Foreign broker may inform the Tax Office of your transactions

The MiFID II directive is fast approaching. The entry of new regulations in the EU is scheduled for January 3, 2018. The terror is primarily in the TFI industry, but it directly affects companies dealing in the sale of investment products and intermediaries, i.e. banks, insurers, but also brokerage houses. There will be a lot of changes, but in this article we will focus on tax issues.

Forex taxes - as it was before

By opening an account in a Polish brokerage house, in accordance with the prevailing regulations, the broker was obliged to issue PIT-8c to its clients. His copy also landed at the Trader's Treasury Office. On the basis of PIT-8c, the trader settled his transactions and paid tax. And here, no changes are planned.

See: Tax season - general information

However, the problem has always been situations in which we used the services of a foreign broker. Traders have been struggling with a lot of doubts, including:

• Are you sure you have to settle the tax by trading with a foreign broker,
• Where to settle accounts - in our country or where our broker comes from,
• Settle out of all transactions, or only from profits paid to your account,
• Which exchange rate should I accept for currency conversion if we have a foreign currency account.

We answer all these questions in the 3-part series of our articles.

Be sure to read: Taxation of income from the Forex market

But in addition to the above doubts, there were also additional problems. First of all, the Tax Office did not know about our transactions, which increased the risk of control. In a situation where we made a profit with a foreign broker and we paid tax on it, usually no one asked any questions. It is assumed that "if he probably paid it rightly". Worse if something was wrong. And it will not be correct if we recorded a profit in the Polish DM (which issues PIT-8c) and a loss at a foreign broker (which we deducted from the profits from the other account).

No more abuse?

Lack of access to information about transactions concluded with brokers from other countries made life difficult and allowed for abuse by taxpayers. The coming into force EU directive may change this. British brokers began asking clients to enter their NIP (or PESEL) number and determine their tax residence. On the basis of these data, the broker will be able to pass information on the concluded transactions further.

Here's an email sent by one of the British brokers:

Tax regulations and new reporting standards established by MiFID II require us to collect and report certain information about financial transactions. MIFID II aims to increase transparency in financial markets and will take effect from 3 January 2018 in order to strengthen consumer protection in the financial services sector.

To enable us to comply with the new regulations, please provide us with the information requested in the attached forms. The broker cannot complete this form on your behalf. We kindly ask you to provide the required information before December 31, 2017.

If the required data is not completed within the prescribed period, we will probably be able to close or suspend our investment account at the end of this year, which may stop our trade. However, brokers do not directly inform in which situations they will pass data to the tax office, and if so, with what frequency they will do so.

Cyprus has also introduced changes in the field of transaction reporting on its own he imposed an obligation on local brokers to report the profits of traders from the group of EU and OECD countries. However, several exclusions were used in this case.

However, it should be remembered that these regulations do not make it easier for traders to settle themselves. Foreign broker will not have the obligation to prepare for us a transaction statement based on the PIT-8c model. All transactions will have to be settled by us ourselves. And this seems highly problematic, especially when we have made several hundred transactions on an account held in a foreign currency.