Since 2016, Alternative Investment Companies (“ASI”) have constituted a legally recognized form of conducting collective investment activity within the Polish legal framework. To date, over 300 ASI managers and approximately 350 ASIs have been registered in the registry maintained by the Polish Financial Supervision Authority (KNF).
It is anticipated that in the coming years, as the market becomes more accustomed to this type of entity, this number will continue to grow steadily. This is due, among other factors, to the tax preferences and reliefs provided by the legislator for ASIs.
Against this backdrop, a question arises: should ASI activity, in light of these benefits, be classified as a tax arrangement subject to reporting (so-called MDR)?
The institution of tax arrangements and the associated reporting obligations aim to tighten the fiscal system and prevent aggressive tax planning. The provisions of the Tax Ordinance do not contain a closed catalogue of MDRs. However, they define this construct using the concept of an “arrangement.”
An arrangement is understood to mean an action or a set of related actions, in which at least one party is a taxpayer, or which have or may have an impact on the emergence or non-emergence of a tax obligation. For an arrangement to be recognized as a tax scheme, it must meet at least one of the additional criteria specified in the Tax Ordinance:
- the main benefit test and the presence of a general hallmark,
- the presence of a specific hallmark, or
- the presence of another specific hallmark.
The Tax Ordinance provides closed catalogues of situations in which a specific hallmark (9 types) or another specific hallmark (4 types) may be identified. If any of these appear in a given factual configuration, the arrangement is automatically classified as a reportable tax scheme. These hallmarks, however, do not occur in the context of conducting business activity in the form of an ASI.
It therefore seems necessary to determine whether asset pooling by an ASI meets the main benefit test. This is a highly evaluative criterion. According to the statutory definition, the main benefit test is met when a party chooses a course of action that entails a tax benefit, which constitutes a significant factor in the decision to implement the arrangement, even though there exists an alternative, not more complex course of action that leads to the same business outcomes without the tax benefit.
Accordingly, it should be noted that conducting business activity in the form of an ASI may meet the main benefit test. The operation of an ASI is associated with the occurrence of a tax benefit (e.g., ASIs may benefit from tax exemption on income derived from the sale of shares or stocks). In some cases, reliefs and preferences in this area may be one of the main motivating factors for choosing this form of activity. Such a situation arises, for example, when the commencement of business activity in the form of an ASI is preceded by a restructuring aimed specifically at utilizing tax preferences. Finally, in certain circumstances, there exists an alternative course of action that leads to the same economic results. Sometimes, the business activity conducted by an ASI is not, in essence, investment activity and could just as well be conducted in the form of a capital company.
However, for an arrangement to be considered a tax scheme, meeting the main benefit test alone is not sufficient. A general hallmark must also be present in the given factual configuration. There are 11 such hallmarks, enumerated in the Tax Ordinance. In the context of ASI activity, such a hallmark may be present, for example, when the ASI and its advisor have agreed to keep the arrangement confidential, or when under the agreement with the ASI, the advisor is entitled to remuneration only if the ASI obtains a tax benefit resulting from the arrangement, or when the advisor has agreed to refund the remuneration if such a tax benefit does not arise.
In principle, conducting business activity in the form of an Alternative Investment Company does not in itself constitute a tax arrangement subject to reporting under the relevant provisions of the Tax Ordinance. However, under certain circumstances related to the functioning of an ASI, specific conditions may be met that allow for the classification of a particular course of action as a reportable tax arrangement. Due to the evaluative nature of the main benefit test, which effectively “opens” the catalogue of reportable tax arrangements, caution is advised. Each case therefore requires an individual, detailed analysis of the factual situation and, based on that, a decision regarding potential reporting.
