Fair taxes or budget revenues at any price?: Polish tax law in the post-BEPS era 9783205215295, 320521529X

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The study of the Polish tax system and Polish tax policy based on the contributions collected in this volume enriches knowledge of developments in one of the largest and most rapidly changing states in Europe.

L E G A L

A R E A

S T U D I E S

B A N D

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Martin Löhnig, Wojciech Morawski and Anna Moszyńska (eds.)

FAIR TAXES OR BUDGET REVENUES AT ANY PRICE? Polish tax law in the post-BEPS era

Prof. Dr. Martin Löhnig is Full Professor for Civil Law, European Legal History and Canon Law at the University of Regensburg. Prof. NCU dr hab. Wojciech Morawski is the Head of the Department of Public Finance Law and the Chairman of the Council of Scientific Discipline Law on the Faculty of Law and Administration of Nicolaus Copernicus University in Toruń (Poland), as well as an attorney at law. Prof. NCU dr hab. Anna Moszyńska is the Head of the Department of Commercial Law, Maritime Law and Civil Procedure on the Faculty of Law and Administration of Nicolaus Copernicus University in Toruń (Poland), as well as an attorney at law.

978-3-205-21527-1_loehnig.indd Alle Seiten

Martin Löhnig, Wojciech Morawski, Anna Moszyńska (eds.)

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This book is the result of cooperation of academics—mainly from the Nicolaus Copernicus University in Toruń—and practitioners from major tax advisory firms as well as in-house tax experts.

FAIR TAXES OR BUDGET REVENUES AT ANY PRICE?

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Legal Area Studies Edited by Martin Löhnig

Volume 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41

Martin Löhnig / Wojciech Morawski / Anna Moszyn´ska (eds.)

Fair taxes or budget revenues at any price? Polish tax law in the post-BEPS era

BÖHLAU VERLAG WIEN KÖLN

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All research chapters in this book have undergone rigorous double blind peer review, based on initial editor’s screening. Bibliographic information published by the Deutsche Nationalbibliothek: The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data available online: https://dnb.de. © 2022 by Böhlau, Zeltgasse 1, 1080 Vienna, Austria, an imprint of the Brill-Group (Koninklijke Brill NV, Leiden, The Netherlands; Brill USA Inc., Boston MA, USA; Brill Asia Pte Ltd, Singapore; Brill Deutschland GmbH, Paderborn, Germany; Brill Österreich GmbH, Vienna, Austria) Koninklijke Brill NV incorporates the imprints Brill, Brill Nijhoff, Brill Hotei, Brill Schöningh, Brill Fink, Brill mentis, Vandenhoeck & Ruprecht, Böhlau, V&R unipress.

All rights reserved. No part of this work may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage and retrieval system, without prior written permission from the publisher. Cover image: https://pixabay.com Cover design: Michael Haderer, Vienna Typesetting: le-tex publishing services, Leipzig

Printed and bound: Hubert & Co. BuchPartner, Göttingen Printed in the EU Vandenhoeck & Ruprecht Verlage | www.vandenhoeck-ruprecht-verlage.com ISBN 978–3–205–21529–5

Contents

Martin Löhnig Foreword ..............................................................................................

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Bogumił Brzeziński Foreword ..............................................................................................

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Jacek Wantoch-Rekowski, Martyna Wilmanowicz-Słupczewska The tax system in Poland ........................................................................ 11 Maciej Serowaniec, Agnieszka Franczak Constitutional and human rights standards v. effectiveness of the tax system in the light of the jurisprudence of the Constitutional Tribunal of the Republic of Poland and the European Court of Human Rights ....................................................................................... 31 Wojciech Morawski The reduction of the importance of advance tax rulings and the fight against tax optimization .................................................................. 47 Mikołaj Kondej, Sławomir Krempa Polish General Anti-Avoidance Rule. Proper ATAD implementation or an instrument providing the Polish tax authorities with unlimited power?............................................................ 65 Ewa Prejs New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – current legal developments ................................................ 87 Ewa Prejs The new Exit Tax regime in Poland – going beyond the minimum standard..... 115 Krzysztof Lasiński-Sulecki Transfer pricing ..................................................................................... 135

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Michał Goj, Wojciech Kaczmara Polish CFC rules – transition from local solution to harmonized regulations .. 153 Izabela Rymanowska, Paula Przybielska Fiscal administration is watching you: Poland-wide perspective on Mandatory Disclosure Rules ................................................................... 169 Adam Kałążny, Wojciech Morawski Tax on revenues from buildings ............................................................... 187 Agnieszka Franczak The impact of the MLI Convention on bilateral tax treaties – a Polish perspective .................................................................. 203 Krzysztof Lasiński-Sulecki The search for effective instruments to combat fraud in the VAT sphere ........ 227 Krzysztof Lasiński-Sulecki, Teresa Sławińska-Choryło Increasing the efficiency of excise taxation ................................................ 239 Marek Słupczewski Retail sales tax – an attempt at extraordinary taxation of trade in Poland against the European background .............................................. 253 Anna Brzezińska-Rawa Environmental and health taxes – not just a source of revenue..................... 269 Joanna Zawiejska-Rataj Tax administration in Poland: changes to organisation, competencies and procedures – dilemma between effectiveness and audited entities rights ............................................................................. 283 Jacek Wantoch-Rekowski, Małgorzata Cilak Increasing the efficiency of the tax system from the budgetary perspective .... 305 Authors ................................................................................................ 337

Foreword

Poland has been in a phase of change since 2015. The constitutional system of the Third Republic is being restructured. The Judiciary, media, schools and universities are the main focus of attention. In contrast, the structures and changes in Polish tax law receive less attention. This is surprising, because tax law is not only a very complex matter, but also a very powerful political instrument. The Polish government is aware of this. The aim of its measures seems to be to increase tax revenues to finance a major social redistribution project in favour of low-income citizens and pensioners – sections of the population in which the share of voters of the ruling PiS party is particularly high. Some changes to the Polish tax system have already taken place. Some of these were based on the OECD’s BEPS (Base Erosion and Profit Shifting) project, whose recommendations, useful for achieving its goals, the Polish government was happy to implement – admittedly also to combat illegitimate tax avoidance strategies, as was the case in other European jurisdictions. The same applies to ATAD 1 (AntiTax-Avoidance-Directive), which only provides a minimum level of protection and allows member states to impose stricter regulations, of which Poland makes intensive use. Further changes are underway. The tax system is to be fundamentally restructured to relieve the tax burden on less wealthy citizens and to finance an ambitious birth promotion policy. The instruments to be considered here are the abolition of the inclusion of health care expenses in income tax and a significant increase in tax rates for higher incomes. The goal of a significant increase in the tax exemption limit or a far-reaching tax exemption for pensioners is thus to be achieved at the expense of higher earners and the self-employed. A study of the Polish tax system and Polish tax policy based on the contributions collected in this volume enriches knowledge of developments in one of the most important states in Europe. Prof. Dr. Martin Löhnig

Foreword

Modern tax systems are characterised by a high degree of complexity. This state of affairs reflects the complexity of the modern world, the organizational structures of the world economy and the level of globalization of that economy, which – contrary to the predictions of some political scientists – is doing quite well, or at most its manifestations are different than before. The design of national tax systems, especially in Europe, is influenced both by real social and economic phenomena and by attempts to coordinate tax policy and the way its tools are applied in an international context. The socio-economic phenomena in question here are not only tax avoidance in its various forms – with the transfer of taxable income to jurisdictions with less severe tax regimes or even to more or less disguised tax havens at the forefront. These are also qualitatively new economic phenomena that require a qualitatively new ”response” from the tax system – computerisation and digitalisation of the economy, robotisation of industry and services or mass use of virtual currencies. There are more such phenomena; it is enough to indicate the more and more sophisticatedly constructed financial instruments or the emergence of special needs in the area of environmental protection, some of which can be handled by tax methods. Attempts to coordinate the shape of structures and rules of functioning of tax systems are made both at the EU and broader OECD levels. The results of actions taken so far by these two organisations are assessed as ambivalent. They were primarily aimed at limiting tax avoidance, especially in the context of international enterprises. They have also sought a general anti-avoidance instrument (GAAR) and a more coherent system of allocation of taxing powers in international double taxation treaties. The assessment of developments in this regard is generally positive. What has not been achieved so far is a more proportionate distribution of the income tax base between the individual countries in which multinationals operate. This requires a political decision by the major players in the global economy. Even within a relatively coherent organisation, such as the European Union, the project of introducing a common consolidated corporate tax base (CCCTB) has not found universal acceptance and, as a result, has not come into force. The above mentioned changes have also other aspects, related to the legal position of the taxpayer and his relations with the tax administration. The contemporary system changes either make this situation worse or are at best neutral for the taxpayer. They increase the tax risk and raise the costs of economic activity. The field of joint and several liability of a taxpayer for the actions of his contractors is being created and extended. The level of penalisation of behaviours that are

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Foreword

inconsistent with the determinants of the tax law increases in a manner that is contrary to the principle of proportionality, and the scope and detail of information that taxpayers are obliged to provide to the tax administration increases. This information is collected en masse, but the degree to which it is used is low and, in addition, it is not sufficiently protected. The fact that the complication of the tax system is accompanied by the complication of the tax law as such can also be disturbing. There is a degradation of the system of its sources, the destruction of the textual layer as a result of repeated and far-reaching changes in the tax law provisions and a relatively low discipline of the process of their interpretation. This leads to an increase in the level of uncertainty of the content of existing legal norms, which in Poland results in a strikingly low level of private investment. The aim of the book we present is to provide a foreign reader with an overview of the Polish tax system. Particular attention is given to the analysis and evaluation of changes in Polish tax law caused both by changes in the economy (technologies, organizational structures and forms of business) and by undertakings of international organizations working to improve the efficiency of both national tax systems and the global tax system as a whole. Political changes in Poland (electoral victory of the right-wing Law and Justice party) coincided with changes on the global tax scene, which were associated with the BEPS (Base Erosion and Profit Shifting) project implemented by the OECD. The struggle to rebuild countries’ tax revenues began. The ambitious social policy in Poland, which involved substantial transfers of funds to the less well-off, required an increase in budget revenues. Thus, the Polish government quickly became an ardent supporter of BEPS, implementing many solutions it envisaged with almost exaggerated zeal. The radicalism of the tax policy changes raised many doubts among practitioners, who accused the authorities of excessive fiscalism. On the other hand, the legal rules previously in force did indeed poorly protect the fiscal interests of the state (e.g. lack of a general anti-avoidance clause, so even aggressive tax avoidance could not be counteracted by tax authorities). The changes were not limited only to income taxes. The bane of the Polish reality was the numerous carousel fraud in the field of VAT, though not only Polish but also many other Member States of the European Union faced the same problem. This book is a collective work of many authors belonging to the Toruń tax law school or associated with it in various ways. Thus, it is the result of cooperation of academics – mainly from the Nicolaus Copernicus University in Toruń – and practitioners from major tax advisory firms (EY, PwC, Deloitte) as well as in-house tax experts. Prof. dr hab. Bogumił Brzeziński dr h.c.

Jacek Wantoch-Rekowski, Martyna Wilmanowicz-Słupczewska

The tax system in Poland

1.

Sources of Tax Law

In order to fully discuss the implementation of BEPS, ATADs and other instruments to increase the efficiency of the Polish tax system, it is necessary to indicate the specificity of Polish tax law. The Constitution of the Republic of Poland of April 2, 19971 provides that the sources of universally binding law of the Republic of Poland shall be: the Constitution, legal acts, ratified international agreements, and regulations.2 Furthermore, the sources of universally binding law of the Republic of Poland shall be acts of local law in the area of activity of the bodies which established them.3 The sources of law in a formal approach should currently be understood as legal acts originating from legislative bodies, issued within the limits of their competence and in the form provided by law.4 The Basic Law regulates tax issues directly in two provisions: 1) everyone is obliged to bear the burdens of public benefits, including taxes specified in an act,5 2) the imposition of taxes, as well as other public levies, the determination of subjects, objects, and rates of taxation, as well as the principles for granting tax reliefs and remissions, along with categories of entities exempt from taxation, shall be by way of an act.6 What is more, chapters of local government shall have the right to determine the level of local taxes and charges in the scope specified in the act.7

1 Konstytucja Rzeczypospolitej Polskiej z dnia 2 kwietnia 1997 r. [The Constitution of the Republic of Poland of April 2, 1997] J. of L. of 1997, No. 78, item 483, as amended (hereinafter: ‘Constitution’). 2 Article 87(1) of the Constitution. 3 Article 87(2) of the Constitution. 4 D. Antonów, in: Prawo podatkowe z kazusami i pytaniami [Tax law with case studies and questions] (ed.): P. Borszowski, Wolters Kluwer, Warsaw 2018, p. 35. 5 Article 84 of the Constitution. 6 Article 217 of the Constitution; See more broadly: B. Brzeziński, Prawo podatkowe. Zagadnienia teorii i praktyki [Tax Law. Issues of theory and practice], TNOiK, Toruń 2017, pp. 338–340. 7 Article 168 of the Constitution.

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Acts should be considered the basic source of tax law, and owing to the regulated issues (subject matter) they are referred to as ‘tax acts’.8 Among them one may distinguish the acts on general tax law (e.g. the Act of August 29, 1997 – the Tax Ordinance Act,9 the Act of November 16, 2016 on the National Revenue Administration)10 and acts on detailed tax law (e.g. the Act of July 26, 1991 on Personal Income Tax,11 the Act of February 15, 1992 on Corporate Income Tax,12 the Act of March 11, 2004 on Tax on Goods and Services,13 the Act of December 6, 2008 on Excise Duty,14 and the Act of January 12, 1991 on Local Taxes and Fees).15 International agreements are also sources of generally applicable law in Poland, which after publication in the Journal of Laws are part of the national legal order, and those international agreements which have been ratified upon prior consent expressed in the act take precedence over the act if the act cannot be reconciled with the international agreement. Among international agreements, the most important are those on the basis of which Poland has become a member of international organizations, and those on preventing double taxation.16 Since May 1, 2004, European Union law has become part of the Polish legal order – both primary and secondary law (regulations, directives, decisions, recommendations, and opinions). The source of tax law also includes regulations which shall be issued by the bodies specified in the Constitution on the basis of detailed authorization contained in an act, and for the purpose of the implementation of the act.17 The authorization shall specify the body competent to issue a regulation and the scope of matters to

8 On the definition of tax acts, genesis, creation etc. see: C. Kosikowski, Ustawa podatkowa [Tax Act], LexisNexis, Warsaw 2006. 9 Ustawa z dnia 29 sierpnia 1997 r. – Ordynacja podatkowa [The Act of August 29, 1997 – the Tax Ordinance Act, hereinafter: ‘Tax Ordinance Act’] J. of L. of 2021, item 1540 as amended. 10 Ustawa z dnia 16 listopada 2016 r. o Krajowej Administracji Skarbowej [the Act of November 16, 2016 on the National Revenue Administration], J. of L. of 2021, item 422 as amended. 11 Ustawa z dnia 26 lipca 1991 r. o podatku dochodowym od osób fizycznych [the Act of July 26, 1991 on Personal Income Tax, hereinafter: PIT Act] J. of L. of 2021, item 1128 as amended. 12 Ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych [the Act of February 15, 1992 on Corporate Income Tax, hereinafter: CIT Act] J. of L. of 2020, item 1406 as amended. 13 Ustawa z dnia 11 marca 2004 r. o podatku od towarów i usług [the Act of March 11, 2004 on Tax on Goods and Services, hereinafter: VAT Act], J. of L. of 2021, item 685 as amended. 14 Ustawa z dnia 6 grudnia 2008 r. o podatku akcyzowym [the Act of December 6, 2008 on Excise Duty], J. of L. of 2020, item 722 as amended. 15 Ustawa z dnia 12 stycznia 1991 r. o podatkach i opłatach lokalnych [the Act of January 12, 1991 on Local Taxes and Fees], J. of L. of 2019, item 1170. 16 D. Antonów, in: Prawo podatkowe z kazusami i pytaniami [Tax law with case studies and questions], P. Borszowski (ed.), Wolters Kluwer, Warsaw 2018, p. 41. 17 Article 92(1) of the Constitution of the Republic of Poland.

The tax system in Poland

be regulated as well as guidelines concerning the provisions of such act. Executive regulations concerning tax acts are issued primarily by the Minister of Finance. Sources of tax law also include some acts of the local law that regulate tax issues on the basis of and to the extent specified in acts (e.g. resolutions of municipal councils on property tax rates).

