The "disappearing" draft amendment to the Tax Ordinance – will we have endless tax investigations, more expensive interpretations and broader liability for companies' tax debts?

From this article, you will learn:

• How an amendment to the Tax Ordinance can change the powers of tax authorities?
• Why new regulations may make it more difficult to obtain a tax interpretation?
• What the introduction of cascading liability for management board members would involve?

Does the Polish government intend to introduce changes to the Tax Ordinance?

The Polish Ministry of Finance recently published a preliminary draft of the act amending the Tax Ordinance Act and certain other acts together with its justification. This project, due to the changes that were unfavourable from the entrepreneurs' point of view, aroused much controversy from the beginning. Shortly after its announcement, the spokesman of the Polish government – Piotr Müller – assured during a press conference that there would be no change in the Tax Ordinance. However, these assurances turned out to be untrue: pre-consultations on the draft act have been finalised.

As a result, no one knows what will happen next, and entrepreneurs are afraid that the project will be processed after the elections scheduled for autumn 2023. These concerns are justified: the lack of cancellation of the consultations means that there is a possibility of further work on amending the regulations in the new parliamentary term.

Tax interpretation – still available, but much more expensive and with an expiration date

The amendment includes many changes that are unfavourable for taxpayers. Among the things that cause concern are: planned large increase in the fee for issuing an individual tax law interpretation. In the case of large companies, the new provisions of the Tax Ordinance increase stamp duties by as much as 70 times. The project also assumes limiting the validity of the issued tax interpretation to only 5 years. According to the proposed changes, tax interpretations issued before 1 January 2019 will cease to be valid from 1 January 2024. This means a significant reduction in the protective power of the interpretation.

A capital company itself will not be responsible for its tax arrears

It is also planned to introduce cascading liability for tax arrears of members of the management board of a capital company that is a general partner of a limited partnership or a limited joint-stock partnership for the arrears of this limited partnership or limited joint-stock partnership. Another change in this respect would be to extend the time for blocking bank accounts by the tax office – from the current 72 to 96 hours.

Endless audits and tax proceedings

Among the planned changes, the most controversial is the proposed provision according to which the initiation of a customs and tax audit would interrupt the limitation period for a tax liability. As can be read in the provisions of the proposed act: "the limitation period for tax liabilities does not begin, and any commenced period is suspended on the date of initiation of the customs and fiscal inspection."

In practice, this provision means that the tax office will be able to conduct customs and tax inspections for as long as it wants, because its initiation will automatically suspend the limitation period.

Currently, in accordance with Art. 70 § 6 (1) of the Tax Ordinance, the premise for suspending the tax limitation period is the initiation of proceedings in a case of a fiscal offense or fiscal offense of which the taxpayer has been notified. The actions of the tax authorities referred to here are therefore possible – but only if there is a suspicion of committing a crime or the offense is related to the failure to fulfill a tax obligation.

The planned change will result in the initiation of a customs and tax inspection being enough to suspend the limitation period. Therefore, an audit could be initiated just before the end of the limitation period, which would mean that the tax office could initiate it only to suspend the limitation period for a tax liability.
 

How will the new regulations of the Tax Ordinance affect running a business in Poland?

According to representatives of the Polish Ministry of Finance, the introduction of new grounds for suspending the limitation period for tax liabilities should not cause any concern, and honest taxpayers have nothing to fear. However, it should be emphasised that the changes are unfavourable from the point of view of all entrepreneurs, not only those with arrears to the tax office. The introduction by the new regulations of the Tax Ordinance of the possibility of suspending the limitation period in connection with the initiation of a customs and tax audit means that the taxpayer can never be sure when the limitation period for hypothetical arrears will expire.

However, it cannot be assumed that tax officials know perfectly well who is honest and who is not even before initiating the inspection. From this perspective, the comment by representatives of the Ministry of Finance is completely irrelevant and raises even greater concerns about the government's true intentions.

The planned changes practically destroy the principle of citizens' trust in the state and give offices the opportunity to abuse the institution of customs and tax audits. If the tax authorities apply the new regulations in an instrumental manner (and start initiating tax inspections and proceedings mainly to suspend the limitation period), not only will the number of inspections increase, but their duration will also significantly extend.

In practice, this means that a taxpayer running a business in Poland will have to take into account that the limitation period for his liability may be suspended at any time. The planned changes actually mean the elimination of the institution of limitation by tax law.
 

The obligation to solve new problems and disputes between taxpayers and the tax office will fall on the courts

Fortunately, even if the planned regulations are introduced, taxpayers will not be completely deprived of protection. An experienced tax advisor and tools such as a complaint about the length of the proceedings, a complaint about the inaction of the authority or a complaint about the instrumental initiation of the proceedings can help them in the fight against tax abuses.

Importantly, so far the courts have taken a position favourable to taxpayers and claimed that the limitation period cannot be suspended in a situation where the initiation of criminal and fiscal proceedings was of an instrumental nature. At the same time, the courts admitted that it was the responsibility of the tax authority to prove that the suspension of the limitation period was not artificial, and that the motive for initiating fiscal penal proceedings was not merely the desire to extend the period for issuing a decision questioning the correctness of the taxpayer's settlements. This conclusion comes from the resolution of the Supreme Administrative Court composed of seven judges of 24 May 2021, ref. no. act I FPS 1/21. 

Taxpayers can therefore hope that in a situation where additional grounds for suspending the tax limitation period are introduced, administrative courts will issue judgments that are favourable from the point of view of entrepreneurs, and the institution of limitation will not be completely eliminated.

However, everything depends on the further changes in the functioning of the justice system – and especially on whether the administrative court will remain a court completely independent from government administration bodies.