Are you trading with a foreign broker and do not pay tax? IT'S A MISTAKE

Do you use the services of a foreign broker and do not settle your transactions in PIT-38? It's a big mistake that can cost you, and you can pay the price even in ... 5 years. And that's even if you've made a loss. About how the tax office knows about your transactions and why you always have to settle tax, regardless of the financial result, you will learn from this article.

Tax Offices call traders for explanations

It's not a threat, it's a fact. National tax offices began to call on traders to provide explanations regarding earned income (not profits!) from foreigners Forex/CFD brokers up to 5 years back (currently up to 2018). And of course they have the right to do so, and every investor is obliged to settle such transactions, regardless of the location of the broker's country with which he invested.

Have you accounted for your transactions diligently each year? In that case, it will probably end with only a short explanation, in which the history of transactions from the platform will be very helpful. Otherwise, it can be worse, especially if you made a substantial profit and the tax was not paid.

What are the consequences for you?

Simply put, penal fiscal liability. Pursuant to the Act of September 10, 1999, the Fiscal Penal Code, depending on the seriousness of the offence, you may be punished for a misdemeanor or a fiscal offence.

Tax evasion and other tax frauds are treated by the legislator as the most serious fiscal offences. And we can also breach the regulations by not submitting a tax return on time, filling it in with errors, concealing the source and amount of income, knowingly presenting untrue information.

Art. 54 PCC:

"A taxpayer who, while evading tax, does not disclose to the competent authority the subject or tax base or does not submit a declaration, thereby exposing the tax to depletion, shall be liable to a fine of up to 720 daily rates or to imprisonment, or to both these penalties jointly."

The amount of the fine depends on the amount of the minimum wage (PLN 2023 in the first half of 3490). The daily rate cannot be lower than 1/30 of the minimum wage or exceed 400 times this part. In practice, this means that the court may impose a fine in the amount of even more than PLN 30 million.

Whether an act committed by us will be classified as a misdemeanor or a tax offense depends directly on the amount of tax arrears. This threshold has been set quite low - five times the amount of the minimum remuneration for work (currently PLN 17). Above this amount, we are dealing with a tax crime.

What can we do to avoid punishment with a high probability? A procedure called "active regret".

Art. 16 PCC:

"The perpetrator who, after committing the prohibited act, notified the authority appointed to prosecute about it, disclosing the relevant circumstances of the act, in particular persons cooperating in its commission, shall not be punished for a fiscal offense or a fiscal petty offence."

However, a letter in this matter should be submitted to the Tax Office as soon as possible, because:

"Active repentance will not be effective if it is filed at a time when the law enforcement agency had already clearly documented information about committing a crime or fiscal offence, and also after the law enforcement agency commenced official activities (...)".

After that, of course "I'm reporting on myself"is an additional condition payment of all debts with interest.

It is worth adding that by virtue of the Act, everyone in Poland is subject to the so-called unlimited tax liability, regardless of whether they made a profit or suffered a loss. This applies to Polish tax residents, i.e. persons whose center of life is Poland or who stay in Poland for more than 183 days a year.

How does the tax office know about your income?

We have repeatedly encountered very erroneous opinions of traders such as:

“I trade with a broker on the other side of the world, so I don't pay tax. How would the Polish office find out about it?”

We have the answer. He is responsible for everything Common Reporting Standard (CRS), i.e. an international information standard that obliges financial institutions to automatically exchange information on financial accounts between tax authorities. This is also nothing new as it was introduced by OECD already in 2014, and its aim is to fight tax evasion. The legal act regulating this issue in Poland and authorizing the exchange of such information is Act of March 9, 2017 on the exchange of tax information with other countries (you can read its provisions here).

How does it work in practice? When setting up an investment account, brokers ask the trader about the so-called TIN (Tax Identification Number), i.e. the tax identification number, which is known by our abbreviation NIP. It may have been for several years as well PESEL number. If you did not have to provide this number during registration (e.g. if you have an account that is more than 6 years old), then it is very likely that your broker has asked you to update this data in the last years or months.

Sample content of the email we received from one of the foreign brokers, registered in the British Virgin Islands, just a few days ago:

We hereby kindly request you to fill out your personal TIN number in the Client Cabinet due to the request of the BVI International Tax Authority in regards with the implementation of mandatory TIN information for Clients.

What happens next? The broker, as a financial institution, is obliged to provide data on customer revenues to its tax office. This office is then required to exchange this information with the tax office of the customer's country. And at this point, the office checks whether the relevant PIT has been submitted and the tax has been settled.

What countries does the CRS cover?

The list is getting longer every year, but if you hope that your broker's country is not on it, unfortunately - the chances of that are very slim. In addition to developed global economies, countries such as Cyprus, Seychelles, Cayman Islands, British Virgin Islands, Bermuda, Anguilla or vanuatu.

A complete list can be found here (select the year of joining - from 2017 to 2020).

The tax office knows about revenues, not about profits

How many countries, so many tax regulations, and as you can see, the list of countries belonging to the CRS is extremely large. Even in Poland, there have been different interpretations of the same tax laws over the years, so it should come as no surprise that the offices only provide each other with the most important information - information on the amount of income.

This means that the offices receive only information about the summed up profitable transactions from our account, and not the real balance. In the case of a call received, we may see astronomical amounts that have nothing to do with our profit (or loss). However, don't worry - presenting your account statement and explaining the whole situation should help and dispel any doubts. What if we didn't submit PIT-38 at all...

How to settle tax from a foreign broker?

Polish law requires that each completed transaction be converted at a given NBP exchange rate. With hundreds of transactions, this is quite a feat. We write more about the entire settlement process in this series of articles.

However, how to approach the subject so that the settlement does not become our nightmare? For this purpose, we have created a program that supports traders in the entire calculation process - Forex Club Tax 8. Thanks to this application, you can settle hundreds or even thousands of transactions literally in a few minutes without unnecessary complications. All brokers that offer platforms are supported MetaTrader 4/5, cTrader, JForex Dukascopy and Plus500.

Just download the application, upload your transaction history in the appropriate format (according to the attached instructions) and submit your tax return. Of course, keeping all investment account statements for the next 5 years. Yes, just in case.

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