GPW - Giełda Papierów Wartościowych w Warszawie S.A.

Legal Proceedings Report • Apr 1, 2020

Current Report No 6/2020Date: 1 April 2020Legal basis: Article17(1) MAR - inside informationTopic: Setting up provisions ofPLN 15.5 million in respect of a potential VAT payable in the subsidiaryIRGiTContent:Further to Current Report No. 5/2020 of 1 April2020, the Warsaw Stock Exchange ("GPW", "Company") announces thecompletion of a tax review in the GPW Group, resulting in a decision toset up provisions of PLN 15.5 million as at 31 December 2019 in respectof a potential VAT payable in the subsidiary Izba Rozliczeniowa GiełdTowarowych S.A. ("IRGiT", "subsidiary"). GPW indirectly holds 100% ofIRGiT.According to the tax risk management policy of the GPW Group,as of 2017, tax accounts of all Group members, including IRGiT, havebeen reviewed on an annual basis by an independent tax advisor. Inaddition, following one of such reviews, in order to verify the tax riskidentified in the review, the IRGiT Management Board requestedindependent advisors to provide opinions concerning the date oforigination of a VAT tax payable in respect of deliveries of electricityand gas and the date of origination of the right to an input VATdeduction and to calculate the potential impact of a potential change toIRGiT's current approach on IRGiT's tax payable.Onthe basis of presented opinions, IRGiT's approach was found to becorrect in the light of Union law but potentially controversial undernational tax regulations. Based on the literal wording of national taxregulations, it could be found that IRGiT occasionally recognises thetax payable in respect of electricity and gas sale invoices too earlyand that in some financial periods it recognises the right to an inputVAT deduction too early. The application of the literal wording of suchregulations would result in a correction of VAT accounts since December2014 (for all periods not subject to the statute of limitation), givingrise to a VAT payable and interest to be paid by IRGiT.Furthermore,in their opinions, the advisors point out that the matter is notunequivocal and may give rise to different interpretations. According tothe advisors, there are arguments to conclude among others that:•according to the VAT Directive, the methodology of input VAT deductionscurrently applied by IRGiT is correct and all conditions of input VATdeductions are met;• potential payable in respect of prioruncorrected periods, subject to the statute of limitation, could beconsidered to be in breach of the principle of value added taxneutrality.In view of the uncertainty concerning the amount of thepotential VAT payable, guided by the principle of prudence, inaccordance with IAS 37 Provisions, Contingent Liabilities and ContingentAssets, the IRGiT Management Board has decided to set up provisions ofPLN 15.5 million as at 31 December 2019. The provisions were charged tofinancial expenses (which include interest on tax payable).Theprovision amount is the best possible estimate of the IRGiT ManagementBoard concerning the potential payable as at 31 December 2019 due in thecase of a potential change of the methodology of recognising the date oforigination of tax payable. IRGiT is planning to confirm the adequacy ofits current approach.Moreover, there is a relatively low riskdue to the expiration of the five-year statute of limitation. In thecase of a potential correction of tax accounts for the period notsubject to the statute of limitation (December 2014), IRGiT would berequired to report once again the output VAT originally declared in thetax accounts submitted for November 2014 and paid when due, which is nolonger subject to a correction due to the expiration of the statute oflimitation. According to the tax opinion received by IRGiT, the riskthat the competent authorities may decide that IRGiT should report andpay the output VAT twice when making such potential correction isrelatively low because the interpretation of national law, not subjectto harmonisation, would result in a breach of a higher-rank norm arisingfrom Union law. Acting in the interest of GPW shareholders, pursuant toIAS 37.92, the Company is not disclosing the estimated amount of thepotential payable as the Company is in the process of confirming theadequacy of its approach.As at the date of publication of thiscurrent report, IRGiT is awaiting the scheduling of a hearing before theRegional Administrative Court in the case of an appeal against anindividual interpretation issued by tax authorities concerning the dateof origination of the right to deduct VAT.The Company willannounce the next steps in the process in separate current reports.Legalbasis: Article 17(1) of Regulation (EU) No 596/2014 of the EuropeanParliament and of the Council on market abuse (market abuse regulation)and repealing Directive 2003/6/EC of the European Parliament and of theCouncil and Commission Directives 2003/124/EC, 2003/125/EC and2004/72/EC (EU Official Journal L 173) ("MAR").