Risk of adverse changes in tax regulations, interpretations or court rulings
Risk of adverse changes in tax regulations, interpretations or court rulings – this risk may result in higher tax burden (excise duty, property tax, CIT), and give rise to tax risk in transactions where such risk was previously non-existent. Differing legal interpretations of the tax regulations lead to uncertainty, and in international trading may affect our credibility and force us to withdraw from valuable projects.
The level of tax risk faced by businesses in Poland is high, and continues to grow. One of the risk factors is non-observance by the legislator of the principle of vacatio legis when enacting amendments to tax laws. This prevents businesses from adjusting to the new requirements in time and may expose them to the risk of additional costs or sanctions. Where a tax risk arises from possible disparate interpretations of a law, we request the Minister of Finance to present a binding interpretation of such law. As a member of respectable organizations of employers and entrepreneurs, we also voice our opinions on proposed bills and are thus able to respond appropriately to the changing legal environment. In light of the numerous changes in interpretation of the tax laws and the introduction of new regulations, we regularly update our internal procedures to ensure compliance with legal requirements and to identify and mitigate any tax risks, particularly their effect on the LOTOS Group's financial statements.
The risk related to changes in legislation, including in tax laws, is particularly important in our exploration and production business as it may hurt our profits and delay project implementation. We monitor the legal environment in Poland, in other EU countries, and in Norway (we operate in countries with stable tax regimes and high standards, hence the risk of sudden changes is limited). We take part in public and industry consultations on drafts of legal acts, we consult legal and tax advisers when assessing the effects of proposed changes and drafting commentaries and remarks regarding legal acts, and we are also engaged in lobbying activities. In 2013, we undertook a range of activities which resulted in the development of more favourable solutions compared with the originally proposed provisions of the law on new hydrocarbon tax, and in the proposal of numerous amendments to the mining and geological law.