Interpretation 590 as a solution introduced as part of the Polish Order

Service-Tax

The New Polish Deal contains many different solutions which are intended to facilitate the functioning of entrepreneurs in legal and tax transactions. One of such institutions is the proposed interpretation 590, which is to constitute a binding opinion on the tax consequences of the planned investment. In the article below, we will take a closer look at the currently functioning solutions and the planned changes.

Binding interpretations and opinions currently in force

In the light of the current regulations, no opinions of tax advisors or law firms are binding on tax offices. An entrepreneur who wants to obtain an official position from the tax office in a given factual state or with regard to a future event may use the institution of individual interpretation.

Pursuant to Art. 14b § 1 of the Tax Ordinance, the Director of the National Tax Information, at the request of the person concerned, issues an interpretation of the provisions of tax law (individual interpretation) in his individual case. It contains an exhaustive description of the factual state or future event presented in the application and an assessment of the applicant's position together with its legal justification. The legal justification may be waived if the applicant's position is fully correct. In the event of a negative assessment of the applicant's position, the individual interpretation includes an indication of the correct position together with the legal justification.

The issued tax interpretation is not a source of law, but it provides protection for the taxpayer. As Art. 14k § 1 of the Tax Ordinance, applying to an individual interpretation prior to its amendment, declaration of its expiry or before the service of the tax authority with a copy of a legally valid administrative court ruling repealing the individual interpretation may not be detrimental to the applicant, as well as if it is not taken into account in the resolution of a tax case.

An entrepreneur who wants to obtain an assessment of the facts or a future event from the tax office must apply for an individual interpretation.

It is also worth mentioning that pursuant to Art. 14b § 1a of the Tax Ordinance, in the scope covered by the binding rate information referred to in the provisions of the VAT Act, individual interpretations are not issued.

As a result, we come to another institution, which is binding rate information (WIS).

According to Art. 42a of the VAT Act, binding rate information, hereinafter referred to as WIS, is a decision issued for the purposes of taxation with tax on the supply of goods, import of goods, intra-Community acquisition of goods or provision of services, which includes:

  1. description of goods or services that are the subject of WIS;

  2. classification of goods by chapter, item, subheading or Combined Nomenclature (CN) code or by department, group, class, category, subcategory or item of the Polish Classification of Products and Services or by section, division, group or class of the Polish Classification of Construction Objects, or services by a department, group, class, category, subcategory or position of the Polish Classification of Products and Services, necessary for:

    1. determining the tax rate appropriate for a good or service,

    2. the application of the provisions of the Act and the executive regulations issued on its basis - in the case referred to in Art. 42b paragraph. 4;

  3. the tax rate applicable to the goods or services.

The issued binding rate information binds the tax authorities, which is confirmed by the content of Art. 42 c of paragraph 1. 1 of the VAT Act, where it was stated that WIS binds the tax authorities towards entities for which it was issued, in relation to:

  1. goods which are the subject of delivery, import or intra-Community acquisition made after the date on which WIS was delivered;

  2. a service that was performed after the day on which WIS was delivered;

  3. goods and services which together constitute one taxable activity performed after the date on which the WIS was delivered.

Speaking of WIS, it should also be remembered that a similar solution applies to excise duty, where we are dealing with binding excise information (WIA).

In the light of the wording of Art. 7d of the WIA Excise Duty Act is a decision issued for the purposes of taxing an excise product or a passenger car with excise duty, organizing trade in excise goods or marking these products with excise stamps, which specifies:

  1. classification of the excise product or passenger car in the system corresponding to the Combined Nomenclature (CN), or

  2. the type of the excise goods by describing the goods to such a degree of detail that is sufficient to determine the taxation of the excise goods with excise duty, organize the trade in excise goods or mark these goods with excise stamps. The WIA binds the tax authorities and the entity to whom it was issued in relation to excise goods or passenger cars for which activities subject to excise duty were made after the date on which it became final. WIA is valid for a period of 5 years from the date of its issuance.

A taxpayer interested in obtaining a position on the appropriate VAT rate and excise tax rate submits separate WIS and WIA applications.

However, this is not the end, because entrepreneurs who plan specific optimization measures and want to protect themselves against the application of the anti-tax avoidance clause specified in Art. 119a of the Tax Code, should apply for a protective opinion.

The protective opinion includes in particular:

  1. an exhaustive description of the activity to which the request related;

  2. the assessment that the provision of Art. 119a.

Start a free 30-day trial period with no strings attached! Moreover, entities planning transactions with related entities may apply for a prior pricing agreement. The head of the National Revenue Administration, at the request of a domestic related entity, issues a prior price agreement for a controlled transaction, in which that domestic related entity participates.

The advance pricing agreement specifies in particular:

  1. a controlled transaction covered by the APA and related entities involved in its execution;

  2. functional profile of related entities participating in the controlled transaction, including in particular the functions performed, risks incurred and assets involved;

  3. transfer price verification method;

  4. transfer price calculation method;

  5. critical assumptions on the basis of which it was assumed that the method described in point 3 accurately reflects the transfer price;

  6. scope of individual information to be indicated in the report on the implementation of the APA.

Other institutions that provide protection for taxpayers are the hedging opinion and the prior price agreement.

Interpretation 590 as a comprehensive opinion

As can be seen from the presented analysis, there are currently numerous institutions in force, which are to be replaced by interpretation 590, which is to refer to all tax consequences of the planned investment.

As a consequence, taxpayers will no longer have to submit separate applications for different taxes to different tax authorities. The aforementioned 590 interpretation is intended to replace a multitude of letters and is to be issued directly by the Minister of Finance.

Finally, we would like to point out that the interpretation 590 does not remove the above-mentioned regulations from legal transactions, but facilitates those entities that are interested in obtaining a comprehensive analysis of their tax situation.