Courts on the side of taxpayers: the tax authority cannot require the taxpayer to independently make a legal classification of the facts described by him

From this article, you will learn:

• May the taxpayers applying for an individual interpretation face the possibility of leaving the application without consideration?
• What formal requirements must be met by an application for a tax interpretation?

Why is obtaining an individual interpretation of tax law not always easy? There may be many reasons. Sometimes difficulties are caused by incorrect description of the actual situation... and sometimes the Director of the National Tax Information himself does not make it easier. It happens that the Director of the National Tax Information, in order to avoid issuing an individual interpretation, asks many questions in the request to complete the application, which leads to the authority issuing a decision that the taxpayer's application will be left without consideration.

In a recently published judgment, the Provincial Administrative Court resolved a taxpayer's complaint against this type of the Director of the National Tax Information’s practice. Fortunately, the court sided with the taxpayer (judgment of the Provincial Administrative Court in Wrocław of 12 September 2023, reference number I SA/Wr 119/23).

How does the Director of the National Tax Information avoid issuing individual interpretations?

The beginning of a dispute between the taxpayer and the tax authority

A taxpayer running a business in the field of producing computer programs applied to the Director of the National Tax Information for an individual interpretation regarding personal income tax in the scope of the so-called IP Box relief. In order to benefit from the above-mentioned relief, it is crucial to determine whether the taxpayer conducts activities involving scientific research or development work.

The interpretative authority found that the application for an interpretation submitted by the taxpayer did not meet the formal requirements arising from the Tax Ordinance and called on the applicant to complete the gaps in the application – otherwise it would not be considered.

First of all, the taxpayer had to clearly indicate whether his activity included scientific research or development work. As a result, the authority somehow forced the taxpayer to answer his own question asked in the interpretation. 

The taxpayer tried to answer the Director of the National Tax Information’s questions, but was unable to clearly determine whether his activity was research and development activity, as he sought this answer by submitting an application for an individual interpretation. If the entrepreneur knew whether his activity could be classified as research and development activity, he would not need to request an interpretation. As a result, the authority left the application for an interpretation without consideration. 

The Director of the National Tax Information argued that the application for a tax interpretation was not considered because the taxpayer did not complete all the deficiencies indicated in the request; additionally, the authority itself described the supplementation of the facts as incomplete, unclear and ambiguous. According to the authority, it did not contain many detailed circumstances of the case. In particular, what prevailed was that the applicant "failed" to provide a direct answer to the question whether its activities should be considered research and development activities.

The dispute with the tax office was transferred to the Provincial Administrative Court in Wrocław, and its essence was to determine whether the Director of the National Tax Information may require the applicant to independently make a legal classification of the works described by him in the description of the facts on the basis of legal provisions.

The Provincial Administrative Court did not support the tax office's actions and found that the taxpayer had the right to obtain an individual interpretation

The court overturned the contested decision of the tax authority and ruled that an application containing the minimum necessary information (a comprehensive description of the state of the case) cannot be left without consideration.

The Provincial Administrative Court found that, in the scope questioned by the Director of the National Tax Information, the taxpayer presented the facts in a comprehensive manner – i.e. containing the necessary scope of information allowing the authority to assess the applicant's position.

The court agreed with the taxpayer and stated that the tax authority cannot refuse to interpret the provisions in question and expect that the taxpayer will independently classify its activities. A taxpayer who applies for an individual interpretation cannot be required to decide on his own whether the activities he undertakes constitute research and development activities in the case in question. Such a request is, in fact, an expectation that the applicant will assist the authority in interpreting the provisions of tax law.

What are the observations from the judgment in question?

An application for an individual interpretation that contains the minimum necessary information (i.e. a comprehensive description of the state of the case) cannot be left without consideration by the authority. 

The authority cannot require the taxpayer to assist it in interpreting legal provisions, and the procedure for correcting formal deficiencies cannot be used by the Director of the National Tax Information in such a way.

The duty of the interpreting authority is to interpret the provisions of tax law and this burden cannot under any circumstances be transferred to the taxpayer. 

The court emphasized that such activities of the Director of the National Tax Information may make – in combination with the large number of demands specified in the request and the short deadline for their clarification (usually a week) – the meaning and purpose of the questions asked and the intentions of the authority become unclear in the eyes of the taxpayer.

The judgment certainly gives hope to taxpayers who intend to apply for an individual interpretation. Refusal to issue an interpretation in similar and other factual situations is becoming a common practice of the tax office. However, as the described case shows, it is worth asserting your rights.