released the peer review documents (i.e., the Terms of Reference and Assessment Methodology) on Action 14 on Making Dispute Resolution Mechanisms More Effective.2 The Terms of Reference translated the Action 14 minimum standard into 21 elements and the best practices into 12 items. The Assessment Methodology provided procedures for undertaking a peer review and monitoring in two stages. In Stage 1, a review is conducted of how a BEPS member implements the minimum standard based on its legal framework for Mutual Agreement Procedure (MAP) and how it applies the framework in practice. In Stage 2, a review is conducted of the measures the BEPS member takes to address any shortcomings identified in Stage 1 of the peer review. Both of these stages are desk-based and are coordinated by the Secretariat of the Forum on Tax Administration's (FTA) MAP Forum. In summary, Stage 1 consists of three steps or phases:
Input is provided through questionnaires completed by the assessed jurisdiction, peers (i.e., other members of the FTA MAP Forum) and taxpayers. Once the input has been gathered, the Secretariat prepares a draft Stage 1 peer review report of the assessed jurisdiction and sends it to the assessed jurisdiction for its written comments on the draft report. When a peer review report is finalized, it is sent for approval of the FTA MAP Forum and later to the OECD Committee on Fiscal Affairs' to adopt the report for publication.
The report includes 18 recommendations relating to the minimum standard. In general, the performance of Poland with regard to MAP has proven to be satisfactory in their respective reports. Overall, Poland meets most of the elements of the Action 14 minimum standard. Out of Poland's 85 tax treaties, 82 contain a provision being equivalent to Article 25(3), first sentence of the OECD Model Tax Convention (The competent authorities of the Contracting States shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention). Poland notified that even in the cases of lack of a provision equivalent to Article 25(3), it will endeavor to solve any difficulties or doubts regarding the interpretation or application of its tax treaties. Poland declared that it intends to modify the tax treaties via the Multilateral Instrument (MLI; already ratified as at the date of preparation of this document) or bilateral negotiations so that all treaties will contain a provision equivalent to Article 25(3) of the OECD Model Tax Convention. Moreover, the currently binding Polish provisions do not allow for the roll-back of the bilateral Advance Pricing Agreements (APAs). Therefore, it is recommended that Poland should introduce the possibility of and in practice provide roll-back of bilateral APAs. Poland generally meets the requirements concerning availability and access to MAP in light of Action 14 minimum standard. In particular, Poland's MAP guidance can be easily found on the website3 of Poland's Ministry of Finance. Moreover, Poland reported – and peers have agreed – that since 1 January 2015 it has not denied access to MAP both in transfer pricing cases and in relation to the application of a treaty and/or domestic anti-abuse provision. In addition, the report has not identified any limitation of access to MAP by Poland since 1 January 2015 in the cases in which the taxpayers complied with information and documentation requirements for MAP requests (Poland reported that in the case of incomplete MAP requests, the taxpayers were afforded opportunities to provide the missing information). The report recommends that Poland should continue granting access to MAP in all eligible cases. It should be noted that audit settlements are not available in Poland and it has no administrative or statutory dispute settlement or resolution process in place that allows Poland to deny access to MAP for issues closed through such a practice. In the report, it has been identified that some of the Poland's tax treaties do not contain equivalents of:
None of Poland's 85 treaties contains a provision equivalent to Article 25(1), first sentence of the OECD Model Tax Convention as changed by the Action 14 final report allowing taxpayers to submit a MAP request to the competent authority of either treaty partner. The identified shortages are intended to be modified via the MLI (where applicable). According to the OECD's recommendation, Poland has already ratified the MLI. As this act has also been ratified by four other jurisdictions (Slovenia, Austria, Jersey, the Isle of Man), the MLI is expected to enter into force – in the case of these countries – as of 1 July 2018. According to the recommendations provided in the report, Poland should request inclusion of the required MAP provisions via bilateral negotiations in those treaties that will not be modified via the MLI and in all future treaties to come. Out of Poland's 85 tax treaties, 83 contain a provision equivalent to Article 25(2), first sentence of the OECD Model Tax Convention which obliges competent authorities, in situations where the objection raised by taxpayers are considered justified and where cases cannot be unilaterally resolved, to enter into discussions with each other to resolve cases of taxation not in accordance with the provisions of a tax treaty. The equivalent of Article 25(2), first sentence of the OECD Model Tax Convention will however apply in the absence of an equivalent provision in the tax treaties for countries that have ratified the MLI. According to the recommendations provided for in the commented report, for the one treaty that will not be modified by the MLI to include the equivalent of Article 25(2), first sentence of the OECD Model Tax Convention, Poland should request inclusion of the required provision via bilateral negotiations. In addition, Poland should maintain its stated intention to include the required provision in all future treaties. The average time needed to close MAP cases during the Statistics Reporting Period covered by the report was 18.89 months. The Polish competent authority closed the attribution/allocation cases in 38 months on average, whereas in the average for other cases amounted to 15.7 months. Bearing in mind that the pursued average for resolving MAP cases received on or after 1 January 2016 is 24 months – it was outlined in the report that Poland should be monitoring whether additional personnel could