2.

Corporate Income Tax

2.1

Introduction

The indisputable advantages of income taxes include significant flexibility, as they take into account, to a high degree, individual payment capacity.18 Nowadays, income taxation generally takes the form of separate income taxation for natural persons and for legal persons,19 which is also the case in the Polish tax system. Structures appropriate for taxing the income of natural persons cannot apply to legal persons, since the personal situation of the taxpayer remains irrelevant with respect to corporate income taxpayers.20 2.2

Taxpayers

The Corporate Income Tax Act regulates income taxation of the income of legal persons and capital companies in organization. Thus, entities subject to income tax are joint-stock companies, limited liability companies, state-owned enterprises, cooperatives, and tax groups of companies. However, limited partnerships are transparent for tax purposes, their tax purposes and partners are taxed individually on their profit share. Moreover, contrary to the name of this tax, the provisions of the Act also apply to organizational units without legal personality, with the exception of inherited enterprises and companies without legal personality, apart from the exceptions listed in Art. 1(1) and (3) of CIT Act, and limited joint-stock partnerships having their registered office or management board in the territory of the Republic of Poland. The provisions of the Corporate Income Tax Act also apply to companies without legal personality having their registered office or management board in another

18 B. Brzeziński, Wprowadzenie do prawa podatkowego [Introduction to tax law], TNOiK, Toruń 2008, p. 42. 19 M. Kalinowski, Współczesne systemy podatkowe [Modern tax systems], Toruń 1996, p. 46. 20 A. Mariański, D. Strzelec, Podatki dochodowe [Income taxes], in: Zagadnienia ogólne prawa podatkowego [General issues of tax law], W. Nykiel, M. Wilk (ed.), Fundacja Centrum Dokumentacji i Studiów Podatkowych, Łódź 2014, p. 95.

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country, if, in accordance with the tax law of that country, they are treated as legal persons and are subject to taxation on all their income, regardless of the place of its generation. Consequently, if an organizational unit without legal personality is treated as a legal person for tax purposes in the system of another country, it will also be subject to corporate income tax in Poland. Taxpayers can also be groups of at least two commercial law companies with legal personality that remain in capital associations, called ‘tax capital groups’ provided that the statutory conditions are met. 2.3

Residence

Taxpayers are subject to a tax obligation on all their income, regardless of the place of its generation, if they have their registered office or management board in the territory of the Republic of Poland.21 Taxpayers, if they do not have a registered office or management board in the territory of the Republic of Poland, are subject to a tax obligation only on income that they generate in the territory of the Republic of Poland.22 The exclusive economic zone outside the territorial sea is also considered to be the territory of the Republic of Poland, in which the Republic of Poland, on the basis of internal law and in accordance with international law, exercises rights relating to the exploration and exploitation of the seabed and its subsoil and their natural resources.23 2.4

Taxable Income

2.4.1

Object of Taxation

The basic source of law regarding corporate income tax and other entities without legal personality treated by legal provisions as legal persons is the Act of February 15, 1992 on Corporate Income Tax. The object of income taxation is the income being the sum of income from capital gains and income from commonly named ‘other sources’ of revenues, with the income for each of these sources being calculated separately as the difference between the revenues from a given source and the costs assigned to that source.

21 Article 3(1) of the CIT Act. 22 Article 3(2) of the CIT Act. 23 Article 4 of the CIT Act.

The tax system in Poland

2.4.2. Object Exclusions

Currently, non-taxable activities are excluded from the scope of the tax in question, and income from these activities is not subject to income tax. The provisions of the CIT Act shall not apply in particular to revenues from agricultural activities, except for revenues from special branches of agricultural production, revenues from forestry within the meaning of the Act on Forests, or revenues arising from activities that cannot be the subject of a legally effective contract24 . 2.5

Tax Deductible Costs

The costs of obtaining revenues are the costs incurred in order to generate revenues from a source of revenues or to maintain or secure the source of revenues, with the exception of costs listed in Art. 16(1) of CIT Act. Importantly, costs incurred in foreign currencies are converted into zloty at the average exchange rate announced by the National Bank of Poland on the last working day preceding the day of incurring the cost. For example, tax deductible costs include, among others, expenses incurred by the employer to ensure the proper implementation of an employee pension scheme within the meaning of the provisions on employee pension schemes. 2.6

Expenses Not Recognized as Costs

Currently, in particular, expenses for the purchase of land or the right of perpetual usufruct of land, with the exception of fees for perpetual usufruct of land, the acquisition or own production of fixed assets as well as intangible and legal assets other than those listed above, including those which are a part of the acquired enterprise or its organized parts, or improvement of fixed assets, which pursuant to Art. 16g(13) of CIT Act, increase the value of fixed assets, which is the basis for calculating depreciation write-offs, are not considered as tax deductible costs.25 However, it should be emphasized that these expenses, updated in accordance with separate provisions, reduced by the sum of depreciation write-offs, referred to in Art. 16h(1)(1) of the CIT Act, constitute tax deductible costs if a disposal for consideration of fixed assets or intangible and legal assets takes place, regardless of the time when they were incurred.

24 Article 2(1) of the CIT Act. 25 Article 16(1) of the CIT Act.

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2.7

Depreciation Rules

Statutory regulations regarding the depreciation of fixed assets as well as intangible and legal assets are included in the provisions of the CIT Act.26 Importantly, the criterion of including by value property or rights into fixed assets as well as intangible and legal assets has been increased to PLN 10,000 since January 1, 2018, while until December 31, 2017, this amount was PLN 3,500. Pursuant to the provisions of CIT Act, depreciation applies in particular to structures, buildings, and premises which are a separate property; machinery, equipment, and means of transport; as well as other devices with an expected period of use longer than one year, used by the taxpayer for the purposes of his economic activity or let for use on the basis of a rental, tenancy, or leasing contract, called fixed assets. 2.8

Income from Capital Gains

Under Polish law, there is no separate tax on capital gains. Income from capital gains is considered to be revenues from the share in the profits of legal persons,27 constituting the revenues actually obtained from this share, including in particular dividends, balance surpluses in cooperatives, and income of investment funds or collective investment institutions received by the participants therein, where the statute provides for the payment of these incomes without repurchasing share units or buying investment certificates; revenues from the redemption of shares (stocks) or from a decrease in their value, or revenues obtained as a result of transformations, mergers, or divisions of entities, including revenues of a partner of a merged or divided company, revenues of a divided company, or revenues of a legal person or an acquiring company as a result of a merger or division of assets or part of the assets of another legal person or company, and others.28 In addition, these are also revenues from the contribution in kind to a legal person or company and other specified revenues from shares (stocks) in a legal person or company, including revenues from the disposal of shares (stocks), including the disposal made for their redemption, revenues obtained as a result of exchange of shares; revenues from the disposal of all rights and obligations in a company which is not a legal person; revenues from the disposal of receivables previously acquired by the taxpayer and receivables arising from the revenues included in capital gains, and others.

26 Article 16a-16m of the CIT Act. 27 Subject to Article 12(1)(4b) of the CIT Act. 28 Article 7b(1) of the CIT Act.

The tax system in Poland

2.9

Tax Rate

As a rule, corporate income is taxed at a flat rate of 19%. The tax amount is the product of the tax base calculated according to the principles described in the CIT Act29 and the tax rate. Both the tax base and the calculated tax are rounded in accordance with the principles set out in the provisions of the Act of August 29, 1997 the Tax Ordinance Act, i.e. mathematically to full zloty. As indicated by the Provincial Administrative Court in Gdańsk in its judgment of June 3, 2008,30 the income that constitutes a tax base is determined, among other methods, after deducting losses from earlier years. It cannot be assumed that the loss from previous years contributes to the generation of income in the amount not resulting in a tax liability. It is clear that income, under the Corporate Income Tax Act, always gives rise to a tax liability, unless, of course, it is exempt from tax.31 Polish regulations provide for a reduced tax rate of 9% of the tax base on revenues (income) other than from capital gains – in the case of taxpayers whose income obtained in a tax year did not exceed the amount expressed in PLN corresponding to the equivalent of EUR 2,000,000 calculated according to the average euro exchange rate announced by the National Bank of Poland on the first working day of the tax year, rounded to PLN 1000. This applies to commonly named ‘small taxpayers’. 2.10

Tax Period

The tax year shall, in principle, be the calendar year, unless the taxpayer decides otherwise in the statutes or in the articles of association, or in any other document properly regulating the rules of organisation of other taxpayers, in which case the tax year shall be the period of twelve consecutive calendar months.32 A taxpayer’s loss is a surplus of costs over the revenues obtained.33 It is settled in the next 5 tax years, deducting it from the income in an amount not exceeding 50% of the loss incurred in a given tax year. Since January 1, 2019, the loss for 2019 or later can be deducted earlier if the loss obtained does not exceed PLN 5,000,000. The taxpayer may deduct the loss in full at once in one of the next five years. However, if the loss exceeded PLN 5,000,000, then the taxpayer may deduct this loss in the amount of 5 million in one year and the remainder of the loss in the following years. However, the taxpayer then applies

29 Article 18 and 18d of the CIT Act. 30 Judgment of the Provincial Administrative Court in Gdańsk of 3 June 2008, I SA/Gd 172/08, LEX No. 395665. 31 Article 19(1) of the CIT Act. 32 Article 8 of the CIT Act subject to paragraphs 2, 2a, 3 and 6. 33 Article 7(2) of the CIT Act.

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the rule that the rest of the loss exceeding PLN 5,000,000 is deducted in the amount not exceeding 50% of the loss in one year. 2.11

Annual Tax Return

Taxpayers34 are required to submit a tax return concerning an obtained income (losses incurred) to tax offices, according to a fixed form in a tax year – by the end of the third month of the following year and within this period pay the tax due or the difference between the tax due on the income shown in the tax return and the sum of due advance payments for the period from the beginning of the year.35 The tax return – referred to above – is submitted by means of electronic communication in accordance with the provisions of the Tax Ordinance Act. Since October 1, 2018, entities entered in the Register of Entrepreneurs of the National Court Register36 have not been submitting financial statements to the Tax Office. Financial statements are available and submitted only in the National Court Register. However, from January 1, 2020, taxpayers obliged to prepare a financial report shall submit the report by electronic means of communication, to the Head of the National Tax Administration. If the statement was audited by a certified auditor, the audit opinion must also be forwarded. In addition, the annual tax return is prepared by all corporate taxpayers.

3.

Personal income tax

3.1

Introduction

The Polish tax system operates with two main income taxes including personal income tax. It should be noted however that there are many other varieties of income taxes and formally separate taxes that replace income taxes.37 The regulations on personal income tax are contained in the Personal Income Tax Act of 26 July 1991. Although the European Union legislation does not include personal income tax within the scope of tax law harmonization, the EU regulations ought to be taken into account. The currency in Poland is the zloty (PLN).

34 With the exception of entities exempt from tax pursuant to Article 6(1) of the CIT Act, subject to par. 1d, Art. 17(1)(4a)(a) and the provisions of the Act mentioned in Article 40(2)(8) of the CIT Act, subject to par. 2a. 35 Article 27(1) of the CIT Act. 36 Hereinafter: NCR. 37 J. Wantoch-Rekowski, W. Morawski, Podstawy prawa finansów publicznych [Fundamentals of Public Finance Law. An academic handbook], Dom Organizatora, Toruń 2019, pp. 260–261.

The tax system in Poland

3.2

Taxpayers

The tax obligation on all its income (revenues) regardless of the location of the sources of income (unlimited tax obligation) applies to natural persons who have their place of residence in the territory of the Republic of Poland. The above mentioned act regulates the taxation of personal income tax and solidarity levies, but also the taxation of inherited companies’ income, i.e. the entrepreneur’s assets after his death. With reference to the civil law partnership agreement, the personal income tax obligation is borne by the shareholders of the aforementioned company, not by the company. As indicated by the Supreme Administrative Court in its judgment of 27 April 2001,38 under this Act, one cannot presume that an entity (not subject to tax obligation under the Tax Act) is a taxpayer on its income. With a view to the PIT Act provisions, a natural person with residence in the territory of the Republic of Poland is a natural person that: a) has a centre of personal or economic interest on the territory of the Republic of Poland (centre of vital interests) or b) resides in the territory of the Republic of Poland for more than 183 days in a tax year. Other persons are subject to tax obligation only on income (revenues) generated in the Republic of Poland (limited tax obligation). According to the applicable regulations, spouses are subject to separate taxation on their income. Spouses subject to the tax obligation referred to above and between whom there is a joint property, married throughout the tax year, may, on a joint request expressed in their tax return, be taxed jointly on the sum of their income. First, the spouses determine the common tax base by adding their income previously reduced separately by each spouse by the amounts of tax credits deductible from income,39 decreased by the allowance for research and development activities40 and the thermomodernization allowance.41 If the spouses receive income from several sources, they aggregate the income from all sources. Revenues (income) which are subject to flat-rate taxation under the provisions of the PIT Act are not included in the total income. In this case, the tax is specified in the name of both spouses in the double amount of tax calculated on half of their total income. The principle and method of taxation as described above also applies to:

38 39 40 41

Judgment of the Supreme Administrative Court of 27 April 2001, III SA 429/00, LEX no. 54003. Article 26 of the PIT Act. Article 26e of the PIT Act. Article 26h of the PIT Act.

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1) spouses who are resident for tax purposes in a Member State of the European Union other than the Republic of Poland, or in another State of the European Economic Area or in the Swiss Confederation, 2) spouses, one of whom is subject to unlimited tax liability in the Republic of Poland and the other has a residence for tax purposes in a Member State of the European Union other than the Republic of Poland or in another State of the European Economic Area or in the Swiss Confederation. This is the case, in particular, if they have obtained taxable income in the territory of the Republic of Poland in an amount constituting in total at least 75% of the total income earned by both spouses in a given tax year and have documented with a certificate of residence their place of residence for tax purposes. Under the Polish provisions of the Personal Income Tax Act, joint taxation may take place even if the spouse dies. An application for joint taxation of the income of spouses between whom there was a joint property in the tax year may also be filed by the taxpayer who: 1) got married before the beginning of the tax year and whose spouse died during the tax year; 2) was married throughout the tax year and whose spouse died after the end of the tax year before submitting the tax return. The income of minor children and adoptees, with the exception of income from their work, scholarships, and income from objects given to them for free use, subject to taxation in the territory of the Republic of Poland, is added to the income of the parents, unless the parents are not entitled to collect benefits from the sources of their children’s income.42 If spouses are subject to separate taxation, half of the income of minor children is added to the income of each spouse.43 3.3

Sources of income

According to the Personal Income Tax Act, the sources of income include:44 1) business relationship, employment relationship, including cooperative employment relationship, membership of an agricultural production cooperative or other cooperative engaged in agricultural production, home-based work, disability pension, retirement pension, 2) activities carried out in person,

42 Article 7 paragraph 1 of the PIT Act. 43 Article 7 paragraph 2 of the PIT Act. 44 Article 10 of the PIT Act.

The tax system in Poland

3) non-agricultural economic activity, 4) special divisions of agricultural production, 5) rent, sublease, tenancy, subleasing and other contracts of a similar nature, including rent, subleasing of special sections of agricultural production and of the farm or its components for non-agricultural purposes or for the operation of special sections of agricultural production, with the exception of assets related to economic activity, 6) cash capitals and property rights, including disposal of property rights against payment,45 7) paid sale of:46 a) real estate or parts thereof and a share in real estate, b) the cooperative ownership right to residential or commercial premises and the right to a detached house in a housing cooperative, c) rights of perpetual usufruct of land, d) other things, if the disposal against payment does not take place in the course of business activity and has been effected in the case of disposal against payment of real estate and property rights referred to in points a–c – before the lapse of five years from the end of the calendar year in which the acquisition or construction took place and in respect of other things – before the lapse of six months from the end of the month in which the acquisition took place; in the case of exchange, these periods shall apply to each person making the exchange, 8) activity conducted by a foreign controlled entity, 9) unrealised gains referred to in Article 30da of the PIT Act (exit tax), 10)other sources. The object of income taxes should be the generation of income understood as a surplus of income over costs. For example, the source of income is remuneration, or revenues from business activity.47 However, with regard to the definition of tax deductible costs, reference should be made to the regulations of specific tax acts.

45 Other than listed in Article 10 paragraph 1 (8)(a-c) of the PIT Act. 46 With reservation of Article 10 paragraph 2 of the PIT Act. 47 See: Casey Murdock M., Tax Insight For Tax Year 2013 and Beyond, Apress, Berkeley, CA, 2013, p. 26.

