This article will answer the following questions:

• What should be included in an individual interpretation issued by the Head of the National Revenue Administration Information Centre?
• Can two different Acts apply to one source of income?
• Can the sale of shares be subject to inheritance and donation tax as well as to Exit Tax at once?

When issuing an individual interpretation, the Head of the National Revenue Administration Information Centre sometimes looks at the topic from such a broad perspective that, instead of focusing on the essence of it, they consider issues irrelevant for the subject of the enquiry originally submitted (or issues that are not crucial to a given case). As a result, they sometimes disregard the doubts that affect the interpretation of regulations, and, consequently, they take a position that is unfavourable to taxpayers. This occurred at the time of issuing an individual interpretation regarding the so-called exit tax. 

The tax authority, in response to the enquiry about the relationship between a donation and the tax on income from unrealised gains – i.e. exit tax – failed to properly address the matter of Poland’s right to tax income derived from the sale (in the form of a donation) of an asset (shares) with inheritance and donation tax. The Supreme Administrative Court ‘s ruling of 16 January 2024 (ref. II FSK 506/21), sided with the taxpayer who was quite astonished by the interpretation.

Can the sale of shares be subject to both inheritance and donation tax as well as exit tax?

What led to the dispute? A Polish tax resident who does not run a business applied to the National Revenue Administration Information Centre for an individual interpretation. He was considering making a donation in the future to his son who is not a Polish tax resident. 

The donation was to involve shares held by the taxpayer in a company seated in Poland. The shares made up the taxpayer's personal assets, they were not listed on the stock exchange and the total market value of the donated shares was to exceed PLN 4,000,000.00. 

The donation was to be made in the territory of Poland, which, at the moment of making the donation, was the applicant’s permanent place of residence.

The taxpayer was in doubt whether the donation should be subject to exit tax, in addition to inheritance and donation tax. In his justification he pointed out that since the donation of shares to his son would be subject to the Inheritance and Donation Tax Act, it would not thereby be subject to the Personal Income Tax Act.

Objective exemptions

Under Art. 2 (1. 3) of the Personal Income Tax Act, the provisions of this Act do not apply to income subject to the provisions on inheritance and donation tax. 

Applying the provisions of two different Acts to a single source of income would lead to double taxation of one taxable event, thus the provisions of the Personal Income Tax Act clearly state: that what is subject to inheritance and donation tax is not, therefore, subject to personal income tax.

Failure to meet the conditions for falling under exit tax

The taxpayer applying for an individual interpretation argued that Art. 30dh (1-3) of the Personal Income Tax Act will not apply, as:

• the shares in question will not remain in the possession of the same entity,
• the tax residence will not change, 
• Poland will not lose its right to levy this tax. 

In light of the above, the taxpayer indicated that the donation of shares did not qualify for being subject to exit tax.

Insufficient justification of the tax authorities

The Head of the National Revenue Administration Information Centre has ruled the taxpayer’s approach incorrect. The interpretation included a brief statement that the object of inheritance and donation taxation fails to coincide with the scope of tax on income derived from unrealised gains. 

Although the justification of the interpretation went on for 9 pages altogether, the argumentation of the Head of the National Revenue Administration Information Centre regarding the very essence – i.e. the interpretation of the application of the Personal Income Tax Act provisions in the instance that the Inheritance and Donation Tax Act is effective – was squeezed into a single sentence. The Head of the National Revenue Administration Information Centre pointed out that ”in reference to the applicant’s standpoint on the inheritance and donation tax, it should be highlighted that the object of taxation fails to coincide with the scope of taxation resulting from tax on income derived from unrealised gains.”

This very sentence has triggered a revocation of the interpretation by the court of first instance. 

The Voivodship Administrative Court has applied for a judicial review and called the National Revenue Administration Information Centre to appraise the applicant’s standpoint regarding the exemption that he claimed and the "double taxation" on which he insisted.

The case went to the Supreme Administrative Court.

The Supreme Administrative Court ruled that the Head of National Revenue Administration Information Centre cannot issue individual interpretations that are too succinct

The obligation to issue an interpretation that includes a sufficient legal reasoning results from Art. 14c § 2 of the Tax Ordinance. However, the National Revenue Administration Information Centre in the interpretation in question barely indicated the relevant provisions, quoted the factual circumstances stated by the taxpayer and explained the rules behind exit tax.

The Supreme Administrative Court ruled that the interpretation lacked a reliable and coherent justification clarifying why the authority had decided that the donation of shares should be subject to the Personal Income Tax Act although the taxpayer had presented a broad argumentation confirming that if a given income was subject to the provisions of the Inheritance and Donation Tax Act, the provisions of the Personal Income Tax Act were irrelevant. 

Finally, the Supreme Administrative Court ruled in its justification that although the tax authority had clarified what it deemed right, yet failed to make it clear to the taxpayer why it had taken such a position and failed to point out any legal basis for its decision.

Tax authorities are obliged to act in accordance with the law and taxpayers should vindicate their rights. Had the taxpayer not appealed against the individual interpretation, he would probably have paid a substantial amount of tax. In this case, the Head of the National Revenue Administration Information Centre violated tax law, which could have had some adverse implications for the taxpayer.

It remained irrelevant for the case that the donation – made to the taxpayer’s son – when reported within 6 months would in fact be exempt from the inheritance and donation tax.