Growing compliance and transparency obligations applicable to m&a deals in Poland

Update your checklist
Whether you are an investor, guarantor, seller, buyer or advisor of any of the foregoing, recent changes to Polish law, as well the changes which will enter into force soon, impose certain new compliance and transparency related obligations which you should bear in mind when preparing for, managing and closing M&A transactions.
Some of them may apply even if you do not have a presence in Poland.
Most of the new obligations are driven by the requirements of EU law. However, Polish lawmakers have decided to implement local particularities and to expand the requirements set forth in the EU legislation. Therefore, we recommend updating standard M&A checklists to include such items as:

• Preparing enhanced ultimate beneficial owner files of the purchaser/seller/investor involved in the transaction, so they are at hand for the purpose of:
  • presenting them to advisors and contractors, to enable them to comply with legislation implementing the AML IV Directive, as well as
  • registering the beneficial owners of existing investments in the newly established Central Register of Beneficial Owners (which went live on 13 October 2019);
• Checking your contractor tax registration as well as its bank accounts registered with the tax authorities, so that you are sure you will be paying to the contractor's registered bank account and will not face potential tax issues resulting from payment to a non-registered account (as of 1 January 2020);
• Involving legal and tax advisors (internal or external) at an early stage of preparing the transaction structure, so you can comply with the Mandatory Disclosure Rules and related reporting obligations.

Mandatory Disclosure Rules
The last item of the list, i.e. check if the agreed structure of the contemplated transaction should be reported under the Mandatory Disclosure Rules, is required by Polish legislation implementing EU Council Directive 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements ("MDR Directive")

• Why they are important: Such a check is of particular importance, since:
  • similar rules must enter into force in the EU countries by 1 July 2020;
  • once implemented, they will impose obligations to also report certain transactions being already consummated (if the tax arrangement was implemented after 25 May 2018); and
  • the MDR Directive, and its implementation in Poland, is not very precise, requiring special scrutiny on the part of the affected entities.
• What the new obligation is about: The respective changes to the Polish Tax Ordinance (Ordynacja podatkowa) aimed at implementing the MDR Directive are in force since 1 January 2019. However, the scope of the Polish implementation is broader than required by the MDR Directive; for instance, it may also concern domestic transactions ("Polish MDR Regulation"). The new law imposes on taxpayers and their advisors several specific and sometimes imprecise obligations to report to the tax authorities any arrangements satisfying even one of over 20 hallmarks. The arrangement does not have to be implemented, it suffices if it is made available or ready for implementation (a reportable arrangement is referred to as the tax scheme). Crucial terms such as "arrangement", "implementation of the arrangement" or "hallmarks" are defined broadly, hence most M&A transactions and many standard corporate restructurings may have to be reported.
• Who is obligated to report: Participants taking part in structuring or implementing the transaction play different roles in the reporting process and, accordingly, there are various obligations resulting from the new law. For instance, the investor or an entity involved in the transaction (e.g. as the buyer) might potentially be qualified as the beneficiary of the arrangement (korzystający), while advisors (or persons structuring, coordinating or implementing the transaction) may be regarded as promoters (promotorzy) or as other intermediaries (wspomagający). It is not always easy to determine who acts in what capacity. In most cases, the primary reporting burden will lie with the tax advisors (as normally they will act as the promoters) and not with the actual beneficiary or the transactional advisors. However, the latter groups still would be obligated to ask the promotor for the tax scheme number assigned by the tax authority to the reported tax scheme or to report the tax scheme directly to the tax administration.
• What is at stake: Penalties and, for professional advisors, loss of credibility or disciplinary sanctions.
• What to do:
  • The beneficiaries of the arrangements (e.g. investor or buyer) should first consult their lawyer or tax advisor to check if:
    •  the agreements (also verbal) reached between the parties, or a plan of action of the given beneficiary, should already be qualified as the arrangements;
    • it is reportable (as a tax scheme); and
    • who should report it under the Polish MDR Regulation.

                       The sooner such verification is undertaken the better, since the mere agreeing upon the structure of the transaction
                       may trigger reportability.

                       Finally, the beneficiary should ask the promotor (if any) to provide the unique tax scheme number assigned to the given
                       tax scheme by the tax administration.

• The transactional advisors, even if not based in Poland, as potential promoters and other intermediaries, should continuously assess their role under the Polish MDR Regulation and monitor whether the arrangement they are working on is reportable to the tax administration. They should repeat the analysis from time to time, since even a technically minor change in the transaction set-up may affect the previous assessment of reportability.

                       Advisors should also liaise with other advisors involved in the process of structuring, preparing or implementing the
                       transaction to determine who will effectively report the arrangement to the tax administration.

• When to report: The scope and timing of the reporting varies depending on the entity's role in the preparation, implementation and management of the transaction. As a rule, however, the tax arrangement should be reported within 30 days of its set up/disclosure to the beneficiary or implementation. 
• What next:
  • As the new legislation has yet to be tested in practice, nobody knows if the interpretation of the vague provisions will favour the reporting entities or instead give broad discretional powers to the tax authorities. Some new guidelines issued by the tax administration may be expected.
  • The MDR Directive should be transposed into the national laws of other EU countries by 1 July 2020. The Polish MDR Regulation may serve as a benchmark.