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3.4

Exempt income

The provisions on personal income tax do not provide for exemptions. The exception is the partial exemption,48 which refers in particular to income obtained by staff members of diplomatic representations and consular posts from sources of income located abroad. There is an elaborate catalogue of statutory subjective or subjective-objective exemptions. The nature and application of the exemptions means in consequence that they are not included in the tax return. A closed catalogue of subjective exemptions includes, inter alia, death severance payments and funeral allowances and pensions granted under separate provisions on the provisioning of war and military invalids and their families.49 3.5

Income from an employment relationship and equivalent

All kinds of cash payments and the monetary value of benefits in kind or their equivalents, regardless of the source of financing of those payments and benefits, are regarded as income from an official, employment, home-based, and cooperative employment relationship.50 In particular, these are basic salaries, wages and salaries for overtime, various allowances, bonuses, awards, holiday pay, and any other amounts, whether or not pre-determined, as well as cash payments for the employee and the value of other unpaid or partially paid benefits. An employee, within the meaning of the Act, is a person who remains in a business relationship, employment relationship, home-based employment relationship, or cooperative employment relationship. 3.6

Tax scale

As a rule, the personal income tax due is the product of the tax rate and the tax base. The amount of tax due directly depends on the tax rate. The Polish legislator has adopted the income tax model as a progressive tax with continuous progression. As a result, the legislator determines individual income brackets.

48 Article 3(3) of the PIT Act. 49 Article 21(1) of the PIT Act. 50 Article 12(1) of the PIT Act.

The tax system in Poland

Table 1 Tax scale in Personal Income Tax Tax calculation basis in Polish Tax amount zloty up to 85 528 17% – minus the tax-deductible amount above 85 528 PLN 14,539 PLN 76 + 32% surplus over PLN 85,528 – minus the tax-deductible amount Source: table based on art. 27(1) of the Personal Income Tax Act.

Taking into account the fact that the legislator has decided to opt for the so-called continuous progression, i.e. one where the tax base is divided into parts of a certain amount and the tax is calculated on these parts at a separate tax rate – tax brackets are an important element of the tax scale. The legislator determines the tax brackets, with the latter being open in nature. The Polish income tax also has a specific, zero tax rate. This function is performed by the tax-free amount. This too is an element of the tax scale. 3.7

Tax year

The tax year is the calendar year, unless the Tax Act provides otherwise.51 3.8

Collection of tax or tax advances by payers

Pursuant to the Personal Income Tax Act, natural persons, legal entities, and organizational units without legal personality are obliged, as payers, to calculate, and collect during the year, advance payments for personal income tax from persons who receive income from these companies under a business relationship, employment relationship, home-based work or cooperative employment relationship, social security cash benefits paid by companies, and in labour cooperatives – payments for participation in the balance sheet surplus.52

4.

VAT

The goods and services tax, regulated by the Act of 11 March 2004 on Goods and Services Tax, is one of the harmonized taxes in the European Union. Article 113 of the Treaty on the Functioning of the European Union, on the basis of which Council Directive 2006/112/EC of 29 November 2006 on the common system of

51 Article 11 of the Tax Ordinance Act. 52 Article 31 of the PIT Act.

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value added tax, which is currently in force, was adopted, should be regarded as the legal basis for such harmonization.53 One of the objectives of this Directive is to achieve such harmonization of legislation on turnover taxes through the value added tax (VAT) system that it will eliminate, as far as possible, factors which may distort conditions of competition both at national and Community level. The Directive assumes that, even if rates and exemptions are not fully harmonized, the common VAT system should make it possible to achieve neutral conditions of competition, in the sense that within the territory of each Member State similar goods and services are subject to the same tax burden, regardless of the length of the production and distribution chain.

5.

Excise tax

Excise tax is currently regulated by the Excise Duty Act of 6 December 2008. It constitutes an income of the state budget. The literature indicates that this is a tax which constitutes: 1) a turnover tax (charged on the activity of turnover), 2) a ‘special’ tax (it is levied only on strictly defined goods), 3) a single-phase tax (it is calculated and paid only in one phase of the excise product turnover), 4) an indirect tax (the assessment and collection concerns an entity that does not effectively bear the tax burden), 5) a pricing tax (it is included in the price of the excise product), 6) a harmonized tax (the harmonization of excise duty aims to harmonize this tax in order to build a single internal market of the European Union), 7) a non-recoverable and non-refundable tax (an excise tax payer is not, in principle, the person economically liable for the tax; it is not refundable, as is the case for value added tax).54 Excise duty is levied on goods such as: energy products, electricity, alcoholic beverages, tobacco products, dried tobacco, electronic cigarette liquid, innovative products, and passenger cars. For the purposes of collecting excise duty and marking excise goods with excise stamps, as well as for binding excise information (BEI), the classification in the layout corresponding to the Combined Nomenclature (CN) as set out in Council 53 Council Directive 2006/112/EC of 29 November 2006 on the common system of value added tax, EU J.L. L 347, p. 1. 54 A. Halasz [in:] Prawo podatkowe z kazusami i pytaniami [Tax law with case studies and questions], (eds.) P. Borszowski, Wolters Kluwer, Warszawa 2018, p. 293.

The tax system in Poland

Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff applies. The BEI is a decision issued for the purposes of excise taxation of an excise product or passenger car, organization of trade in excise goods, or marking of these goods with excise stamps, which specifies: (1) the classification of the excise product or passenger car in an arrangement corresponding to the Combined Nomenclature (CN) or (2) the type of excise goods through a description of those goods to such a degree of detail as is sufficient to determine whether they are subject to excise duty, organization of trade in excise goods or excise marking of those goods.

6.

Property taxes

Taxes can be classified in many ways, although they are usually divided into three groups: income taxes, turnover taxes, and property taxes. Property taxes primarily include: inheritance and donation tax, tax on civil law transactions, agricultural tax, forestry tax, real estate tax, and tax on means of transport. The inheritance and donation tax is regulated by the Inheritance and Donation Tax Act of 28 July 1983.55 The following are subject to this tax: acquisition by natural persons of ownership of property located on the territory of the Republic of Poland or property rights exercised on the territory of the Republic of Poland, under the title of: inheritance, ordinary legacy, further legacy, debt collection order, testamentary order, donation, donor’s order, usucaption, gratuitous abolition of co-ownership, legitime (if the entitled person did not obtain it in the form of a donation made by the donor or by inheritance or as a legacy) and gratuitous pension, gratuitous use, and gratuitous easement. The acquisition of rights to a savings contribution on the basis of an instruction to make a contribution in case of death and the acquisition of participation units on the basis of an instruction of a participant in an open-end investment fund or a specialist investment fund open in case of his death are also subject to tax. The inheritance and donation tax is not of great fiscal importance. The revenues from this tax contribute to the budgets of municipalities. The tax on civil law transactions is regulated by the Act of 9 September 2000 on tax on civil law transactions.56 The tax is levied on civil law transactions, including contracts for the sale and exchange of goods and property rights, contracts 55 Ustawa z dnia 28 lipca 1983 r. o podatku od spadków i darowizn [the Inheritance and Donation Tax Act of 28 July 1983] Consolidated text: J. of L. of 2021 it. 1043. 56 Ustawa z dnia 9 września 2000 r. o podatku od czynności cywilnoprawnych [the Act of 9 September 2000 on tax on civil law transactions] Consolidated text: J. of L. of 2020 it. 815

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for the loan of money or goods specified only according to their type, donation contracts – in the part concerning the assumption by the recipient of debts and burdens or liabilities of the donor – life annuity contracts, inheritance department contracts, and contracts for the abolition of co-ownership – in the part concerning repayments or additional payments – establishment of a mortgage, establishment of paid use, including improper use and easement, improper deposit contracts, and company contracts. The tax on civil law transactions constitutes the revenue of municipalities. Agricultural tax is regulated by the Agricultural Tax Act of 15 November 1984.57 The tax is levied on land classified in the land and building register as agricultural land, with the exception of land occupied for economic activity other than agricultural activity. Agricultural tax constitutes the area’s income, and is of considerable fiscal significance for the budgets of rural and urban-rural areas. Forestry tax is regulated by the Forestry Tax Act of 30 October 2002.58 The forests specified in the Act are subject to forestry tax, with the exception of forests occupied for economic activities other than forestry activities. Forest within the meaning of the Act is wooded area classified in the Land and Building Register as a forest. Forestry tax is the municipality’s income without major fiscal significance. Further property taxes, i.e. real estate tax and tax on means of transportation, were regulated in the Act of 12 January 1991 on Local Taxes and Fees.59 The following are subject to real estate tax: land, buildings or parts thereof, and structures or parts thereof related to business activity. Agricultural land or forests are not subject to real estate tax, unless occupied for business activities. In turn, lorries, road and ballast tractors, trailers and semi-trailers and buses are subject to tax on means of transportation. Real estate tax and tax on means of transport also constitute revenue for municipalities’ budgets. The real estate tax is certainly the property tax which has the greatest significance in the revenue structure of municipalities in Poland.

57 Ustawa z dnia 15 listopada 1984 r. o podatku rolnym [the Agricultural Tax Act of 15 November 1984] Consolidated text: J. of L. of 2020 it. 333. 58 Ustawa z dnia 30 października 2002 r. o podatku leśnym [the Forestry Tax Act of 30 October 2002] Consolidated text: J. of L. of 2019 it. 888. 59 Ustawa z dnia 12 stycznia 1991 r. o podatkach i opłatach lokalnych [the Act of 12 January 1991 on Local Taxes and Fees] Consolidated text: J. of L. of 2019 it. 1170.

The tax system in Poland

7.

Parafiscal charges

Public levies other than taxes, i.e. fees, duties, and contributions are also linked to the tax system. Public law charges in most cases differ from taxes by name only. Theoretically, the difference between these levies comes down to whether there is a payment or not. Taxes are gratuitous benefits, whereas charges should be characterized by payment. However, in the construction of most of the charges there is no fee, in fact they are taxes. For example, charges include: stamp duty, market fee, local fee, spa fee, dog ownership fee, advertising fee, planning fee, and adjacent fees. Duties which are not formally taxes possess most of the characteristics of taxes. They are currently regulated by three types of legislation. These are the provisions of international, EU, and national law. Duty has become an institution of EU law, therefore the importance of national regulations is systematically decreasing. Duty is an income of the EU budget, and only 25% of collected duties remain the income of the country collecting it (a kind of lump sum reimbursement of administrative costs incurred).60 Health and social security contributions are also similar to taxes.61 The health insurance premium de facto has the character of a tax and its payment is not a precondition for the status of an insured person. When paying a health insurance contribution, one is not entitled to anything more than an insured person not paying the contribution. This is slightly different with regard to social security contributions. They have most of the features of a tax, however, unlike taxes, they have a chargeable character, and one of the types of contributions, i.e. the pension insurance contribution, is even of the nature of an equivalent payment.

8.

Polish New Deal

The description of the tax law system in Poland would not be complete without a brief mention of the Act of 29 October 2021 amending the Personal Income Tax

60 J. Wantoch-Rekowski, W. Morawski, Podstawy prawa finansów publicznych. Podręcznik akademicki [Fundamentals of Public Finance Law. An academic handbook], TNOiK, Toruń 2019, pp. 278–279. 61 On contributions as parafiscal charges see P. Kania, Rola składki na ubezpieczenie społeczne jako obciążenia parapodatkowego [The role of the social security contribution as a parafiscal burden] [in:] Władza fiskalna a reakcje podatników na obciążenia podatkowego [Fiscal power and taxpayers’ reactions to the tax burden], (eds.) T. Famulska and K. Znaniecka, Publ. AE in Katowice, Katowice 2001, pp. 129–148.

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Act, the Corporate Income Tax Act and certain other acts, commonly referred to as the New Order or Polish New Deal, entering into force on 1 January 202262 . Referring to corporate income tax, it is important to point out the changes to the form of taxation, commonly referred to as so-called Estonian CIT. Taxpayers as early as 1 January 2021 can opt for a new method of income taxation – a lump sum on income of capital companies (Estonian CIT), which involves non-payment of income tax on business activities until the distribution of profit. Time has shown that in 2021 the Estonian CIT under the existing conditions has not gained favour with taxpayers. The legislator therefore intends to encourage taxpayers to use this form of taxation, inter alia, by abolishing, as of 1 January 2022, a number of criteria conditioning its use, which so far limited the possibility of applying Estonian CIT and significantly reduced the degree of its attractiveness. The main changes include the removal of the requirement to make capital expenditures and the removal of the income limit for taxpayers wishing to use this solution In addition, the changes also concern the exclusion of the possibility of deducting health contributions from PIT. In practice, this means a quite substantial increase in the assessment basis for all contributors – the real increase in the burden on taxpayers is estimated between 4.9% and 9%. Subsequently, the law introduced the exclusion of depreciation deductions on buildings and residential premises from tax costs, as well as a ban on depreciation of residential premises. The provisions on rental and depreciation of residential property will not enter into force until 2023. The legislator has also decided, with certain exceptions, to abolish the tax card from 2022. In VAT, the possibility for taxpayers to settle jointly within VAT groups has been introduced. However, these provisions will enter into force as of 1 July 2022.

References Legal acts Council Directive 2006/112/EC of 29 November 2006 on the common system of value added tax, EU J.L. L 347, p. 1. Konstytucja Rzeczypospolitej Polskiej z dnia 2 kwietnia 1997 r. [The Constitution of the Republic of Poland of April 2, 1997] J. of L. of 1997, No. 78, item 483, as amended.

62 Apart from the exceptions set out in Article 89 of the Act of 29 October 2021 amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts.

The tax system in Poland

Ustawa z dnia 28 lipca 1983 r. o podatku od spadków i darowizn [the Inheritance and Donation Tax Act of 28 July 1983], J. of L. of 2021 it. 1043. Ustawa z dnia 15 listopada 1984 r. o podatku rolnym [the Agricultural Tax Act of 15 November 1984], J. of L. of 2020 it. 333. Ustawa z dnia 12 stycznia 1991 r. o podatkach i opłatach lokalnych [the Act of January 12, 1991 on Local Taxes and Fees], J. of L. of 2019, item 1170. Ustawa z dnia 26 lipca 1991 r. o podatku dochodowym od osób fizycznych [the Act of July 26, 1991 on Personal Income Tax], J. of L. of 2021, item 1128 as amended. Ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych [the Act of February 15, 1992 on Corporate Income Tax], J. of L. of 2020, item 1406 as amended. Ustawa z dnia 29 sierpnia 1997 r. – Ordynacja podatkowa [The Act of August 29, 1997 – the Tax Ordinance Act], J. of L. of 2021, item 1540 as amended. Ustawa z dnia 9 września 2000 r. o podatku od czynności cywilnoprawnych [the Act of 9 September 2000 on tax on civil law transactions], J. of L. of 2020 it. 815. Ustawa z dnia 30 października 2002 r. o podatku leśnym [the Forestry Tax Act of 30 October 2002], J. of L. of 2019 it. 888. Ustawa z dnia 11 marca 2004 r. o podatku od towarów i usług [the Act of March 11, 2004 on Tax on Goods and Services], J. of L. of 2021, item 685 as amended. Ustawa z dnia 6 grudnia 2008 r. o podatku akcyzowym [the Act of December 6, 2008 on Excise Duty], J. of L. of 2020, item 722 as amended. Ustawa z dnia 16 listopada 2016 r. o Krajowej Administracji Skarbowej [the Act of November 16, 2016 on the National Revenue Administration], J. of L. of 2021, item 422 as amended.

Jurisdiction Judgment of the Supreme Administrative Court of 27 April 2001, III SA 429/00. Judgment of the Provincial Administrative Court in Gdańsk of 3 June 2008, I SA/Gd 172/08.

Literature Antonów D., in: Prawo podatkowe z kazusami i pytaniami [Tax law with case studies and questions], P. Borszowski (ed.), Wolters Kluwer, Warszawa 2018. Brzeziński B., Prawo podatkowe. Zagadnienia teorii i praktyki [Tax Law. Issues of theory and practice], TNOiK, Toruń 2017. Brzeziński B., Wprowadzenie do prawa podatkowego [Introduction to tax law], TNOiK, Toruń 2008. Casey Murdock M., Tax Insight For Tax Year 2013 and Beyond, Apress, Berkeley, CA, 2013. Dobaczewska A., in: Podstawy finansów i prawa finansowego [Fundamentals of finance and financial law], A. Drwiłło (ed.), Wolters Kluwer, Warszawa 2018. Halasz A., in: Prawo podatkowe z kazusami i pytaniami [Tax law with case studies and questions], P. Borszowski (ed.), Wolters Kluwer Warszawa 2018.

