SAF-T for Poland and SAP

From 1st July 2016 onwards it is required to provide SAFT-PL files in XML format on request of the PL Tax authorities.

Per 1st July 2018 this extended to taxpayers with more than 9 employees or 2 million EUR sales revenue. Foreign businesses not having a branch and/or fixed establishment but that are registered for VAT in Poland fall within the scope of the above reporting requirement when above conditions are met.

On 19 May 2016 the Upper Chamber of the Polish Parliament passed a bill on the amendment of provisions of the Tax Ordinance and of some other acts. According to the bill adopted by the Parliament, the obligation to generate VAT reports in a SAF-T data format and their monthly reporting to the tax authorities will apply initially only to the largest enterprises for each month begun on or after 1 July 2016.

According to new regulation It means that Large Enterprises will be obliged to file VAT reports in the SAF-T data format already on 25 August 2016. Thus, Large Enterprises will be obliged to submit in monthly period VAT register in SAF-T format (according to JPK_VAT structure 4 – VAT register) even if the VAT reporting period is quarterly.

Taxpayers will be obliged to submit the SAF-T format:

• on request in the case of a preliminary tax inquiry, a tax audit and tax proceedings;
• monthly mandatory – with respect to the VAT sales and purchases records only (Article 109(3) of the Value Added Tax Act of 11 March 2004 (VAT records) by submit monthly a SAF-T file that contains VAT sales and purchase records

The first requests to submit audit files at their discretion will likely take place September 2016.  The monthly VAT reports on 25 August 2016.

Not complying with this obligation will not only negatively affect the position of taxpayers during a tax audit but also result in unforeseen tax costs as penalties will be levied.

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SAFT Poland and SAP

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The generation of the SAFT-PL XML files is not included in the SAP Strategy at the moment. SAP is currently only developing an extraction tool for SAP ECC 6 and higher version. Certain companies use “older versions” of SAP and will not be supported by SAP.

Based on SAP's OSS notes, SAP provides only at the moment a functionality for gathering and downloading some transactional data. However, it is not the complete set of data required and the creation of the SAF-T file for the tax authorities is also not included.

The functionality will also only be available for companies established in Poland and not for companies with a foreign Polish VAT registration. In order to be able to comply with the requirements and provide the XML file on request in time, tooling needs either to be developed or purchased.

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Our solution

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A SAFT-PL tool that already works for Portugal that includes also strategy for downloading the relevant data from SAP  for older SAP versions.

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The basic design for a workaround solution is to extract the raw source data from the relevant SAP tables and use software tools to load the relevant data from the source SAP tables, perform additional mappings and data preparations and create the required XML files.

We offer 2 solutions:

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• A software application called Audit Command Language (ACL). This software is commonly used by auditing firms, tax authorities and internal audit departments. The process will be that the client will download the data from SAP and make it available to the Phenix. Phenix will then generate the XML files and some control reports and provide these files and reports available to client for submission.
• A tool in MS Access  in combination with a specific user interface for extracting the data from SAP. The result is a full in-house solution for the client.

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Detailed information about SAF-T compliance and planning

• More info about our SAF-T solution for Poland
• Mandatory electronic audit files a worldwide trend
• Tax authorities peeking at your data

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Contact us for more information

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State aid or not - what about 'reputational tax risks'

Reputational risk is a key element in tax risk management as it is it not only considers individual tax risk but also sees how tax risk may influence the positions in other areas, negatively or positively

On June 2014, the European Commission said it had opened three in-depth investigations into tax decisions affecting Apple, Starbucks and Fiat Finance and Trade in Ireland, the Netherlands and Luxembourg respectively.

An U.S. Senate investigation has revealed that Apple, that, "under the agreement Apple has with Ireland", Apple paid a maximum tax rate of 2 percent or less. Apple's annual reports show that over the past three years, Apple paid taxes worth 2 percent of its $74 billion in overseas income.

On his 2008 Presidential campaign trail, Barack Obama made his hostility toward “offshore” jurisdictions very clear:

There’s a building in the Cayman Islands that houses supposedly 12,000 U.S.-based corporations. That’s either the biggest building in the world or the biggest tax scam in the world, and we know which one it is.

European Commission's decision

In the light of the foregoing considerations, the Commission's preliminary view is that the tax ruling of 1990 (effectively agreed in 1991) and of 2007 in favour of the Apple group constitute State aid according to Article 107(1) TFEU [Treaty on the Functioning of the European Union]. The Commission has doubts about the compatibility of such State aid with the internal market. The Commission has therefore decided to initiate the procedure laid down in Article 108(2) TFEU with respect to the measures in question.

According to Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), state aid which affects trade between Member States and distorts, or threatens to distort, competition by favoring certain undertakings, is incompatible with the EU Single Market.

The European Commission considers that advance pricing agreements (APAs) should not have the effect of granting taxpayers lower taxation than other taxpayers in a similar legal and factual situation.

Apple says EU probe of Irish tax policy could be 'material' on April 29, 2015 - Apple Inc (AAPL.O) said the European Commission's investigation into Ireland's tax treatment of multinationals could have a "material" impact if it was determined that Dublin's tax policies represented unfair state aid. 

Apple has warned investors that it could face “material” financial penalties from the European Commission’s investigation into its tax deals with Ireland — the first time it has disclosed the potential consequences of the probe.

Under US securities rules, a material event is usually defined as 5 per cent of a company’s average pre-tax earnings for the past three years. For Apple, which reported the highest quarterly profit ever for a US company in January, that could exceed $2.5bn, according to FT calculations. [Source: ft.com]

The above, raises the question whether besides evaluating tax risks (level of tolerance) also reputational risks of the company - as part of proper tax risk management - should have been considered when such schemes were setup.

