MDR – reporting of tax schemes

MDR, or reporting of tax schemes, is an important issue for those who want to avoid tax trouble. Who is subject to the reporting obligation and what is MDR? We answer these and other questions below. We invite you to read on.

MDR Tax Schemes – What Are They?

The abbreviation MDR stands for Mandatory Disclosure Rules that concern certain types of tax transactions described in this article. According to Art. 86a § 1 (10) of the Tax Ordinance Act, tax schemes are arrangements that:

1. Meet the main benefit criterion and have a general identifying feature,
   • both conditions must be met together
2. Have a specific identifying feature,
   • it is necessary to meet a specific identifying feature,
   • the condition of meeting the main benefit does not apply,
3. Have another specific identifying feature
   • only the condition of meeting another specific identifying feature applies,
   • the condition of meeting the main benefit does not apply.

What is an arrangement?

According to Art. 86 §1(16) of the Tax Ordinance, an arrangement is a planned transaction or set of interrelated transactions, in which at least one of the parties is a taxable person or which has or may have an impact on the occurrence of tax liability.

It is important that:

• at least one party to the arrangement is a taxpayer,
• the arrangement influences or may influence the possible occurrence of a tax obligation.

Evaluation of the main benefit in reporting of MDR tax schemes

According to Art. 86a § 2 of the Tax Ordinance, the main benefit criterion is crucial for evaluating a tax scheme. It is considered fulfilled when a rational entity, guided by legal objectives, would choose a different course of action than one generating tax benefits. This means that the tax benefit must be a main or one of the main motivations for the entity in question.

However, meeting the main benefit criterion doesn’t identify a tax scheme automatically. It is also necessary to meet one of the 11 general identifying features, enumerated in Art. 86a § 1 (6) of the Tax Ordinance.

What does reporting of tax schemes (MDR) involve?

Mandatory Disclosure Rules, are EU regulations aimed at fighting aggressive tax optimization. They introduce an obligation to report tax schemes to the National Tax Administration. The MDR procedure includes both:

• verification of the reporting obligation,
• and the process of reporting tax schemes.

What is the MDR report obligation?

Reporting of tax schemes (MDR) is a legal obligation. Such information should be provided to the Head of the National Tax Administration.

The purpose of reporting tax schemes (MDR) is to:

• increase transparency in tax planning,
• fight tax fraud,
• strengthen cooperation between tax administrations of EU member states.

Verification of the MDR obligation

Verification of the MDR obligation is a process of determining whether a given tax scheme should be reported to the Head of the National Tax Administration.

The verification process consists of several stages:

When it comes to cross-border tax schemes, it is necessary to determine where they must be reported. The target country may be either Poland or another EU member state.

Who is obliged to report tax schemes (MDR)?

The obligation to report tax schemes (MDR) applies to:

• Promoters – entities that have developed, implemented, or made the arrangement available.  This group involves tax advisors, lawyers, legal advisors, etc.
• Supporters – entities that facilitate the use of the tax scheme, e.g., auditors, and accountants.
• Users – entities (including individuals, and legal persons) that use the tax scheme.

The MDR procedure provides for a specific reporting order for obligated entities. When a Promoter takes part in the arrangement, he shall provide information to the Head of National Tax Administration. If Promoters are absent or fail to fulfil their obligation, Users take responsibility. In statutorily specified situations, information may be provided by Supporters.

Reporting of tax schemes is only through electronic forms MDR-1, MDR-2, MDR-3. They are available on the website https://www.podatki.gov.pl/mdr/

When does the MDR obligation arise?

The MDR obligation arises only when the scheme meets the main benefit criterion and the general identifying feature, specific identifying feature, or another specific identifying feature.

Provisions on tax scheme reporting identify 3 types of schemes for disclosure.

• tax scheme
• marketable tax scheme
• cross-border tax scheme

Deadlines for reporting of tax schemes

Reporting of tax schemes (MDR) involves providing the information to the Head of the National Tax Administration. The timeframe for that depends on the entity that submits the information.

Promoter informs about a tax scheme within 30 days from:

• the day following the disclosure of the tax scheme,
• the day after preparation for the implementation of the tax scheme or
• the day of the first action related to the implementation of the tax scheme.

The user informs about a tax scheme within 30 days from:

• the day following the disclosure of the tax scheme,
• the day following the preparation for the implementation of the tax scheme, or
• the day of the first action related to the implementation of the tax scheme.

The crucial information is which of the events occurs earlier.

The informational obligation of the Supporter regarding MDR tax schemes depends on the type of obligation. It corresponds to:

• 5 working days from the day on which doubts arose that an agreement may constitute a tax scheme,
• 30 days of providing MDR assistance, if it is apparent that the agreement is a tax scheme. This applies when the supporter assisted directly or through other persons.

Information included in tax reports

Reporting of tax schemes includes a specific range of data. These results from the provisions of Tax Ordinance: art. 86f § 1. Information about the MDR tax scheme should include:

1. Identification data of:
   • the information provider (e.g., name, address, tax identification number)
   • user (if applicable)
2. Legal Basis for providing information:
   • indication of the MDR provision
   • identification of the characteristic feature of the tax scheme
   • identification of the role of the information provider (e.g., promoter, user)
3. Information about the tax scheme:
   • type of scheme (e.g., domestic, cross-border)
   • summary description of the arrangement, its name, and description of business activity
   • comprehensive description of the scheme
   • the purpose of the scheme as known by the provider
   • legal provisions applicable to the scheme
   • estimated value of tax benefit
   • approximate value of an asset in deferred tax
4. Information on actions and stages:
   • indicating actions taken that result in the disclosure of information
   • indicating the current stage of the scheme
5. Information on Other Entities
   • indicating other entities participating or intending to participate in the scheme
   • indicating other entities obligated to provide information
6. Contact Data
   • electronic address for delivering a confirmation on issuing the tax scheme number

Penalties for failure to fulfil MDR obligations

Non-compliance with obligations of reporting tax schemes may result in financial penalties. This results from the provisions of the Fiscal Penal Code, i.e. Art. 80(f).

A court can ban business activities due to tax scheme (MDR) violations

Reporting of tax schemes (MDR). Summary

MDR (reporting tax schemes) is an important element of fighting aggressive tax optimization. Although the MDR procedure may seem complex, it is worth verifying the MDR obligation. Completing the appropriate forms will help you avoid negative tax consequences. Remember that penalties for non-compliance with MDR obligations can be severe.

If you want to learn more about MDR (reporting tax schemes), our experts will answer all your questions. Feel free to contact us!

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