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Huchla A., in: Prawo podatkowe z kazusami i pytaniami [Tax law with case studies and questions], P. Borszowski (ed.), Wolters Kluwer, Warszawa 2018. Kalinowski M., Współczesne systemy podatkowe [Modern tax systems], Toruń 1996. Kania P., Rola składki na ubezpieczenie społeczne jako obciążenia parapodatkowego [The role of the social security contribution as a parafiscal burden], in: Władza fiskalna a reakcje podatników na obciążenia podatkowego [Fiscal power and taxpayers’ reactions to the tax burden], T. Famulska, K. Znaniecka (ed.), Katowice 2001. Kosikowski C., Ustawa podatkowa [Tax Act], LexisNexis, Warszawa 2006. Mariański A., Strzelec D., Podatki dochodowe [Income taxes], in: Zagadnienia ogólne prawa podatkowego [General issues of tax law], W. Nykiel, M. Wilk (ed.), Fundacja Centrum Dokumentacji i Studiów Podatkowych, Łódź 2014. Olesińska A., Prawo podatkowe [Tax law], TNOiK, Toruń 2004. Wantoch-Rekowski J., Morawski W., Podstawy prawa finansów publicznych. Podręcznik akademicki [Fundamentals of Public Finance Law. An academic handbook], TNOiK, Toruń 2019.

Maciej Serowaniec, Agnieszka Franczak

Constitutional and human rights standards v. effectiveness of the tax system in the light of the jurisprudence of the Constitutional Tribunal of the Republic of Poland and the European Court of Human Rights1

1.

Introduction

The entitlement of the state to public levies is a generally accepted element of its sovereignty, and the state has considerable freedom in this respect.2 At the same time, interference in individual freedoms and rights cannot be exercised arbitrarily, since its limits are set both by national constitutions and by international standards of protection of individual rights and freedoms. In this context, it is worthwhile to present the statements of the Constitutional Tribunal and the European Court of Human Rights; statements referring to the basic problems of respecting constitutional and international standards of fiscal law creation and of the protection of fundamental rights and individual freedoms. In addition, selected statements present the main trends of jurisprudence in these areas.

2.

Constitutional standards for the creation of levy law in Poland in the light of the jurisprudence of the Constitutional Tribunal

The principle of tribute authority finds its normative basis in several constitutional provisions.3 Article 84 of the Constitution of the Republic of Poland of 2 April 19974

1 Article prepared under a grant funded by the National Science Centre (Poland) No 2019/35/B/HS5/ 00554 ‘Interpretation of tax law in the context of passing time’. 2 A. Leszczyńska-Rydlewska, Granice dopuszczalnej ingerencji państwa w prawo własności podatnika w świetle standardów Europejskiej Konwencji Praw Człowieka [Limits of permissible state interference in the property right of a taxpayer in the light of the standards of the European Convention on Human Rights], Toruński Rocznik Podatkowy 2010, p. 149. 3 More extensively A. Bień-Kacała, Zasada władztwa daninowego w Konstytucji RP z 1997 r. [The principle of tribute authority in the Constitution of the Republic of Poland of 1997], Toruń 2005. 4 Konstytucja Rzeczypospolitej Polskiej z dnia 2 kwietnia 1997 r. [The Constitution of the Republic of Poland of 2 April 1997], J. of L. 1997, No. 78, item 483 as amended.

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follows the obligation of everyone to bear public burdens and benefits defined by law. The normative content of this provision also implies the obligation of the legislator to formulate taxes in such a way that the legal norms resulting from tax regulations, which define the taxpayer’s obligation, would be fully precise and unambiguous. In turn, the requirement contained in Article 217 of the Constitution to specify in a statute the essential elements of the tax obligation should be understood as the requirement to be particularly precise when determining the subjects of taxation, the objects of taxation and the tax rates. This regulation is complemented by article 168 of the Constitution of the Republic of Poland, which constitutes the legal basis for tributary powers of local government units.5 The basic activity of the Polish Constitutional Tribunal consists of the control of hierarchical compliance of legal norms, and thus of the coherence of the legal system in the state and the shaping of legal order and security for the addressees of the legal norms. The Tribunal has been equipped with the competence to eliminate unconstitutional regulations from the legal order. Observance of both formal and substantive principles of law-making allows the creation of a coherent legal system in the Republic, which is a democratic state governed by the rule of law, realising the principles of social justice (Article 2 of the Constitution). The principle of the rule of law requires the enactment of impeccable norms from the point of view of legislative technique. These norms should realise the assumptions underlying the constitutional order in Poland and protect the set of values expressed by the Constitution. The values indicated in the preamble of the Constitution and the principle specified in Article 1 of the Constitution that Poland is the common good of all citizens should be considered.6 The power to establish taxes and other public levies, define the subjects, objects and rates of taxation, as well as the principles for granting concessions, remissions and categories of entities exempt from taxes, is a competence reserved for the legislative authority, which without specific constitutional authorisation may not be delegated by way of a conventional act to other entities (Articles 84 and 217 of the Constitution of the Republic of Poland).7 Following the position developed in the existing jurisprudence of the Tribunal, it is not permissible to establish a

5 More extensively M. Wilmanowicz-Słupczewska, J. Wantoch-Rekowski, M. Serowaniec, W. Morawski, Public finance and taxation in the Constitution of the Republic of Poland, Toruń 2021, pp. 115–121. 6 Z. Witkowski, M. Serowaniec, Wykładnia zasady demokratycznego państwa prawnego a problem (nad)aktywizmu sędziowskiego [Interpretation of the principle of democratic legal state and the problem of judicial (over)activism], in: Aktuální otázky právního státu v České republice a Polské republice, sborník příspěvků z VI. ročníku česko-polského semináře, (eds.): J. Jirásek, Z. Witkowski, Olomouc 2019, pp. 7–9. 7 A. Bień-Kacała, Finanse publiczne [Public Finance], in: Prawo konstytucyjne [Constitutional Law], (eds.): Z. Witkowski, A. Bień-Kacała, Toruń 2015, pp. 658–659.

Constitutional and human rights standards v. effectiveness of the tax system

tax obligation that is not based on a concretised statutory obligation, legible for taxpayers and tax payers, as well as for the tax administration and the judiciary. [...] Suppose the moment when the obligation arises and the basis for taxation is not specified in the law. In that case, the principle of the completeness of the statutory tax is infringed and Article 217 of the Constitution is violated.8 It is a tightening of requirements and a significant shift of competencies within the division of powers. The legislature is to bear the exclusive political responsibility for the introduction, construction, amount, and principles of collecting taxes.9 The legislature’s power to public levies is an attribute of the grounds of the binding constitutional regulation. It may be exercised only in the form of a statute. The doctrine stresses, moreover, that the principle of exclusive statutory powers constitutes a particularly important guarantee of taxpayers’ rights concerning public authorities, as well as a guarantee of inviolability of parliamentary prerogatives.10 The principle of the power to public levies legitimates the state’s actions, as a result of which certain entities are charged with levies (including taxes), which enable the realisation of public tasks. Imposition of levies (taxes) is legitimate under the Constitution and cannot be treated as deprivation of property, and the legislator has wide discretion in this respect. However, the freedom of the legislator is not absolute and cannot transform into arbitrariness. The legislature’s freedom in shaping the content of tax laws is limited by the obligation to observe the rules concerning the requirements of the legislative path, the procedure for enacting tax laws and the requirement of particular legislative care when enacting legal provisions to enable the construction of precise tax norms. This freedom is, of course, also limited by the obligation to respect the vacatio legis and the prohibition on giving retroactive effect and making changes in the tax year. Moreover, the legislator’s freedom in the sphere of public levies does not extend to situations in which the public levy was collected unjustly.11 The legislator’s freedom is even more pronounced concerning the shaping of tax allowances and exemptions, particularly when it comes to their abolition or limitation. However, the far-reaching freedom of the legislator in shaping the substantive content of the tax law is in a way balanced by the obligation of the legislator to respect the procedural requirements of the

8 Judgment of the Constitutional Tribunal of 8.07.2014, K 7/13. 9 Judgments of the Constitutional Tribunal of: 9.09.2004, K 2/03 and 11.12.2007, U 6/06. 10 Cf. more extensively E. Prejs, Wartości konstytucyjne a prawo podatkowe w orzecznictwie Trybunału Konstytucyjnego [Constitutional values and tax law in the jurisprudence of the Constitutional Tribunal], in: Prawo podatkowe, teoria, instytucje, funkcjonowanie [Tax law, theory, institutions, functioning], B. Brzeziński (ed.), Toruń 2009, p. 159–187. 11 Judgment of the Constitutional Tribunal of 10.03.2009, P 80/08.

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principle of a democratic state of law, and in particular to respect the principles of the decency of legislation.12 Certainty of law and the related principle of legal security is of particular importance in tax law.13 In the opinion of the Constitutional Tribunal, the certainty of the law means not only stability of legal regulations, which in the case of the fiscal law may be difficult to achieve in a specific economic situation of the state, but also conditions for predictability of actions of state bodies and related behaviours of the citizens.14 Predictability of the state’s actions understood in such a way guarantees a trust of the legislator and the law made by him. Furthermore, the often unavoidable increase of burdens by amending the law should be done so that the subjects of the law affected have adequate time to manage their interests rationally.15 Therefore, with the principle of citizen’s trust in the state and the law created by it and the protection of legal security, the Constitutional Tribunal has also closely linked the ban on introducing changes in the tax law during the tax year.16 This ban is a ”safeguard of the possibility for the individual to dispose of his life interests considering the tax regulations published and known to the taxpayer before the beginning of the tax year.17 At the same time, it should be emphasised that the prohibition of legal changes during the tax year applies to all taxes on which the tax assessment is made annually.18 In fiscal law, it is of fundamental importance to implement the principles of correct legislation, i.e., among other things, to enact provisions with unambiguous and precise content, since they define the subject of obligations towards the state. The principle of clarity of law is one of the directives of correct legislation and an element of the principle of protection of the citizen’s trust in the state and the law created by it, resulting from Article 2 of the Constitution, which the Constitutional Tribunal in its rulings has repeatedly emphasised. Far-reaching consequences follow from the principle of a democratic legal state, both as regards the requirements concerning the legislative technique itself (the principle of decent legislation, the principle of specificity of provisions) and as regards legal safety (the principle of protection of confidence in the state and the law, the principle of protection of acquired rights). The general principles arising from Article 2 of the Constitution

12 Judgments of the Constitutional Tribunal of: 25.04.2001, K 13/01, 19.09.2006, K 7/05 and 27.11.2007, SK 39/06. 13 Judgment of the Constitutional Tribunal of 19.12.2002, K 33/02. 14 M. Serowaniec, Z. Witkowski, Constitutional conditions of the legislative process in Poland: theory vs. practice, Kobe Law Review 2019, vol. 52, pp. 127–133. 15 Judgments of the Constitutional Tribunal of: 27.02.2002, K 47/01, 15.02.2005, K 48/04. 16 Judgment of the Constitutional Tribunal of 15.07.2013, K 7/12. 17 Judgment of the Constitutional Tribunal of 25.04.2001, K 13/01. 18 Judgment of the Constitutional Tribunal of 15.02.2005, K 48/04.

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should be observed particularly strictly regarding legal acts that restrict civil liberties and rights and impose obligations on the state.19

3.

Public levies vs protection of constitutional rights and freedoms of individuals in the light of the jurisprudence of the Constitutional Tribunal of the Republic of Poland

The principle of freedom of the legislature in shaping state revenues and ensuring state budget balance has a value function in connection with constitutional provisions on human and civil liberties and rights.20 The admissibility of possible exceptions to the principle of universality of taxation should be considered in the light of the standards of a democratic state of law implementing the principles of social justice. The possibility of introducing statutory exceptions is not excluded if it serves to implement the state’s economic policy, provided that the principle of tax equity is taken into account.21 A particular guarantee in this respect is not only the obligation to establish vacatio legis, but also its period must be appropriate to the nature of the introduced provision. Particularly in the case of the tax law, a longer adjustment period should be required. As the Constitutional Tribunal has emphasised, interference in the sphere of property rights is an essential element of a tax.22 For this reason, public levies in the form of duly enacted taxes cannot be regarded as an unconstitutional interference in the sphere of property and other property rights.23 Accepting the thesis that every restriction of property by the imposition of a tax or other public levy is always an impermissible restriction of property would lead to a false conclusion that every unfavourable change in the financial situation is a restriction of his property.24 Such far-reaching protection of property and other property rights is not justified in the light of the provisions of the Constitution.25 They cannot lead to the violation of values covered by constitutional protections. In the light of the established jurisprudence of the Constitutional Tribunal, the state should also ‘observe the principle of ‘tax’ interference in the economy to

19 Judgment of the Constitutional Tribunal of 20.11.2002, K 41/02. 20 E. Prejs, Skarga konstytucyjna jako środek ochrony praw podatnika [Constitutional complaint as a means of protecting taxpayers’ rights], in: Ochrona praw podatnika, diagnoza sytuacji [Protection of taxpayers’ rights, diagnosis of the situation], A. Franczak (ed.), Warsaw 2021, pp. 311–329. 21 Judgment of the Constitutional Tribunal of 20.11.2002, K 41/02. 22 Judgments of the Constitutional Tribunal of: 14.09.2001, SK 11/00 and 29.11.2006, SK 51/06. 23 Judgments of the Constitutional Tribunal of: 20.11.2000, K 41/02 and 30.11.2004, SK 31/04. 24 Judgment of the Constitutional Tribunal of 30.01.2001, K 17/00. 25 Judgment of the Constitutional Tribunal of 11.12.2001, SK 16/00.

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the extent necessary for the financing of common needs, and within limits set by the economic capacity to provide tax benefits. Of course, it is permissible for the legislator to use it to secure tax dues, i.e. benefits originating in administrative-law relations, but legal regulations in this respect should depart from general principles only to the extent necessary to achieve their aim. In particular, a rational legislator may not create provisions contrary to the established legal system, violating the essence of a given legal institution.’26 As indicated by the Constitutional Tribunal in the judgment of 6 January 2009 (SK 22/06), the limit of tax interference is the essence of the right to property (Article 64 of the Constitution). The essence of this right would be infringed, if the introduced limitations would concern the basic rights constituting the content of a given right, and would prevent this right from fulfilling the function it is supposed to perform in the legal order based on the assumptions of a social market economy based on the freedom of economic activity, private property and solidarity, dialogue and cooperation of social partners (Article 20 of the Constitution of the Republic of Poland).27 Therefore, the Constitutional Tribunal has repeatedly emphasised that the provisions regulating the issue of public levies must be consistent with the totality of the binding constitutional norms and principles, they cannot lead to the infringement of values covered by constitutional protection, and in particular, they cannot shape the tax obligation in such a way that it becomes an instrument of confiscation of property. In this context, the Court stressed that the implementation of tax obligations is always connected with interference in the taxpayer’s property rights. However, since the legal regulation concerning tax obligations has a clear constitutional basis, its admissibility may be analysed in categories of limitations to the enjoyment of constitutional freedoms and rights (Article 64 (1) in conjunction with Article 64 (3) and Article 31 (3) of the Constitution), but in categories of relations between constitutional obligations on the one hand and the protection of constitutional freedoms and rights on the other, the limits (content) of which are shaped by those very obligations. In other words, the obligation to bear public burdens and benefits, including taxes, is not a restriction covered by Article 31 (3) and Article 64 (3) of the Constitution.28 As a rule, tax burdens are not subject to control in terms of limitations to the right to property. In light of the recent jurisprudence of the Constitutional Tribunal, Article 31 (3) and Article 64 (3) of the Constitution may

26 Judgment of the Constitutional Tribunal of 26.11.2007, P 24/06. 27 Cf. in more detail Z. Witkowski, M. Serowaniec, The principles of social market economy within the doctrine of the constitutional law of Poland and the jursdiction of Constitutional Tribunal, Annales Universitatis Apulensis. Series Jurisprudentia 2016, Vol. 19, pp. 304–313. 28 See judgments of the Constitutional Tribunal of: 18.07.2013, SK 18/09; 8.10.2013, SK 40/12; decisions of the Constitutional Tribunal of: 9.07.2012, SK 19/10; 5.06.2013, SK 25/12.

