What are MDR?
MDR, or Mandatory Disclosure Rules, are legal obligations requiring certain tax arrangements to be identified, analysed and reported to the tax authorities. In the European Union, the MDR framework is based on Council Directive (EU) 2018/822, commonly referred to as DAC6. In Poland, these rules were implemented in the Tax Ordinance Act, in particular in Articles 86a-86o.
The purpose of MDR is to increase tax transparency and allow tax authorities to obtain early information about arrangements that may involve tax planning features considered relevant from a reporting perspective. MDR does not automatically mean that a given arrangement is unlawful or abusive. Reporting may be required even where the transaction has a valid business rationale and complies with tax law.
In practice, MDR analysis requires determining whether an arrangement qualifies as a “tax scheme”, whether it contains one or more statutory hallmarks, whether the main benefit test applies, and which party is responsible for reporting. These obligations may affect advisers, companies, management boards, finance departments and other entities involved in designing, implementing or supporting a transaction.
What do MDR cover?
MDR may apply to both cross-border and, under Polish law, certain domestic arrangements. This is one of the important features of the Polish regime, which is broader than the minimum standard required under DAC6. The reporting obligation may arise in relation to corporate restructurings, financing arrangements, intra-group settlements, asset transfers, changes in business models, tax reliefs, preferential taxation mechanisms or transactions involving entities from different jurisdictions.
The key concept in MDR is the “hallmark”. A hallmark is a statutory feature that may indicate a potential tax risk or a tax advantage. Some hallmarks require the main benefit test, which generally means assessing whether obtaining a tax advantage is one of the main expected benefits of the arrangement. Other hallmarks may trigger reporting regardless of that test, including in certain cross-border situations specified in the legislation.
Polish MDR rules identify different categories of participants. A promoter is typically an entity that designs, offers, makes available or implements a reportable arrangement. A beneficiary is the entity for whom the arrangement is made available or who implements it. A supporting party may include an entity that provides assistance, advice or other support in relation to the arrangement. The correct classification of roles is important because it determines who must report, what must be reported and when.
As a rule, MDR-1 reporting in Poland is subject to a 30-day deadline counted from the date on which the scheme is made available, prepared for implementation or when the first implementation activity is performed, depending on the circumstances. This deadline results from the Polish Tax Ordinance Act, Article 86i. Other MDR forms, including MDR-3 and MDR-4, may also be relevant depending on the role of the reporting party and the use of the scheme.
When should you seek advice on MDR?
Legal and tax advice on MDR should be considered before implementing transactions that may have material tax consequences. This applies in particular to mergers, divisions, share transfers, debt financing, real estate transactions, business acquisitions, transfer pricing models, holding structures and changes in contractual or operational flows within a group.
Private clients may encounter MDR issues in more complex asset, succession or investment structures, especially where cross-border elements are involved. Entrepreneurs and companies are more frequently affected because MDR may arise in the course of ordinary business decisions, including reorganisations, financing, tax settlements and transactions with related parties.
A prompt MDR review can help avoid incorrect classification, missed reporting deadlines, incomplete documentation and disputes with the tax authorities. It may also reduce the risk of financial penalties and personal liability of persons responsible for tax compliance. MDR analysis is often time-sensitive because the reporting deadline may start before the arrangement is fully implemented.
It is also important to consider professional secrecy. In certain cases, legal advisers may be restricted from submitting information directly to the tax authorities due to legal professional privilege. This does not necessarily remove the MDR obligation. It may shift specific duties to another participant, such as the beneficiary. The allocation of responsibilities should therefore be assessed carefully in each case.
Law firm support in MDR matters
Support in relation to Mandatory Disclosure Rules may include in particular:
- assessment of whether a transaction, structure or planned activity may constitute a reportable tax scheme,
- analysis of hallmarks and the main benefit test under Polish and EU MDR rules,
- identification of the roles of promoter, beneficiary and supporting party,
- preparation or review of MDR procedures and internal compliance processes,
- support in preparing MDR notifications and related documentation,
- review of corporate restructurings, financing models and intra-group arrangements from the MDR perspective,
- advice on MDR obligations where legal professional privilege may apply,
- representation and support in communication with tax authorities.
Need assistance with MDR obligations? Contact us.
See also
- Corporate tax
- Tax Law
- Transfer pricing
- Business restructuring