Changes in the Accounting Act. Which companies will disclose taxes from other countries?

The purpose of changes in the Accounting Act, or why to disclose taxes from other countries

The purpose of the amendment to the Accounting Act is to implement Directive 2021/2101 and thus introduce the requirement to publicly disclose income tax reports by country. General estimates show that EU Member States lose as much as EUR 50-70 billion annually as a result of tax avoidance by international companies. Moreover, companies operating in multiple markets sometimes pay disproportionately low taxes, which undermines the effectiveness and fairness of EU tax systems. The new regulations are intended to improve this situation.

Income tax reports by country – subjective scope

Currently, the obligation to provide information on taxes paid by country applies to enterprises:

• from the banking sector (Directive 2013/36/EU implemented by the Banking Law Act; i.e. Journal of Laws of 2023, item 2488)
• from the mining industry and logging primary forests (Directive 2013/34/EU, implemented in Poland in the Accounting Act, i.e. Journal of Laws of 2023, item 120, as amended).

Meanwhile, according to the draft amendment to the Accounting Act, the obligation to disclose income tax paid in individual countries will soon also apply to, among others:

• parent entities of capital groups and independent entities whose revenues (consolidated revenues for capital groups) will exceed PLN 3.5 billion in the next two years (includes capital companies, limited joint-stock companies, general partnerships, limited partnerships, all of whose shareholders with unlimited liability are capital companies or limited joint-stock companies or companies from other countries with a similar legal form), 
  
• ultimate parent entities or independent entities with their registered office or place of management outside the European Economic Area, but conducting business activity in Poland through a branch or subsidiary, if the revenues included in the annual consolidated financial statements of this parent company for each of the last two financial years exceed an amount of EUR 750,000.

The data contained in the reports are to be disclosed separately for all countries of the European Economic Area and for tax havens in which the company operates.

Income tax report – scope of information

The entity's income tax report will be prepared as at the balance sheet date. It will include information on the entire activities of the stand-alone entity or the ultimate parent entity, including the activities of all subsidiaries included in the consolidated financial statements of the ultimate parent entity, for a given financial year.

The income tax report in accordance with the proposed act will include, among others, the following information:

• the name of the ultimate parent entity or stand-alone entity and a list of all subsidiaries included in the consolidated financial statements of the ultimate parent entity for the financial year in question and established in a country of the European Economic Area or in the tax jurisdictions listed in Annexes I and II to the Council conclusions;
• fiscal year;
• currency of presentation of the income tax report;
• a brief description of the nature of the entities' activities;
• number of employees in full-time equivalents;
• revenues, including transactions with related parties, which means related entities defined in international accounting standards adopted in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards, which constitute:
  • total revenues, excluding value adjustments and dividends received from related entities - for entities having their registered office or place of management in the territory of the Republic of Poland which do not apply IAS,
  • revenues as defined in the financial reporting framework on the basis of which financial statements are prepared, or within the meaning of the financial reporting framework on the basis of which financial statements are prepared, excluding value adjustments and dividends received from related entities - for other than that specified in lit. and;

• the amount of profit or loss before tax;
• the amount of income tax payable in a given financial year, which is the current tax expense in respect of taxable profits or losses in the financial year recognized by entities and branches in a given tax jurisdiction, without taking into account deferred tax and provisions for contingent tax liabilities;
• the amount of income tax paid in a given financial year by entities and branches in a given tax jurisdiction, including withholding tax paid by other entities in relation to payments to entities and branches within the capital group;
• the amount of undistributed profit from previous years at the end of a given financial year, including the amount of profit from previous financial years and the amount of profit from a given financial year for which no decision on distribution was made, whereas in the case of branches, undistributed profit from previous years means undistributed profit from previous years previous members of the unit that established a given branch;
• information that the report was prepared in accordance with the Act.

New reporting obligations – sanctions

In the proposed amendment, the legislator also included sanctions for failure to fulfil obligations. As we read in the draft act, who, contrary to the provisions of the Act, allows:

• not keeping accounting books, keeping them contrary to the provisions of the Act or providing unreliable data in these books,
• failure to prepare the financial statements, consolidated financial statements, activity report, report on the activities of the capital group, report on payments to public administration, consolidated report on payments to public administration, income tax report, preparing them contrary to the provisions of the Act or including them in these reports of unreliable data

shall be subject to a fine or imprisonment for up to 2 years, or both.

Income tax reports – date of entry into force of the new obligation

The regulations on the disclosure of information about income tax paid in individual countries are scheduled to enter into force on June 22, 2024 and will apply for the first time to the income tax report for a financial year starting after June 21, 2024.