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be appropriate standards for control of tax law regulation only in two cases. First, when the legislator, under the guise of a levy regulation, establishes an instrument serving purposes other than fiscal, particularly nationalisation or repressive purposes (e.g. by giving taxation the features of an institution of confiscation of property). Secondly, if the tax regulations do not regulate the sphere of imposing tax obligations, but the sphere of performing those obligations (e.g. in relation to tax refunds, to formal requirements whose fulfilment enables the tax amount to be reduced, or in connection with asset declarations aimed at facilitating the acquisition of information by tax authorities). As the Tribunal also stressed, the mere fact that the Constitution does not contain any provisions concerning the level of imposed tributary obligations does not mean that the legislator enjoys complete freedom in this respect. The legislator must respect, inter alia, the principle of proportionality, derived from Article 2 of the Constitution, in connection with which the accusation of excessive fiscalism is possible, as well as the principles of social justice and equality.29

4.

European Convention on Human Rights and Fundamental Freedoms as a source of taxpayers' rights

The European Convention on Human Rights and Fundamental Freedoms30 now forms the basis of one of the most important and effective systems of protection of individual rights and freedoms in the world, consisting of the Convention, fourteen additional protocols (of a procedural or substantive nature) and the related case-law of the convention bodies, notably that of the European Court of Human Rights.31 The legal norms expressed in the Convention have a self-executing character, i.e. they confer direct rights on individuals and can also be directly applied by state authorities.32 Nevertheless, national courts are obliged to take the European Convention for the Protection of Human Rights into consideration as a supplementary or theoretically even independent basis for the decision and assess the

29 Judgment of the Constitutional Tribunal of 12.12.2017, SK 13/15. 30 Konwencja o Ochronie Praw Człowieka i Podstawowych Wolności [European Convention on Human Rights and Fundamental Freedoms], J. of L. 1993, No. 61, item 284. 31 C. Mik, Znaczenie postanowień EKPCz dla ochrony praw podstawowych jako ogólnych zasad prawa w UE [Relevance of the provisions of the ECHR for the protection of fundamental rights as general principles of law in the EU], in: Ochrona praw podstawowych w Unii Europejskiej [Protection of fundamental rights in the European Union], J. Barcz (ed.), Warsaw 2008. 32 J. Braciak, Prawo do prywatności [The right to privacy], Warsaw 2004, pp. 304–305; K. Skubiszewski, Konstytucyjne ujęcia stosunku prawa polskiego do prawa międzynarodowego [Constitutional view of the relationship between Polish law and international law], Państwo i Prawo 1987, No. 10, p. 138–140.

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facts in the light of the Convention.33 Therefore, national authorities are obliged to observe the Convention and apply it directly as part of their domestic legal order. This follows from Article 91(1) and (2) in conjunction with Article 241 of the Polish Constitution. Hence, in the hierarchy of universally binding law sources, the Convention takes precedence over Acts. Furthermore, it should be emphasised that by ratifying the Convention, Poland undertook to abide by the judgements of the European Court of Human Rights in all cases to which it is a party (Article 46 of the Convention).34 Assessing the number, but more importantly the special importance of the various rights protected by the Convention and its protocols, it is easy to see that several issues are of the greatest importance from the taxpayer protection point of view. The first of these is the issue of taxation standards in the context of the right to property and potential violations thereof, whether by tax legislation or by the application of tax laws. Protection of the right to property and its desirable level is the subject of Article 1 of the First Protocol to the Convention. The second issue is the right to privacy guaranteed in Article 8 of the Convention. The third area – which raises the most doubts – relates to the right to a fair (honest) trial, guaranteed by Article 6(1) of the Convention. This provision reads as follows: ”Everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law in the determination of his civil rights and obligations or the merits of any criminal charge against him, and to proceedings in open court, subject to exceptions”.35 Doubts boil down to whether this provision can be applied to cases involving tax law (similarly – administrative law or social security law). It was accepted in domestic case-law that Article 6 of the Convention is narrower in its content than Article 45(1) of the Constitution of the Republic of Poland, because the Convention guarantees the right to a court in civil and criminal cases. The Constitution of the Republic of Poland did not introduce such a limitation of the right to a court.36

33 A. Kalisz, Multicentryczność systemu prawa polskiego a działalność orzecznicza Europejskiego Trybunału Sprawiedliwości i Europejskiego Trybunału Praw Człowieka [Multicentricity of the Polish legal system and the case-law activities of the European Court of Justice and the European Court of Human Rights], Ruch Prawniczy, Ekonomiczny i Socjologiczny 2007, Vol LXIX, No. 4, pp. 35 et seq. 34 A. Sakowicz, Prawnokarne gwarancje prywatności [The criminal law guarantee of privacy], Kraków 2006. LEX/el.; L. Wildhaber, Dynamika orzecznictwa Europejskiego Trybunału Praw Człowieka [Developments in the jurisprudence of the European Court of Human Rights], Ius et Lex 2002, no. 1, p. 227; P. Hofmański, Europejska Konwencja Praw Człowieka i jej znaczenia dla prawa karnego materialnego, procesowego i wykonawczego [The European Convention on Human Rights and its relevance for substantive, procedural and enforcement criminal law], Białystok 1993, p. 24–34. 35 The additional guarantees in Article 6(2) (presumption of innocence) and Article 6(3) (right to legal assistance) apply to criminal matters. 36 Judgment of the Constitutional Tribunal of 7.03.2005, P 8/03.

Constitutional and human rights standards v. effectiveness of the tax system

5.

Public levies vs standards of protection of the rights and freedoms of individuals in the light of the case-law of the European Court of Human Rights

Initially, taxation cases were considered by the European Court of Human Rights mainly in the context of admissibility of deprivation of property. According to the Court’s case-law, Article 1 of the First Protocol protects taxpayers in two ways.37 First, taxation as such constitutes an interference with the right to respect for property.38 Secondly, the case-law recognises as property rights certain legal and material rights of the taxpayer provided for in tax laws.39 As indicated in the literature,40 these include, inter alia: the right to deduct VAT paid by the contracting party,41 the right to reimbursement of improperly paid tax42 and compensation claims for damage resulting from infringement of the taxpayer’s right to benefit from certain tax allowances.43 The Court pointed out, i.a. in Gasus Dosier-und Fördertechnik GmbH v The Netherlands, that the state interference with the property right must consider the balance between the public interest and protection of the property right of individual right to property. At the same time, the principle of proportionality between the means employed and the objective pursued must be observed.44 The European Court of Human Rights has also expressed its opinion on the degree 37 Wojtyczek K., Ochrona praw podatnika w orzecznictwie Europejskiego Trybunału Praw Człowieka [Protection of taxpayers’ rights in the case law of the European Court of Human Rights], in: Ochrona praw podatnika, diagnoza sytuacji [Protection of taxpayers’ rights, diagnosis of the situation], A. Franczak (ed.), Warsaw 2021, pp. 411–423; B. Brzeziński, Znaczenie Art. 1 Pierwszego Protokołu do Europejskiej Konwencji Praw Człowieka dla ochrony praw podatnika [The role of Article 1 of the First Protocol to the European Convention on Human Rights in protecting the rights of the taxpayer], [in:] Ochrona praw podatnika, daignoza sytuacji [Protection of taxpayers’ rights, diagnosis of the situation], A. Franczak (ed.), Warsaw 2021, pp. 69–86. 38 B. Brzeziński, Znaczenie Art. 1 (above n. 36). 39 B. Brzeziński, Znaczenie Art. 1 (above n. 36). 40 B. Brzeziński, Znaczenie Art. 1 (above n. 36). 41 Bulves v. Bulgaria, 22.04.2009, 3991/03, paras. 53–58. 42 Dangeville v. France, 16.04.2002, 36677/9, para. 48; Buffalo Srl v. Italy, 03/07/2003, 38746/97, para. 29. 43 Éditions Periscope p. France, 26/03/1992, 11760/85, para. 13. 44 A. Leszczyńska, Europejska Konwencja o Ochronie Praw Człowieka oraz Podstawowych Wolności jako instrument ochrony praw podatnika [European Convention for the Protection of Human Rights and Fundamental Freedoms as an instrument to protect taxpayers’ rights], Kwartalnik Prawa Podatkowego 2004, No. 1–2; A. Franczak, Ochrona praw podatnika w dobie pandemii COVID-19. Uwagi na tle art. 1 Pierwszego Protokołu do Europejskiej Konwencji Praw Człowieka [Protection of taxpayers’ rights in the era of the COVID-19 pandemic. Comments on Article 1 of the First Protocol to the European Convention on Human Rights], in: Ochrona przedsiębiorcy w dobie COVID-19 [The protection of the entrepreneur in the era of COVID-19], J. Glumińska-Pawlic (ed.), Katowice 2021, p. 57.

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of admissibility of restrictions on the individual’s rights under Article 1 of the First Protocol, including measures resulting from the application of tax security measures, e.g. in the case of the National & Provincial Building Society.45 According to the Court, the restrictions must strike a ”fair balance” between the needs of the public interest and the requirements of protecting the individual’s fundamental rights.46 The European Court of Human Rights has stressed that the concern for balance is reflected in the structure of Article 1 of the First Protocol as a whole, including the third sentence: it is particularly important to maintain a reasonable relationship of proportionality between the measure taken and the aim pursued by that measure.47 The Strasbourg Court pointed out that a Contracting State has wide discretion in designing and implementing its fiscal policy. For that reason, the will of the national legislature must be respected as long as it does not lack a rational basis.48 The European Court of Human Rights has also dealt with actions in the field of value-added tax.49 In Bulves AD v. Bulgaria,50 the Court stressed that the right of a taxpayer to deduct input VAT amounts at least to the legally justified prospect of obtaining effective respect for the right to property constituting property within the meaning of the first sentence of Article 1 of the First Protocol.51 And in Euromak Metal DOO,52 the Court held that depriving a taxpayer of the right to deduct VAT when the taxpayer’s contractors are fraudulent and the taxpayer discharges his tax obligations constitutes a violation of the right to property within limits protected by Article 1 of the First Protocol.53 The European Court of Human Rights has stressed that, despite the wide margin of appreciation enjoyed by the state in the field of taxation, the interference must strike a ”fair balance” between the requirements 45 Judgment of the ECtHR of 23.10.1997 in National & Provincial Building Society, The Leeds Permanent Building Society and Yorkshire Building Society v. United Kingdom, Application No. 21319/ 93. 46 A. Franczak, Ochrona praw podatnika (above n. 43), p. 58. 47 M. Piłaszewicz, Ochrona prawna przed Europejskim Trybunałem Praw Człowieka w sprawach podatkowych [Legal Protection before the European Court of Human Rights in Tax Matters], Glosa 2011, No. 3, p.115. 48 M. Piłaszewicz, Ochrona prawna (above n. 46), p. 115. 49 Judgment of the ECtHR of 16.07.2002 in Dangeville v. France, application no. 36677/97; Judgment of the ECtHR of 9.01.2007 in Intersplav v. Ukraine, application no. 803/02. 50 Judgment of the ECtHR of 22.01.2009 in case Bulves AD v. Bulgaria, application no. 3991/03. 51 A. Franczak, Ochrona praw podatnika w dobie pandemii COVID-19 [Protection of taxpayers’ rights in the era of the COVID-19], (above n. 43), p. 58. 52 Judgment of the ECtHR of 14.06.2018 in Euromak Metal DOO v. Republic of Macedonia, Application No. 68039/14. 53 A. Mudrecki, Ochrona praw podatników w świetle orzecznictwa Europejskiego Trybunału Praw Człowieka w Strasburgu [Protection of taxpayers’ rights in the light of the jurisprudence of the European Court of Human Rights in Strasbourg, Krytyka Prawa 2020, vol. 12, no. 1, pp. 143–144.

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of the general interest of the community and those of protecting the fundamental rights of the individual.54 In the scope of Article 8 of the Convention, the European Court of Human Rights allows restricting the taxpayer’s right to privacy only if the interference meets the criteria provided for in Article 8 (2) of the Convention.55 The test for compatibility of limitations to the right to privacy provides that interference with the right to privacy is permissible after the cumulative fulfilment of three conditions, namely: compatibility with the law when it is carried out to protect enumerated values such as national security, public safety or the economic well-being of the country, the protection of order and the prevention of crime, and the protection of health and morals or the protection of the rights and freedoms of persons; when it is necessary for a democratic society in view of the good to be protected; the limitation must also be ‘provided for by law’ and ‘in accordance with the law’.56 The Court analysed interference with a taxpayer’s right to privacy in, inter alia, André and Others v France, a case which concerned the search of the applicants’ offices by tax inspectors who wanted to obtain evidence against a company of the applicants’ client, suspected of tax fraud. The Court held that there had been a violation of Article 8 of the Convention in that, in the Court’s view, the search and seizure had been disproportionate to the aim pursued. Similarly, in Brazzi v. Italy,57 the Court held that there had been a violation of Article 8 of the Convention because the interference with the applicant’s right to respect for his home was not subject to the effective supervision required by the rule of law in a democratic society. Furthermore, the European Court of Human Rights stressed that no judge had examined the legality or necessity of the order to search his home, either before or after the search. In the Court’s view, therefore, Italian law did not provide sufficient safeguards against the risk of abuse of power or arbitrariness. Therefore, the interference failed the test of compatibility of a restriction on the right to privacy.

54 A. Mudrecki, Ochrona praw podatników [Protection of taxpayers’ rights] (above n. 52). 55 A. Franczak, Granice zakłócencji w prawa do tajemnicy zawodowej doradcy podatkowego w świetle międzynarodowych i unijnych standardów ochrony praw podatnika – cz. 1 [Limitations of interference with the right to professional secrecy of a tax advisor in the light of international and EU standards of protection of taxpayer’s rights – part 1], Kwartalnik Doradca Podatkowy 2012, n. 1, p. 44. 56 Cf. more extensively L. Garlicki (ed.), Konwencja o Ochronie Praw Człowieka i Podstawowych Wolności, t. 2: Komentarz do art. 19–59 oraz Protokołów dodatkowych [Convention for the Protection of Human Rights and Fundamental Freedoms, vol. 2: Commentary to Articles 19–59 and Additional Protocols], Warsaw 2011, pp. 483–490; E. Milczarek, Prywatność wirtualna. Unijne standardy ochrony prawa do prywatności w Internecie [Virtual Privacy. EU standards for protection of the right to privacy on the Internet], Warsaw 2020. 57 Judgment of the ECtHR of 27.9.2018, application no. 57278/11.

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The position of the European Court of Human Rights on the application of Article 6 of the Convention in tax matters is essentially negative, as reflected in the well-known and commented Ferrazini judgment.58 In this judgment, the Court confirmed its previous position regarding the inapplicability of Art. 6 of the Convention to tax matters. However, the position presented in the cited judgment is slightly mitigated in matters of incidental or secondary nature to the principal tax disputes, e.g. by assuming that Article 6 of the Convention is applicable in criminal cases involving criminal repression resulting from a disturbance of tax-law relations, and even in tax cases involving a non-criminal sanctioning element (tax sanctions).59 Thus, if a measure is a criminal measure within the meaning of the Convention, the taxpayer benefits from all the guarantees provided by Article 6 for criminal proceedings.

6.

Conclusions

To sum up, it should be stressed that taxpayers and the professional attorneys representing them should not forget about the constitutional and international standards of protection of taxpayers’ rights, which protect them against any arbitrariness in shaping tax constructions by the legislator and secure their legally protected personal and property interests in the process of applying the tax law. During the twenty-four years of the Polish Constitution of 2 April 1997, the jurisprudence of the Constitutional Tribunal has played an important role in promoting and observing the constitutional standards of tax law-making. The extensive jurisprudence of the Constitutional Tribunal unequivocally shows that the tax law should be clear and consistent, and should be enacted in the spirit of respect for the principles of legal certainty and confidence in the legislator, acquired rights, pending interests, as well as protection of the citizens’ property. The legislator must meet these requirements to ensure timely and voluntary fulfilment of tax obligations. Moreover, the national tax system and tax legislation, as well as the legal status of taxpayers and tax authorities, should be based on fundamental rights provided for in the European Convention on Human Rights and its protocols.60 The European Court

58 Judgment of the ECtHR of 12.07.2001 in case Ferrazzini v. Italy, application no. 44759/98. 59 A. Brzezińska-Rawa, A. Franczak, Poglądy nauki prawa podatkowego na stosowanie art. 6 ust. 1 Europejskiej Konwencji Praw Człowieka w sprawach podatkowych [Views of the science of tax law on the application of Article 6(1) of the European Convention on Human Rights in tax cases], in: Ochrona praw podatnika, diagnoza sytuacji [Protection of taxpayer’s rights, diagnosis of situation], A. Franczak (ed.), Warsaw 2021, pp. 55–68. 60 I. Babin, Features of the Application of the Decisions of the European Court of Human Rights by Ukrainian Courts in Tax Cases, Danube 2020, Issue 1.

