Member states of the European Union, following other jurisdictions around the world, are stepping up their work on extending the scope of automatic exchange of tax information, which is regarded as the most effective means of combating tax avoidance.
Under Council Directive 2011/16/EU on administrative cooperation in the field of taxation (amended in 2014 and 2015), Poland was required to implement regulations providing a legal basis for automatic exchange between EU member states not only of information about typical income of individuals from financial accounts (such as bank interest), but also other categories of non-financial income.
Under the directive, the automatic exchange of information between member states also covers:
- Income from employment
- Directors’ fees
- Life insurance products
- Ownership of and income from immovable property.
Because Poland did not manage to make the required transposition of the directive with respect to automatic exchange of information by 1 January 2015, 2016 will be the first period in Poland for which the Ministry of Finance will exchange information with its counterparts in other EU member states from three of the five categories of information about individuals referred to in the directive. Notwithstanding the delay, the exchange will cover data from 1 January 2014 forward.
Under Art. 305ja of the Tax Ordinance, which is the immediate legal basis for automatic exchange of information in this respect, the Minister of Finance shall provide at his own initiative, to the tax authorities of another EU member state, available information about income earned by an individual with his or her place of residence in the territory of that member state concerning, among other things, income from:
- Activity performed personally as referred to in Art. 13 (7) and (9) of the Personal Income Tax Act, i.e. income received by persons, regardless of the manner of appointment, who are members of management boards or supervisory boards, income obtained under contracts for management of an enterprise, managerial contracts or other agreements of a similar nature
- Retirement or disability pensions.
It should be pointed out that exchange will cover only information that is provided in declarations filed by remitters of personal income tax (e.g. on forms such as PIT-11, PIT-40 or IFT-1). This means that information provided only in a tax return filed by an individual, not through a remitter, will not be covered by automatic exchange.
So far the Tax Ordinance does not provide for automatic exchange of information about life insurance policies, ownership of real property, or income from real property. So now such information will not be provided by Poland to other EU member states, but probably in the near future Poland will join the automatic exchange of information in this area as well. Nonetheless, because the national law of other EU member states does provide for exchange of information about real estate and insurance products, it may happen that the Polish Ministry of Finance will receive information from other member states about Polish residents who own property abroad, obtain income from property in other member states, or receive payments from foreign life insurers.
The essence of automatic exchange of information is that information about taxpayers’ income between EU member states will be shared between the member states without any demand or other request from the tax authorities. Information about income obtained in one member state by a taxpayer who is a resident of another member state will be transmitted by the tax authority there, at its own initiative, to the tax authority of the taxpayer’s country of residence.
In practice, these changes mean that taxpayers who are Polish tax residents and who have not reported on their Polish tax return their income from other EU member states (except for Austria, which has a different deadline for implementation of the directive) should expect to deal with the need to file an amended return, pay interest on delay, and possibly face fiscal criminal charges.
Directive 2014/107/EU, amending Directive 2011/16/EU, provides for further expansion of the automatic exchange of information from 1 January 2017 in order to increase the flow of data about income obtained by individuals. Poland’s further implementation of the provisions of Directive 2014/107/EU, among other regulations, is to be accomplished pursuant to the Act on Exchange of Tax Information with Other Countries. A new government draft of such an act (also involving countries from outside the EU) was published in May. The new act would implement, for example, the Common Reporting Standard for automatic exchange of information on tax matters and enable the automatic exchange of information concerning individual tax interpretations of cross-border relevance, as well as transfer-pricing arrangements.
According to the drafters, the new act would also allow tax authorities and tax inspectors to obtain meaningfully aggregated information which could then be used to analyse the phenomenon of tax-base erosion and shifting of income to lower-tax countries. The new act is supposed to enter into force on 1 September 2016.
Aldona Leszczyńska-Mikulska, Private Client Practice, Wardyński & Partners