Increased Oversight of FATCA and CRS in Poland — New Standards for the Control and Verification of Financial Institutions

In recent years, Polish tax authorities have intensified their supervisory activities in the area of compliance with international tax standards — in particular the requirements arising from the U.S. Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) for the automatic exchange of tax information. These developments are of particular importance for financial institutions, including alternative investment funds, which are increasingly becoming subject not only to routine procedural audits but also to in-depth substantive reviews of their practices and documentation.

1. A Shift in the Nature of Audits

Previously, one of the key criteria for audit activities was the timely submission of FATCA and CRS reports — i.e. the reporting of information on accounts held by entities and individuals meeting specific tax criteria. Today, however, the approach of the tax authorities has evolved. Audits no longer focus solely on the timeliness and completeness of reports, but also on their substantive accuracy.

Polish tax authorities increasingly examine:

• the correctness of the classification of entities and individuals for reporting purposes,
• the compliance of applied identification procedures with applicable regulations,
• the quality and logical consistency of the data included in the reports.

This model of oversight means that even where a financial institution submits its reports on time, it remains obliged to ensure that the reported data are accurate, reflect the actual facts, and fully comply with FATCA and CRS requirements.

2. Verification of Internal Documentation

Another significant trend is the in-depth review of financial institutions’ internal documentation. Tax authorities are increasingly requesting access to, among other things:

• policies and procedures for client identification under FATCA and CRS,
• internal guidelines governing the classification of accounts and entities,
• records relating to due diligence processes and the updating of client data,
• systems and tools used for collecting, processing, and reporting information.

The purpose of these activities is to assess whether a financial institution not only formally has procedures in place, but also whether those procedures are effectively implemented in practice and are adequate to the scale and nature of its business.

3. Assessment of Compliance with the “Due Diligence” Standard

A core element of regulatory oversight is also the assessment of whether financial institutions have exercised the level of due diligence required under FATCA and CRS regulations. In practice, this means that tax authorities:

• analyse the methods used to identify beneficial owners and reportable accounts,
• assess whether appropriate mechanisms were applied to verify information obtained from clients,
• examine whether risks related to incorrect classification or missing information were properly identified and mitigated.

4. Actions in the Event of Breaches — Administrative Penalties

Where an audit reveals breaches — whether procedural or substantive in nature — Polish tax authorities do not limit their actions to identifying deficiencies. Increasingly, they initiate administrative proceedings aimed at imposing administrative penalties as provided for under applicable law.

Such penalties may be significant and may include financial sanctions of up to PLN 1,000,000.

Authors:

Dominika Bielecka – Partner, Attorney-at-law

Maciej Marzec – Trainee attorney-at-law