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of Human Rights justifies the interference in the freedom of the state, which is a member of the Council of Europe, only by exceeding the limits of the specific rationality in the amount, manner of application or context of taxation, or by deprivation of procedural guarantees or violation of acquired rights of the taxpayer.61 The European Court of Human Rights jurisprudence has consistently strengthened the formal guarantees ensuring the protection of procedural rights in various tax law procedures and has developed protection against legislation that does not meet the requirements of correct legislation.62

References Legal acts Konwencja o Ochronie Praw Człowieka i Podstawowych Wolności [European Convention on Human Rights and Fundamental Freedoms], J. of L. 1993, No. 61, item 284. Konstytucja Rzeczypospolitej Polskiej z dnia 2 kwietnia 1997 r. [The Constitution of the Republic of Poland of 2 April 1997], J. of L. 1997, No. 78, item 483 as amended.

Jurisdiction Judgment of the ECtHR of 23.10.1997 in National & Provincial Building Society, The Leeds Permanent Building Society and Yorkshire Building Society v. United Kingdom, Application No. 21319/93. Judgment of the ECtHR of 12.07.2001 in case Ferrazzini v. Italy, application no. 44759/98. Judgment of the ECtHR of 16.07.2002 in Dangeville v. France, application no. 36677/97. Judgment of the ECtHR of 9.01.2007 in Intersplav v. Ukraine, application no. 803/02. Judgment of the ECtHR of 22.01.2009 in case Bulves AD v. Bulgaria, application no. 3991/03. Judgment of the ECtHR of 14.06.2018 in Euromak Metal DOO v. Republic of Macedonia, Application No. 68039/14. Judgment of the Constitutional Tribunal of 20.11.2000, K 41/02. Judgment of the Constitutional Tribunal of 30.01.2001, K 17/00. Judgment of the Constitutional Tribunal of 25.04.2001, K 13/01. Judgment of the Constitutional Tribunal of 14.09.2001, SK 11/00. Judgment of the Constitutional Tribunal of 11.12.2001, SK 16/00.

61 Cf. A. Cieśliński, Dopuszczalność opodatkowania odszkodowania uzyskanego od Skarbu Państwa w świetle standardów ochronnych Europejskiej Konwencji Praw Człowieka [Admissibility of taxation of compensation obtained from the State Treasury in the light of protective standards of the European Convention on Human Rights], Acta Universitatis Wratislaviens 2018, No. 3867, p. 19. 62 K. Wojtyczek, Ochrona praw podatnika [Protection of taxpayers’ right] (above n. 36), pp. 411–423.

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Judgment of the Constitutional Tribunal of 27.02.2002, K 47/01. Judgment of the Constitutional Tribunal of 20.11.2002, K 41/02. Judgment of the Constitutional Tribunal of 19.12.2002, K 33/02. Judgment of the Constitutional Tribunal of: 9.09.2004, K 2/03. Judgment of the Constitutional Tribunal of 30.11.2004, SK 31/04. Judgment of the Constitutional Tribunal of 15.02.2005, K 48/04. Judgment of the Constitutional Tribunal of 7.03.2005, P 8/03. Judgment of the Constitutional Tribunal of 29.11.2006, SK 51/06. Judgment of the Constitutional Tribunal of 11.12.2007, U 6/06. Judgment of the Constitutional Tribunal of 26.11.2007, P 24/06. Judgment of the Constitutional Tribunal of 27.11.2007, SK 39/06. Judgment of the Constitutional Tribunal of 10.03.2009, P 80/08. Judgment of the Constitutional Tribunal of 15.07.2013, K 7/12. Judgment of the Constitutional Tribunal of 8.07.2014, K 7/13. Judgment of the Constitutional Tribunal of 12.12.2017, SK 13/15.

Literature Babin I., Features of the Application of the Decisions of the European Court of Human Rights by Ukrainian Courts in Tax Cases, Danube 2020, Issue 1. Bień-Kacała A., Finanse publiczne [Public Finance], [in:] Prawo konstytucyjne [Constitutional Law], Z. Witkowski, A. Bień-Kacała (ed.), Toruń 2015. Bień-Kacała A., Zasada władztwa daninowego w Konstytucji RP z 1997 r. [The principle of tribute authority in the Constitution of the Republic of Poland of 1997], Toruń 2005. Braciak J., Prawo do prywatności [The right to privacy], Warsaw 2004. Brzezińska-Rawa A., Franczak A., Poglądy nauki prawa podatkowego na stosowanie art. 6 ust. 1 Europejskiej Konwencji Praw Człowieka w sprawach podatkowych [Views of the science of tax law on the application of Article 6(1) of the European Convention on Human Rights in tax cases], in: Ochrona praw podatnika, diagnoza sytuacji [Protection of taxpayers’ rights, diagnosis of the situation], A. Franczak (ed.), Warsaw 2021. Brzeziński B., Znaczenie Art. 1 Pierwszego Protokołu do Europejskiej Konwencji Praw Człowieka dla ochrony praw podatnika [The role of Article 1 of the First Protocol to the European Convention on Human Rights in protecting the rights of the taxpayer], in: Ochrona praw podatnika, diagnoza sytuacji [Protection of taxpayers’ rights, diagnosis of the situation], A. Franczak (ed.), Warsaw 2021. Cieśliński A., Dopuszczalność opodatkowania odszkodowania uzyskanego od Skarbu Państwa w świetle standardów ochronnych Europejskiej Konwencji Praw Człowieka [Admissibility of taxation of compensation obtained from the State Treasury in the light of protective standards of the European Convention on Human Rights], Acta Universitatis Wratislaviens 2018, No. 3867.

Constitutional and human rights standards v. effectiveness of the tax system

Franczak A, Granice zakłócencji w prawa do tajemnicy zawodowej doradcy podatkowego w świetle międzynarodowych i unijnych standardów ochrony praw podatnika – cz. 1 [Limitations of interference with the right to professional secrecy of a tax advisor in the light of international and EU standards of protection of taxpayer’s rights – part 1], Kwartalnik Doradca Podatkowy 2012, n. 1. Franczak A., Ochrona praw podatnika w dobie pandemii COVID-19. Uwagi na tle art. 1 Pierwszego Protokołu do Europejskiej Konwencji Praw Człowieka [Protection of taxpayers’ rights in the era of the COVID-19 pandemic. Comments on Article 1 of the First Protocol to the European Convention on Human Rights], in: Ochrona przedsiębiorcy w dobie COVID-19 [The protection of the entrepreneur in the era of COVID-19], J. Glumińska-Pawlic (ed.), Katowice 2021. Garlicki L. (ed.), Konwencja o Ochronie Praw Człowieka i Podstawowych Wolności, t. 2: Komentarz do art. 19–59 oraz Protokołów dodatkowych [Convention for the Protection of Human Rights and Fundamental Freedoms, vol. 2: Commentary to Articles 19–59 and Additional Protocols], Warsaw 2011. Hofmański P., Europejska Konwencja Praw Człowieka i jej znaczenia dla prawa karnego materialnego, procesowego i wykonawczego [The European Convention on Human Rights and its relevance for substantive, procedural and enforcement criminal law], Białystok 1993. Kalisz A., Multicentryczność systemu prawa polskiego a działalność orzecznicza Europejskiego Trybunału Sprawiedliwości i Europejskiego Trybunału Praw Człowieka [Multicentricity of the Polish legal system and the case-law activities of the European Court of Justice and the European Court of Human Rights], Ruch Prawniczy, Ekonomiczny i Socjologiczny 2007, Vol LXIX, n. 4. Leszczyńska A., Europejska Konwencja o Ochronie Praw Człowieka oraz Podstawowych Wolności jako instrument ochrony praw podatnika [European Convention for the Protection of Human Rights and Fundamental Freedoms as an instrument to protect taxpayers’ rights], Kwartalnik Prawa Podatkowego 2004, no. 1–2. Leszczyńska-Rydlewska A., Granice dopuszczalnej ingerencji państwa w prawo własności podatnika w świetle standardów Europejskiej Konwencji Praw Człowieka [Limits of permissible state interference in the property right of a taxpayer in the light of the standards of the European Convention on Human Rights], Toruński Rocznik Podatkowy 2010. Mik C., Znaczenie postanowień EKPCz dla ochrony praw podstawowych jako ogólnych zasad prawa w UE [Relevance of the provisions of the ECHR for the protection of fundamental rights as general principles of law in the EU], in: Ochrona praw podstawowych w Unii Europejskiej [Protection of fundamental rights in the European Union], J. Barcz (ed.), Warsaw 2008. Milczarek E., Prywatność wirtualna. Unijne standardy ochrony prawa do prywatności w Internecie [Virtual Privacy. EU standards for protection of the right to privacy on the Internet], Warsaw 2020.

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Mudrecki A., Ochrona praw podatników w świetle orzecznictwa Europejskiego Trybunału Praw Człowieka w Strasburgu [Protection of taxpayers’ rights in the light of the jurisprudence of the European Court of Human Rights in Strasbourg, Krytyka Prawa 2020, vol. 12, No. 1. Piłaszewicz M., Ochrona prawna przed Europejskim Trybunałem Praw Człowieka w sprawach podatkowych [Legal Protection before the European Court of Human Rights in Tax Matters], Glosa 2011, No. 3. Prejs E., Skarga konstytucyjna jako środek ochrony praw podatnika [Constitutional complaint as a means of protecting taxpayers’ rights], in: Ochrona praw podatnika, diagnoza sytuacji [Protection of taxpayers’ rights, diagnosis of the situation], A. Franczak (ed.), Warsaw 2021. Prejs E., Wartości konstytucyjne a prawo podatkowe w orzecznictwie Trybunału Konstytucyjnego [Constitutional values and tax law in the jurisprudence of the Constitutional Tribunal], in: Prawo podatkowe, teoria, instytucje, funkcjonowanie [Tax law, theory, institutions, functioning], B. Brzeziński (ed.), Toruń 2009. Sakowicz A., Prawnokarne gwarancje prywatności [The criminal law guarantee of privacy], Kraków 2006. LEX/el. Serowaniec M., Witkowski Z., Constitutional conditions of the legislative process in Poland : theory vs. practice, Kobe Law Review 2019, vol. 52. Skubiszewski K., Konstytucyjne ujęcia stosunku prawa polskiego do prawa międzynarodowego [Constitutional view of the relationship between Polish law and international law], Państwo i Prawo 1987, No. 10. Wildhaber L., Dynamika orzecznictwa Europejskiego Trybunału Praw Człowieka [Developments in the jurisprudence of the European Court of Human Rights], Ius et Lex 2002, No. 1. Wilmanowicz-Słupczewska M., Wantoch-Rekowski J., Serowaniec M., Morawski M., Public finance and taxation in the Constitution of the Republic of Poland, Toruń 2021. Witkowski Z., Serowaniec M., The principles of social market economy within the doctrine of the constitutional law of Poland and the jursdiction of Constitutional Tribunal, Annales Universitatis Apulensis. Series Jurisprudentia 2016, Vol. 19. Witkowski Z., Serowaniec M., Wykładnia zasady demokratycznego państwa prawnego a problem (nad)aktywizmu sędziowskiego [Interpretation of the principle of democratic legal state and the problem of judicial (over)activism], in: Aktuální otázky právního státu v České republice a Polské republice, sborník příspěvků z VI. ročníku česko-polského semináře, (eds.): J. Jirásek, Z. Witkowski, Olomouc 2019. Wojtyczek K., Ochrona praw podatnika w orzecznictwie Europejskiego Trybunału Praw Człowieka [Protection of taxpayers’ rights in the case law of the European Court of Human Rights], in: Ochrona praw podatnika, diagnoza sytuacji [Protection of taxpayers’ rights, diagnosis of the situation], A. Franczak (ed.), Warsaw 2021.

Wojciech Morawski

The reduction of the importance of advance tax rulings and the fight against tax optimization1

1.

Introduction

The Polish tax system, in recent years, has been characterised by the dynamic development of various interpretative instruments. Although different acts of an interpretative nature are present in most of the world’s legal systems, in Poland they fulfil a special role. It is difficult to find another country where they would be issued in such numbers, particularly when it comes to classical advance tax rulings. The Polish taxpayer is ‘used’ to the fact that, during the course of planning a business operation, a tax ruling is sought, virtually as a routine action. This widespread use of tax rulings stems from several circumstances. Firstly, they are cheap. Secondly, the tax authorities issue them relatively quickly, since the maximum period for issuing a ‘regular’ tax ruling is 3 months. Failure to issue a ruling within the time limit results in acceptance of the taxpayer’s position and the taxpayer acquiring the same protection as if he/she had obtained the ruling. Thirdly, tax rulings offer quite good protection for the interests of the taxpayer. As a result, during the peak of this institution’s popularity (2012–2015), about 37,000 individual rulings were issued in Poland on a yearly basis. This leads one to ask whether such mass applications for tax rulings should be treated as the institution’s success, or conversely, as evidence of low regard towards the stability of views and friendliness of tax authorities. At present, tax rulings in Poland are already past their heyday.

2.

Tax rulings in Poland – characteristics

The system of Polish tax rulings is characterised by increasing diversity. It is therefore worthwhile to make an initial presentation of their catalogue. Of course, the most important are the ‘classic’ tax rulings, referred to in Poland as official tax law interpretations that, with certain exceptions, may apply to all tax

1 Chapter prepared under a grant funded by the National Science Centre (Poland) No. 2016/21/B/HS5/ 00187 – ‘Acts of interpretation in tax law – between aid, flexibility and disintegration of the system of tax law’.

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law provisions. They may take the form either of private tax rulings, which may in principle be used only by the entity that has applied for them (although there are exceptions to this rule, as discussed below), or general tax rulings, when they may be used by all taxpayers. A special solution is through tax explanations, which are a specific form of general interpretation, except that they are usually longer and contain examples of the application of the interpreted rules. In Poland, issuing both types of interpretation has a clear legal basis in the general provisions of tax law—the Tax Ordinance Act of 29 August 1997.2 It also regulates the procedure for issuing them and losing legal force. In the case of ‘classic’3 private interpretations, two specific types have gradually emerged that function alongside the typical private tax rulings requested by an entity in relation to its planned activity. These are private rulings issued on the basis of a joint application and rulings issued at the request of an entity planning to award a public contract. The first type has the advantage of protecting both parties to the transaction, while the second protects any potential contractor and can be obtained before a public contract is awarded. In addition to the classic individual and general rulings indicated above, there are also specialised tax rulings, which can only apply in specific cases. These are: − protective opinions, which decide whether the general anti-avoidance clause will apply to the factual situation of the taxpayer concerned (General AntiAvoidance Clause; GAAR),4 − Advance Pricing Agreements (APAs), to assess the appropriateness of the prices used in transactions between related parties (Article 81–107 of ustawa z dnia 16 października 2019 r. o rozstrzyganiu sporów dotyczących podwójnego opodatkowania oraz zawieraniu uprzednich porozumień cenowych [the Act of 16 October 2019 r. on the resolution of double taxation disputes and the conclusion of prior price agreements]),5 − binding excise information relating to the qualification of goods for excise duty purposes only (Article 7d–7k of ustawa z dnia 6 grudnia 2008 r. o podatku akcyzowym [the Act of 6 December of 2008 on excise duty]),6 − binding rate information on the classification of goods for the purposes of applying the rate of value added tax (Article 42a–42i of ustawa z dnia 11 marca 2004 r. o podatku od towarów i usług [the Act of 11 March 2004 on tax on goods and services]).7

2 3 4 5 6 7

J. of L. of 2021, item 1540 as amended, further cited as ‘Tax Ordinance Act’. It should be noted that such a term (‘classic tax ruling’) is not commonly used in Poland. Article 119w-119zt of Tax Ordinance Act. J. of L. of 2019, item 2200. J. of L. of 2020, item 722. J. of L. of 2021, item 685, further cited as ‘VAT Act’.

The reduction of the importance of advance tax rulings and the fight against tax optimization

This study will not be devoted to specialised rulings.