In Apple's defense lots of multinationals have been doing the same and I believed myself that change of the tax system - as those structures are often legally allowed - was the only way to close such gaps.

That changed a bit with the European Commission decision that Luxembourg and the Netherlands have granted selective tax advantages to Fiat Finance and Trade and Starbucks, respectively. These are illegal under EU state aid rules: Fiat and Starbucks ruling.

About change and competencies

Effective tax advice by a tax professional should nowadays not only address the ways of how not paying more tax than necessary and evaluate associated tax risks of implementing such tax planning schemes (rate level of tolerance on a risk scale), but should also take in consideration the impact of such planning on the reputation of the company if it becomes public knowledge.

• What is the impact if the tax planning at hand becomes public knowledge?
• What are the consequences if a newspaper or politician picks it up to make statements about lack of 'tax morale' and the company is used as case study?

VAT reputational risks

VAT exposures associated with the wider impact on the company's that arises from a company's actions or errors and have become public knowledge, examples:

• Aggressive VAT planning / VAT non compliance becomes public knowledge
• Due to company's VAT failures vendors are not paid in time that might disrupt the business
• Due to company's VAT failures VAT deduction of clients are disputed and assessed by tax authorities
• Failure to drive the optimum relationship with the (indirect) Tax Authorities

A tax professional should contribute and give guidance to achieve that taxpayers do not pay more tax than necessary. Every opportunity had to be considered. At least that was the job description and actually how you could differentiate yourself among competition to make that happen for example via realizing beneficial tax rulings.

Has that - due to the Starbucks and Fiat ruling - now changed and to what extent?

In the indirect tax field, especially value added tax, similar aggressive tax structures were for a long time often approved by (national) case law. That has changed when the European Court of Justice ruled a couple of years ago (ECJ Halifax: February 21, 2006) that the tax advantage had to be revoked or denied.

The indirect tax profession had to change as well and reposition itself to 'manage the numbers of indirect tax' - focus more on risk management - and because of new trends relationships with tax authorities became more important to realize the taxpayer's tax objectives.

Will tax planning become more about ‘being in compliance’ planning?

The new trend is to have an open dialogue between revenue bodies, taxpayers and tax intermediaries. OECD promotes ‘enhanced relationship’ (OECD report: Study into the Role of Tax Intermediaries). Even if the authorities have not embraced such an approach (yet), a proactive mode and using elements of this way of working might not only safe time and money, result in a good relationship but as well mitigate reputational VAT risks.

Further (new) information

• EU Commission State Aid Starbucks Decision – low adjustment is a wash out
• A Mysterious Study in the Code of Conduct Report 1999 and a Rumoured French Connection
• Tax advantages for Fiat and Starbucks are illegal under EU state aid rules
• Starbucks and Fiat Chrysler’s tax avoidance deals to be ruled illegal |The Guardian
• Anticipate, prepare for and lead change
• Tax rulings and other measures similar in nature or effect
• BEPS 2015 Final Reports
• BEPS and Indirect Tax

Commission welcomes agreement reached by Member States on the automatic exchange of information on tax rulings

The Commission has welcomed today's unanimous agreement by Member States on the automatic exchange of information on cross-border tax rulings, just seven months after the presentation of the Commission's ambitious proposal on the subject. 

The new rules should lead to greater cooperation between Member States on tax matters and act as a deterrent from using tax rulings as an instrument for tax abuse. All Member States will be equipped with the information they need to protect their tax bases and effectively target companies that try to escape paying their fair share of taxes. The agreement was reached at a meeting of Economic and Financial Affairs ministers in Luxembourg. Following the announcement of the agreement, Jean-Claude Juncker, President of the European Commission said:

"I warmly welcome today's agreement as a major step forward. The automatic exchange of information on tax rulings will provide national authorities with insight on aggressive tax planning. It marks a leap forward in our efforts to advance on tax coordination and tax harmonisation. The current system of corporate tax rules is unjust and unfit for purpose. There is a plethora of national rules that allows some companies to win, while others lose out. This unfair competition is anathema to the principles of fair competition within our Internal Market."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said:

"All EU Member States have today agreed to share more information on tax rulings given to companies which operate cross-border. This is a major step in combating aggressive tax planning, creating greater transparency in corporate taxation and in providing fairer competition for both businesses and consumers. I see today's agreement as an important signal that Member States are ready to deliver on our common goal of fair and effective taxation. The EU will continue to work to implement these transparency rules worldwide."

What are the key elements of the new rules?

Currently, Member States share very little information with one another about their tax rulings. It is at the discretion of the Member State to decide whether a tax ruling might be relevant to another EU country. As a result, Member States are often unaware of cross-border tax rulings issued elsewhere in the EU which may have an impact on their own tax bases. The lack of transparency on tax rulings can be exploited by certain companies in order to artificially reduce their tax contribution.

To redress this situation, the new rules agreed today will require Member States to automatically exchange information on their tax rulings. The directive will remove Member States discretion to decide on what information is shared, when and with whom.

These rulings - defined widely so as to capture all similar instruments and irrespective of the actual tax advantage involved - will have to be exchanged every six months. The agreement will also cover existing rulings of the past five years. Member States will then be able to ask for more detailed information on a particular ruling.

The automatic exchange of information on tax rulings will enable Member States to detect certain abusive tax practices by companies and take the necessary action in response. It is expected that this initiative will deter tax authorities from offering selective tax treatment to companies once this is open to scrutiny by their peers. This will result in much healthier tax competition.

In addition, the Commission will regularly receive the information it needs in order to monitor the implementation of this directive and ensure that Member States are complying with their responsibilities.

Member States will have to transpose the new rules into national law before the end of 2016, meaning that the Directive will come into effect on 1 January 2017.

More information

Tax Transparency Package of 18 March 2015 (IP/2015/4610)