contribute to acceleration of the resolution of these cases. Moreover, as it has done thus far, Poland should continue to ensure that its competent authority (Minister of Finance) has the authority, and uses it in practice, to resolve MAP cases without being dependent on approval or direction from the tax administration personnel (directly involved in the adjustment) and independently of any policy considerations that Poland would like to see reflected in future amendments to the treaty. Finally, as it has also done thus far, Poland should continue to use appropriate performance indicators for their competent authority functions and staff in charge of MAP processes. In Poland, tax liability becomes as a rule statute barred after the end of the fifth year after the calendar year, in which the tax payment deadline passed. However, as far as the arrangements under the MAP procedure are concerned, in principle the downward adjustment should be adopted notwithstanding any time limits (this is somehow limited in cases where the respective tax treaty does not include a provision guaranteeing implementation of the MAP results irrespective of the statutory deadlines). Poland reported that under its domestic law, corresponding adjustments cannot be made if the relevant treaty does not include the equivalent of Article 9(2) of the OECD Model Tax Convention (referring to corresponding adjustment). In practice, Poland reported that it would not give access to MAP in transfer pricing cases where the relevant tax treaty does not include the equivalent of Article 9(2) of the OECD Model Tax Convention (based on Article 11 paragraph 8b of the Corporate Income Tax Act). Nevertheless, there is a risk that such domestic provision limits the possibility of reaching a mutual agreement and may obstruct the implementation of such an agreement. Thus, Poland may be required to make a corresponding adjustment when a primary adjustment is made by its treaty partner. Polish law does not provide for statutory deadlines for implementation of MAP arrangements in Poland. However, Poland noted that MAP agreements that were reached on or after 1 January 2015 have been (or will be) implemented on a timely basis. Out of the 85 tax treaties concluded by Poland, 60 include the equivalent of Article 25(2), second sentence of the OECD Model Tax Convention (Any agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States). Twelve of the remaining treaties are expected to be modified by the MLI. As far as the other 13 treaties are concerned – that neither contain the equivalent of Article 25(2), second sentence of the OECD Model Tax Convention nor will be modified by the MLI – it is recommended to amend them via bilateral arrangements in order to include the equivalent of the Article 25(2), second sentence of the OECD Model Tax Convention. Poland is among the jurisdictions which provided information and requested feedback on how it has adopted the 12 best practices contained in the Action 14 final report. However, the peers did not provide input relating to any of the best practices as described in the Inclusive Framework on BEPS: Action 14 Making Dispute Resolution More Effective MAP Peer Review Report BEST PRACTICES Poland. The comments provided by the peers in the peer review report generally confirm good cooperation with Poland's competent authority, although a few of them commented on the timeliness of the resolution of MAP cases. Poland is already working to address deficiencies identified in its peer review and will now move on to Stage 2 of the process, where Poland's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored. Under the peer review program methodology, Poland shall submit an update report to the Forum on Tax Administration's MAP Forum within one year of the OECD Committee on Fiscal Affairs' adoption of the Stage 1 peer review report. In a post-BEPS world, where multinational enterprises (MNEs) face tremendous pressures and scrutiny from tax authorities, the release of Poland's peer review report represents the continued recognition and importance of the need to achieve tax certainty for cross-border transactions for MNEs. While increased scrutiny is expected to significantly increase the risk of double taxation, the fact that tax authorities may be subject to review by their peers should be seen by MNEs as a positive step to best ensure access to an effective and timely mutual agreement process. Furthermore, the peer review for Poland provides insights to taxpayers on the availability and efficacy of MAP. With additional countries continuing to be reviewed, the OECD has made it known that taxpayer input continues to be welcomed on an ongoing basis. With stakeholder feedback in mind, businesses are encouraged to share their views with the OECD on the peer review for Poland and any other jurisdictions, and to perhaps comment on whether the next iteration of the OECD's assessment of tax administration's MAP performance warrants greater feedback from taxpayers as the primary source. Feedback from the international tax community is the logical next step after peer review, which may help to further validate the current favorable result. It should be noted that over the past few years, transfer pricing has become one of the most frequently audited issues in Poland. The outcomes of the performed audits contribute to the increased demand for MAP in this country. Therefore, Poland will not only be required to address an increased inflow of MAP cases, but it will also need to handle more complicated problems (what should result in an increase of the competent authority's capacity to resolve the MAP cases). Only the results of the MAP processes initiated on the basis of currently performed (or recently closed) tax audits may, in the future, become a basis for the reliable assessment of the ability of the Polish competent authority to resolve MAP cases. 1 See EY Global Tax Alert, OECD releases third batch of peer review reports on Action 14, dated 14 March 2018. 2 See EY Global Tax Alert, OECD releases BEPS Action 14 on More Effective Dispute Resolution Mechanisms, Peer Review, dated 31 October 2016. 3 https://www.finanse.mf.gov.pl/abc-podatkow/umowy-miedzynarodowe/procedura-wzajemnego-porozumiewania-sie; https://www.finanse.mf.gov.pl/cit/ceny-transferowe1/procedura-wzajemnego-porozumiewania-sie-map.
Document ID: 2018-5536 |