3.

‘Classic’ interpretations of tax law

3.1

The organisation of issuance of tax rulings

The regulation of the problem of issuing tax rulings in Poland has evolved. An analysis of the numerous—and unfortunately not always successful—experiments undertaken by the Polish legislator seems superfluous. From the point of view of taxpayers, an important date is 1 July 2007,8 when the legal regulation that enforced the current model of tax rulings was introduced. It should be noted, however, that a considerable number of changes have been made to it since then, and these have significantly changed the practice of applying these provisions. A characteristic feature of the regulation introduced on 1 July 2007 is the desire to centralise the process of issuing tax rulings. This was a significant development, since hitherto private tax rulings were issued by each of the 400 heads of tax offices (hierarchically the lowest Polish tax authorities), which resulted in an inconsistent interpretation of tax law. Moreover, these authorities often did not assign staff who were sufficiently specialised to handle large enterprises. The centralisation was only partially achieved. Formally, only the Minister of Finance issued private tax rulings, while acting via several offices scattered across the country.9 This was justified by the large number of rulings issued. On 1 March 2017, Poland saw a fundamental change in the structure of its tax administration, resulting in the creation of a single National Revenue Administration (Krajowa Administracja Skarbowa; KAS), headed by the Head of the KAS. The KAS included a separate body, the National Revenue Information Centre (Krajowa Informacja Skarbowa; KIS), the work of which is managed by the Head of the KIS, being the authority competent to issue private rulings. A formal separation of the authority competent for issuing tax interpretations occurred. The office of the Head of the KIS is located in Bielsko-Biała and supervises 5 delegations that de facto issue private rulings. It is an internal matter for the KIS to appoint the delegation responsible for preparing a ruling. Also, from an applicant’s point of view, it is not a concern that their case will be dealt with by an employee from a distant part of Poland, since the entire procedure of issuing a ruling in the country takes place without the applicant’s participation. If, however, the taxpayer complains about a ruling to 8 Ustawa z dnia 16 listopada 2006 r. o zmianie ustawy – Ordynacja podatkowa oraz o zmianie niektórych innych ustaw [Act of 16 November 2006 amending the Act – Tax Ordinance and certain other Acts] J. of L. of 2006, No 217, item 1590. 9 Article 14a of Tax Ordinance Act.

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an administrative court, it would not be the seat of the authority that issued the ruling10 but, uniquely, the seat of the taxpayer11 that would decide on jurisdiction. Such centralisation does not extend to rulings on local taxes. These are issued by the local tax authorities of specific territorial self-government units, i.e. heads of municipalities and mayors.12 They apply only within the territory of individual municipalities. 3.2

The procedure for issuing private tax rulings

Private rulings, which are issued at the request of the person concerned,13 may relate both to existing facts and future events. A person applying for a private ruling is obliged to present an exhaustive account of an existing fact or future event and also his or her own position on the legal assessment of that fact or future event.14 The proceedings for issuing tax rulings are considerably simplified compared to ordinary tax proceedings. The most characteristic feature of the interpretation procedure is that the tax authority is not entitled to examine the truthfulness of the facts presented by the taxpayer and cannot conduct any evidentiary proceedings whatsoever.15 The effect of such restraint of the competence of the interpreting body is that the risk of incorrect description of the facts rests with the applicant. The tax authority may refuse to apply a tax ruling on the basis that it concerns a different factual situation from the one existing in reality. The proceedings for the issue of a ruling are conducted in one instance. The possibility of appeal, even to the authority issuing the interpretation, is not provided for.

10 Such a rule applies pursuant to Article 13(2) of ustawa z dnia 30 sierpnia 2002 r. Prawo o postępowaniu przed sądami administracyjnymi [Act of 30 August 2002 on proceedings before administrative courts], J. of L. of 2019, item 2325 as amended. 11 Pursuant to rozporządzenie Prezydenta Rzeczypospolitej Polskiej z dnia 22 lutego 2017 r. w sprawie przekazania rozpoznawania innym wojewódzkim sądom administracyjnym niektórych spraw z zakresu działania dyrektora Krajowej Informacji Skarbowej, Prezesa Zakładu Ubezpieczeń Społecznych oraz Prezesa Kasy Rolniczego Ubezpieczenia Społecznego [Regulation of the President of the Republic of Poland of 22 February 2017 on transferring the examination of certain cases concerning the activities of the Head of the National Treasury Information Centre, the President of the Social Insurance Institution (ZUS) and the President of the Agricultural Social Insurance Fund (Kasa Rolniczego Ubezpieczenia Społecznego)], J. of L. of 2017, item 367. 12 Article 14j of Tax Ordinance Act. 13 Article 14b § 1 Tax Ordinance Act. This does not apply to the above-mentioned exceptions, i.e. rulings issued on the basis of a joint application (‘group rulings’) and interpretations issued at the request of an entity planning to award a public contract. 14 Art. 14b § 3 Tax Ordinance Act. 15 Judgment of the Provincial Administrative Court in Gdańsk of 26 January 2010, I SA/Gd 912/09.

The reduction of the importance of advance tax rulings and the fight against tax optimization

The specificity of Polish law is the judicial control of the issued rulings. However, the courts do not replace the interpretation bodies, as what they can do is repeal an interpretation by pointing out the correct interpretation of tax law. A taxpayer is entitled to protection resulting from the receipt of an interpretation only when it is obtained from a tax authority with content that is favourable to him/her and not after an unfavourable interpretation is repealed by the court. 3.3

Modification of a private tax ruling

Tax interpretations in Poland are issued for an indefinite period of time, although this is accompanied by a relatively simple possibility of them being changed. Private rulings may have been changed or repealed in some cases by the Director of the KIS and in some cases by the Head of the KAS. In the case of tax rulings concerning local government taxes, changes are made by the authority that issued them. The reason for a modification of a private ruling may include a change in the view of the tax authority. It is important from the point of view of the interests of the holder of a tax ruling that a change of interpretation involving the issuance of a new ruling is also subject to judicial review. 3.4

The legal nature of tax rulings and the scope of protection for the holder of a tax ruling

Neither private nor general interpretations are binding on the taxpayer. A taxpayer may find an interpretation to be contrary to the law and proceed in contravention of it. In the same way, an administrative court is not bound by the interpretation, as judges are subject only to the Constitution and statutes.16 Nor are tax rulings binding on the tax authority. In the event that a taxpayer is found to have an incorrect interpretation in the course of considering a case, it is obliged to issue a tax decision in accordance with the law, and not with the tax ruling. The taxpayer has the right to file a tax exemption application whereby he/she may in fact pay the tax on the amount that results from the ruling, insofar as it concerns future events.17 If a taxpayer makes a query about the past, he/she is only relieved of the obligation to pay interest on the arrears but must pay the amount of

16 Pursuant to Article 178(1) of the Polish Constitution, ‘Judges, within the exercise of their office, shall be independent and subject only to the Constitution and statutes’. 17 Article 14m Tax Ordinance Act. This rather odd mechanism is the result of the judgment of the Constitutional Court of 11 May 2004, K 4/03, which stated that general rulings cannot be binding on the authority, as this would blur the boundaries between creation and interpretation of law.

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tax arising from the regulations. Compliance by the taxpayer with the ruling also relieves him/her of criminal liability.

4.

The issuance of private rulings in Poland – unfortunate conclusions from the observation of practice

Polish taxpayers have found the easily accessible and affordable18 tax rulings appealing. The number of private rulings issued in Poland on behalf of the Minister of Finance, and then the KIS, increased each year until 2011–2015, and has since rapidly decreased.19 The gradual increase in the number of rulings issued can quite easily be explained by the gradual realisation of the benefits of holding such rulings by taxpayers. The reasons for the reduction in the number of rulings are far more intriguing. Since around 2016, Poland has been committed to a radical fight against all manifestations of tax optimisation. Considerable legal changes have also been made to the issue of tax rulings, but perhaps more important was a change in the political climate surrounding them. In practice, it was increasingly common for a tax authority to refuse to apply a ruling on the grounds that the description of a factual situation or future event in the application did not correspond to the actual course of action. Unfortunately, these differences very often relate to insignificant details of the factual situation that do not affect the scope of application of the legal regulation.20 Of course, this is only a pretext to charge the taxpayer a higher tax than that resulting from the ruling. As a result, there is a widespread belief among practitioners that, in practice, such rulings provide quite poor protection for taxpayers. To benefit from this protection, it is necessary to pursue a case before an administrative court. It should be noted that, in recent times, administrative courts have issued several judgments in which they have opposed the tax authorities’ practice described above.21

18 The fee for issuing a tax ruling is only 40 złoty (ca. 9 EUR). 19 https://www.kis.gov.pl/documents/6609173/6735367/Informacja+o+dzia%C5%82alno%C5%9Bci+Krajowej+Informacji+Skarbowej+w+2020+roku. Private rulings issued in the field of local taxes by the tax authorities of territorial self-government units were omitted here. 20 D. Osada, Ile naprawdę warte są indywidualne interpretacje podatkowe? Uwagi krytyczne [How much are private tax rulings really worth? Critical remarks], Monitor Podatkowy 2017, No. 1, pp. 25–32, A. Bartosiewicz, Indywidualne interpretacje prawa podatkowego – fasadowa instytucja czy rzeczywisty instrument ochrony praw podatnika? [Individual interpretations of tax law – superficial institution or real instrument of protection of taxpayers’ rights?] Monitor Podatkowe, 2019, No. 6, pp. 11–15. 21 Judgment of Supreme Administrative Court of 28 January 2019, I FSK 293/17.

The reduction of the importance of advance tax rulings and the fight against tax optimization

However, there has been a significant reduction in the number of private tax rulings issued. This is partly due to difficulty in obtaining interpretations and partly to the fact that taxpayers have decreasing confidence in private tax ruling.

Fig. 1 Number of private tax rulings Prepared based on: https://www.kis.gov.pl/documents/6609173/6735367/Informacja+o+dzia% C5%82alno%C5%9Bci+Krajowej+Informacji+Skarbowej+w+2020+roku

It should be noted that the changes in legal regulations described below also played a role in the fall in the number of tax rulings issued.

5.

Private tax rulings vs GAAR and other anti-abuse regulations

The key change in combating aggressive tax optimisation was the introduction of the GAAR on 15 July 2016.22 It is not the only—but certainly the most important—anti-abuse institution whose functioning has interfered to some extent with the functioning of tax rulings.

22 Pursuant to the Act of 13 May 2016 amending the Tax Ordinance Act and certain other Acts (J. of L. of 2016, item 846).

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5.1

Private tax rulings vs abuse of tax law prior to the GAAR

Tax rulings stabilise the taxpayer’s legal situation, which is naturally a positive development. The problem is that this stabilisation, or ‘legal security’, can also benefit a taxpayer who applies for a private tax ruling to secure his/her action aimed at reducing the tax burden through tax avoidance. Having a private tax ruling provides the taxpayer with legal security. Taking advantage of a private tax ruling may consist of obtaining a method of accounting for a given economic operation that would be beneficial for the taxpayer and confirm its legality. In the case of a more complex operation, this may consist of obtaining more private tax rulings that would protect its individual elements. Such an action would also have an advantage such that, by formulating several requests for formally separate rulings concerning separate legal or factual actions, the abusive nature of the operation as a whole disappears from the field of view of the interpreting authority, which would mean that the tax authority sees neither the necessity nor possibility of implementing instruments preventing tax avoidance. In cross-border situations, a taxpayer can take advantage of several national tax systems, and in turn their lack of coherence, to avoid taxation by using double taxation conventions between these countries. In addition, the taxpayer may try to obtain a ruling that would safeguard the different stages of the economic operation that are carried out under a given tax jurisdiction. When considered separately, each successive stage does not have to be regarded as an abuse, even if the relevant anti-abuse regulation is in force in the country concerned. Only a combination of measures in different countries can ascertain tax avoidance. It can therefore be quite easy to obtain a favourable private tax ruling in each country, as long as the authority refers only to actions taken under its tax jurisdiction. 5.2

The limitations on issuing private tax rulings in relation to the GAAR

The introduction of a general anti-avoidance clause (the so-called GAAR) into Polish tax law necessitated a resolution to the problem of protection resulting from a private tax ruling when the action of the holder of such a ruling simultaneously constitutes tax avoidance. There were two potential solutions to this. At first glance, it seemed possible to treat the GAAR as any provision of tax law, which would mean that a private tax ruling would also decide whether this clause would apply. Given the shape of a private tax ruling in Poland, this would not be a good solution. The interpreting authority examines the application only in respect of the facts or of a future event presented by the applicant. Therefore, it does not usually refer to the economic sense of the taxpayer’s actions, which is fundamental in the case of using a GAAR. In addition, at the time that the GAAR entered into force, interpretative bodies

The reduction of the importance of advance tax rulings and the fight against tax optimization

issued more than 30,000 private tax rulings per year. Thus, it would be very difficult to identify where a GAAR could be applied by necessity, with such a massive and ‘mechanical’ issuance of tax rulings. Financial issues were also relevant. For issuing a private tax ruling, the applicant would pay only 40 PLN (approximately 9 ),23 when the actual cost incurred by the tax administration would be much higher. By nature, the corresponding cost of issuing a ruling concerning the possible application of a GAAR would be even higher than a standard ruling, as it would require an assessment of a more complicated economic operation. The second solution—adopted in Poland—consists of excluding the use of a GAAR from the scope of a private ruling, with the possible introduction of a separate regulation on a specialised ruling relating to the GAAR’s use.24 In accordance with the provision of Article 14b(5b) of the Tax Ordinance Act, introduced together with the GAAR, issuing private tax rulings is prohibited when ‘there is a reasonable suspicion’ that the activity described in the application may be subject to the application of the GAAR. In such a situation, the body competent to issue a private tax ruling is obliged to refer to the Head of the KAS (as the authority competent to apply the GAAR).25 Originally, there was no provision against the obligation to request an opinion; such an exception was only introduced on 17 August 2017.26 In its current wording, the body authorised to issue a private ruling does not submit the above request to the Head of the KAS if ‘the factual situation or future event corresponds to an issue which was the subject of a previously obtained opinion of the Head of the National Revenue Administration (KAS)’. The opinion of the Head of the KAS, the subject of which is an issue corresponding to a factual state or a future event presented in the application for an individual interpretation, together with the application of the body authorised to issue an individual interpretation for its issue, after deletion of data identifying the applicant and other entities indicated therein, is placed in the case-file.27 A refusal to issue a private tax ruling, contrary to appearances, does not mean that the interpreting authority determines that the GAAR will certainly apply to the 23 The real cost of its issuance was of course many times higher. In 2011, the Ministry of Finance indicated that the average cost of issuing a single ruling was 1,072 PLN. 24 Quite similar regulations exist in France: A. Calloud, France, in: Anti-avoidance measures of general nature and scope – GAAR and other rules, Cahier de droit fiscal international, 2018, vol. 103a, p. 337. 25 Art. 14b(5c) Tax Ordinance Act. Before 1 January 2017, this organ was the Minister of Finance. 26 Pursuant to ustawa z dnia 20 lipca 2017 r. o zmianie ustawy – Ordynacja podatkowa, ustawy o finansach publicznych oraz ustawy – Przepisy wprowadzające ustawę o Krajowej Administracji Skarbowej [Act of 20 July 2017 amending the Tax Ordinance Act, the Public Finance Act and the Introductory Provisions of the National Revenue Administration Act]. J. of L. of 2017, item 1537. 27 Article 14b(5c) second sentence of Tax Ordinance Act.

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given facts. The only reason for refusing to issue a ruling is a ‘reasonable suspicion’ of the occurrence justifying the application of the GAAR. It is quite difficult to establish this in practice.28 An application for the issuance of a private tax ruling may in fact only include a fragment of the entire economic operation, which, if seen as a whole, may prove to be an abuse. 5.3

A protective opinion in place of a private tax ruling

Not being able to obtain private tax rulings does not mean that the taxpayer is unable to minimise the risk of application of the GAAR in advance. It is not possible for the taxpayer to obtain a private tax ruling, but he/she may apply for a so-called protective opinion, which is a type of specialised private tax ruling. It stipulates that a given action is not subject to a GAAR if the Head of the KAS is of the opinion that the GAAR would apply—namely, a protective opinion is refused. The most visible difference between a classic private tax ruling and a protective opinion is in the ‘price’—the fee for issuing the protective opinion can be as high as 20,000 złoty. Since the refusal to issue a private tax ruling does not prejudge the applicability of the GAAR to the situation, it is possible that after such a refusal, the same applicant would receive a protective opinion relating to the same economic operation. In practice, what is important is that a dispute over the assessment of a given operation is concluded much later on, which may be of significant economic significance. Procedural problems may also arise. It may happen that the interpreting authority initially refuses to deliver a private tax ruling, relying on the view that the taxpayer’s action constitutes tax avoidance. A taxpayer may apply for a protective opinion, thus incurring relatively high costs. If this is granted, it will mean undermining the correctness of the position of the interpreting authority with respect to the assessment of the facts. However, there are no grounds for refunding the fee for the application for a protective opinion (20,000 złoty) simply because the interpreting authority has misled the taxpayer as to the assessment of its planned actions. Nothing stands in the way of the taxpayer simultaneously challenging a refusal to issue a private ruling before an administrative court. It is therefore possible that the taxpayer would not only obtain a protective opinion, but also that the administrative court would confirm that the interpreting authority should issue a private ruling, while the taxpayer would nevertheless bear the costs of the protective opinion. The essence of the protective opinion lies precisely in the fact that the taxpayer ‘pays’ to confirm that he/she is acting correctly.29 28 Judgment of the Provincial Administrative Court in Poznań of 9 November 2017, I SA/Po 695/1, judgment of the Provincial Administrative Court in Gliwice of 16 November 2017, I SA/Gl 773/17. 29 W. Morawski, Urzędowe interpretacje prawa podatkowego – zmiany od GAAR do KAS [Official tax law interpretations – changes from GAAR to KAS], Przegląd Podatkowy 2017, No. 4, p. 35.

The reduction of the importance of advance tax rulings and the fight against tax optimization

5.4

Protection stemming from a private tax ruling vs a GAAR

The key to understanding the relationship between the tax ruling regulation and the GAAR is Article 14na of the Tax Ordinance Act, according to which, in its original wording, the provisions on the protection of a taxpayer receiving a private tax ruling ‘shall not apply if the factual situation or future event being the subject of the private tax ruling constitutes an element of the activities subject to the decision issued: 1) by application of Article 119a [that is, the decision to apply the GAAR]; 2) in connection with the occurrence of an abuse of law referred to in Article 5(5) of the Act of 11 March 2004 on Goods and Services Tax. 3) with the application of measures limiting contractual benefits.’ Thus, the potential conflict between a private tax ruling and a GAAR was decided by the Polish legislator in favour of combating tax avoidance. This means that a private tax ruling does not protect the holder in any way whatsoever once tax avoidance takes place. It is even irrelevant that the defect in interpretation is sometimes the result of an error by the interpretative body that incorrectly assessed that there was no ‘reasonable suspicion’ that the GAAR was applicable to the taxpayer’s action. This means that the interpreting authority will not suffer the negative consequences of its error in assessing the taxpayer’s actions and its failure to seek an opinion from the Director of the KAS. Therefore, a situation may arise whereby a taxpayer reliably indicates in their application for a private tax ruling all the elements relevant to the situation and still the ruling obtained will not guarantee him/her legal security.30 Of course, a tax ruling should not be an instrument for protecting those who abuse tax law. However, it is difficult to find countries that have adopted a solution so unfriendly to the taxpayer, who bears the risk of an error by the interpretation authority, which in turn would issue a tax ruling in the situation if the GAAR applied to the transaction.31 What is more, the literature indicates that the introduction of the GAAR has increased taxpayers’ uncertainty as to their legal position, making the use of tax rulings all the more justified.32

30 Judgment of the Provincial Administrative Court in Gliwice of 6 December 2017, I SA/Gl 846/17; judgment of the Provincial Administrative Court in Kraków of 24 March 2017, I SA/Kr 201/17. 31 See inter alia: O. Granot, Israel, in: Anti-avoidance measures of general nature and scope – GAAR and other rules, Cahier de droit fiscal international, 2018, vol. 103a, p. 424. The author points out that it is possible to refuse to apply tax rulings if they only apply to part of a step transaction. However, such action is completely different from what results from Polish law. 32 W. Panis, Belgium, in: Anti-avoidance measures of general nature and scope – GAAR and other rules, Cahier de droit fiscal international, 2018, vol. 103a, pp. 193–194.

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5.5

Private tax ruling in the area of value added tax vs abuse of tax law

The regulation concerning the lack of protection resulting from a private tax ruling also covers the situation whereby a taxpayer’s action constitutes an abuse of the law within the meaning of Article 5(5) of the VAT Act.33 According to this last provision, an abuse of the law is understood to mean the performance of an act during a transaction that, notwithstanding the fulfilment of the formal conditions laid down in the provisions of the law, was essentially aimed at obtaining tax advantages the granting of which would be contrary to the objective pursued by the provisions in question. Similar to the case of falling under the GAAR, in this scenario, it would be impossible to obtain a private tax ruling,34 and the taxpayer receiving it would still not be protected.35 However, there is a fundamental difference between the Polish legislator’s approach to avoidance as regards VAT and other taxes. Indeed, the whole regulation on the GAAR does not apply to VAT, and so it is not possible to obtain an advance ruling in relation to the hypothetical abuse of the VAT law. Hence, no mechanism exists to minimise the risk of the taxpayer in relation to VAT.

6.

Established interpretative practice vs GAAR

The institution known as ‘established interpretation practice’ was intended to reduce the number of requests for the issue of rulings in self-evident cases. In a sense, rulings issued for other entities are similar in effect to a taxpayer who has not applied for a ruling. Pursuant to Article 14n(5) of the Tax Ordinance Act,36 the established interpretation practice is understood to mean the views prevailing in private rulings issued with respect to the same facts or to the same future events and in the same legal state during the given accounting period in which the event occurred and in the period of 12 months before its commencement. Where such a practice is found to exist, the taxpayer is protected as if he/she were in possession of a private tax ruling.37 Accordingly, he/she is not protected in the context of the application of the GAAR.

33 34 35 36 37

Polish goods and services tax is the equivalent of value added tax. Article 14b(5b) Tax Ordinance Act. Article 14na Tax Ordinance Act. Introduced to Tax Ordinance Act as of 1 January 2017. The provision does not refer to Article 14l of the Tax Ordinance Act, as it concerns a situation in which an interpretation was issued after the occurrence of a tax event, whereas an established practice must by its nature be prior to the event.

The reduction of the importance of advance tax rulings and the fight against tax optimization

7.

Transparency of tax rulings

The BEPS measures were also aimed at combating harmful tax competition, which may also include the use of private tax rulings (or an advance pricing agreement). In this respect, however, the BEPS actions do not essentially concern Poland, which has pursued a completely different tax policy by issuing tax interpretations from Luxembourg, for example. Of course, Poland has also competed for investors through tax incentives, but this was not done in a manner and scope comparable to Luxleaks.38 Official interpretations may also be used to protect aggressive cross-border tax planning. In both cases it is important to ensure that the tax ruling system is transparent.39 Naturally, Poland implemented an amendment40 to Council Directive 2011/16/ EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC, which resulted in ensuring the transparency of the system of tax interpretation at EU level. Unfortunately, the changes in Polish tax law in this area have not been fully thought through. At first glance, the introduction into Polish law of a requirement to disclose its cross-border nature in an application for a tax ruling looks reasonable. Pursuant to art. 14 b § 3a of the Tax Ordinance Act, when the factual state or future event presented in the application for an individual interpretation includes a transaction, set of transactions or other events: 1. involving a natural person, legal person or organisational unit without legal personality: a. who have their place of residence, seat or management board outside the territory of the Republic of Poland, or b. who conduct business activity outside the territory of the Republic of Poland through a foreign permanent establishment, and the transaction, set of transactions or other events constitute a part or the entire business activity of the foreign permanent establishment, or c. which are parties to the transaction, set of transactions or participants in the event who are resident, established or managed in more than one country or territory, or 2. having cross-border effects,

38 https://www.icij.org/investigations/luxembourg-leaks/ 39 G. Lopes Dias, Luxembourg, in: Implementing key BEPS actions: where do we stand? M. Lang, J. Owens, P. Pistone, A. Rust, J. Such, C. Staringer (ed.), IBFD, 2019, pp. 549–554. 40 Under Council Directive (EU) 2015/2376 of 8.12.2015 amending Directive 2011/16/EU as regards compulsory automatic exchange of information in the field of taxation (OJ L 332, 18.12.2015, p. 1).

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the applicant for an individual interpretation is also obliged to indicate, respectively, the country or territory of residence of that natural person, data identifying that legal person or organisational unit without legal personality, including the country or territory of their seat, management or location of that foreign permanent establishment or the country or territory in which those cross-border effects have occurred or may occur. The problem is that sometimes the applicant is not able to specify who the other party to the transaction will be, especially when it comes to the situation whereby he/she is only starting to look for investors or contractors. In such a situation, according to the Polish courts, the applicant does not have such an obligation.41 Unfortunately, this judgment was rather a Pyrrhic victory for the taxpayer. Pursuant to the provisions of the Tax Ordinance, the holder of the interpretation will be protected only with respect to transactions with countries that it has indicated on the basis of the above provision.42

8.

Investment agreement – one swallow does not make a spring

It was felt by most legal practitioners that from around 2016 there was a crisis of individual tax interpretations as an institution giving taxpayers a sense of legal security. This was obviously a negative factor from an investment perspective. It seems that the Ministry of Finance was also aware of this. As a result, from 1 January 2022 (as part of the so-called Polish/New Deal, which was to ensure the recovery of the economy after the pandemic), a specific type of individual tax interpretation appeared: the investment agreement.43 What is new in Polish law is that an individual interpretation is now an agreement, not a unilateral decision of a tax authority. Its specificity lies in the fact that it covers issues that would normally be subject to several specialised types of individual interpretations. The right to conclude it, however, is vested only in investors, i.e. entities that are planning or have begun an investment in the territory of the Republic of Poland, the value of which is at least 50 million złoty.44

41 42 43 44

Judgment of Provincial Administrative Court in Warsaw of 18 December 2020 r., III SA/Wa 1110/20. Art. 14nb Tax Ordinance Act. Art. 20zs Tax Ordinance Act. Approx. 110,000 EUR.

The reduction of the importance of advance tax rulings and the fight against tax optimization

9.

Conclusion

The changes in the functioning of tax rulings in Poland between 2015 and 2020 have been moving in quite a clear direction. The aim has been to remove all obstacles in the combat against tax optimisation. As a result, the Polish taxpayer cannot fully trust individual tax rulings. At the same time, taxpayers have very limited opportunities to determine whether their operation will not be subject to anti-abuse regulations. The taxpayer may in some cases use advance rulings to minimise the risk of applying the GAAR. However, this is a costly measure. This situation must be approached critically. Additionally, it should be stressed that it is sometimes the Polish taxpayer who bears the consequences of a mistake made by the tax authority when issuing an individual tax ruling. The introduction of investment agreements may herald a change in the Government’s approach to individual tax rulings.

References Legal acts Under Council Directive (EU) 2015/2376 of 8.12.2015 amending Directive 2011/16/EU as regards compulsory automatic exchange of information in the field of taxation (OJ L 332, 18.12.2015, p. 1). Ustawa z dnia 29 sierpnia 1997 r.. Ordynacja podatkowa [Tax Ordinance Act of 29 August 1997], J. of L. of 2021, item 1540. Ustawa z dnia 30 sierpnia 2002 r. Prawo o postępowaniu przed sądami administracyjnymi [Act of 30 August 2002 on proceedings before administrative courts], J. of L. of 2019, item 2325. Ustawa z dnia 11 marca 2004 r. o podatku od towarów i usług [Act of 11 March 2004 on tax on goods and services], J. of L. of 2021, item 685. Ustawa z dnia 16 listopada 2006 r. o zmianie ustawy – Ordynacja podatkowa oraz o zmianie niektórych innych ustaw [Act of 16 November 2006 amending the Act – Tax Ordinance and certain other Acts], J. of L. of 2006, No 217, item 1590. Ustawa z dnia 6 grudnia 2008 r. o podatku akcyzowym [Act of 6 December 2008 on excise duty], J. of L. of 2020, item 722. Ustawa z dnia 13 maja 2016 r. o zmianie ustawy Ordynacja podatkowa i niektórych innych ustaw [Act of 13 May 2016 amending the Tax Ordinance Act and certain other Acts], J. of L. of 2016, item 846. Rozporządzenie Prezydenta Rzeczypospolitej Polskiej z dnia 22 lutego 2017 r. w sprawie przekazania rozpoznawania innym wojewódzkim sądom administracyjnym niektórych spraw z zakresu działania dyrektora Krajowej Informacji Skarbowej, Prezesa Zakładu Ubezpieczeń Społecznych oraz Prezesa Kasy Rolniczego Ubezpieczenia Społecznego [Regulation

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of the President of the Republic of Poland of 22 February 2017 on transferring the examination of certain cases concerning the activities of the Head of the National Treasury Information Centre, the President of the Social Insurance Institution (ZUS) and the President of the Agricultural Social Insurance Fund (Kasa Rolniczego Ubezpieczenia Społecznego)], J. of L. of 2017, item 367. Ustawa z dnia 20 lipca 2017 r. o zmianie ustawy – Ordynacja podatkowa, ustawy o finansach publicznych oraz ustawy – Przepisy wprowadzające ustawę o Krajowej Administracji Skarbowej [Act of 20 July 2017 amending the Tax Ordinance Act, the Public Finance Act and the Introductory Provisions of the National Revenue Administration Act], J. of L. of 2017, item 1537. Ustawa z dnia 23 października 2018 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych, ustawy – Ordynacja podatkowa oraz niektórych innych ustaw [Act of 23 October 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Ordinance Act and certain other Acts], J. of L. of 2018, item 2193. Ustawa z dnia 16 października 2019 r. o rozstrzyganiu sporów dotyczących podwójnego opodatkowania oraz zawieraniu uprzednich porozumień cenowych [Act of 16 October 2019 r. on the resolution of double taxation disputes and the conclusion of prior price agreements], J. of L. of 2019, item 2200.

Jurisdiction Judgment of the Constitutional Court of 11 May 2004, K 4/03. Judgment of the Provincial Administrative Court in Gdańsk of 26 January 2010, I SA/Gd 912/09. Judgment of the Provincial Administrative Court in Kraków of 24 March 2017, I SA/Kr 201/17. Judgment of the Provincial Administrative Court in Poznań of 9 November 2017, I SA/Po 695/1. Judgment of the Provincial Administrative Court in Gliwice of 16 November 2017, I SA/Gl 773/17. Judgment of the Provincial Administrative Court in Gliwice of 6 December 2017, I SA/Gl 846/17. Judgment of the Supreme Administrative Court of 28 January 2019, I FSK 293/17. Judgment of the Provincial Administrative Court in Warsaw of 18 December 2020 r., III SA/Wa 1110/20.

Literature Bartosiewicz A., Indywidualne interpretacje prawa podatkowego – fasadowa instytucja czy rzeczywisty instrument ochrony praw podatnika? [Individual interpretations of tax

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law – superficial institution or real instrument of protection taxpayers’ rights?], Monitor Podatkowy, 2019, No 6. Calloud A., France, in: Anti-avoidance measures of general nature and scope – GAAR and other rules, Cahier de droit fiscal international, 2018, vol. 103a. Granot O., Israel, in: Anti-avoidance measures of general nature and scope – GAAR and other rules, Cahier de droit fiscal international, 2018, vol. 103a. Lopes Dias G., Luxembourg, in: Implementing key BEPS actions: where do we stand? M. Lang, J. Owens, P. Pistone, A. Rust, J. Such, C. Staringer (ed.), IBFD, 2019. Morawski W., Urzędowe interpretacje prawa podatkowego – zmiany od GAAR do KAS [Official tax law interpretations – changes from GAAR to KAS], Przegląd Podatkowy, 2017, No. 4. Osada D., Ile naprawdę warte są indywidualne interpretacje podatkowe? Uwagi krytyczne [How much are private tax rulings really worth? Critical remarks], Monitor Podatkowy, 2017, No 1. Panis W., Belgium, in: Anti-avoidance measures of general nature and scope – GAAR and other rules, Cahier de droit fiscal international, 2018, vol. 103a.

Netography https://www.kis.gov.pl/documents/6609173/6735367/Informacja+o+dzia%C5%82alno%C5%9Bci+Krajowej+Informacji+Skarbowej+w+2020+roku

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Polish General Anti-Avoidance Rule. Proper ATAD implementation or an instrument providing the Polish tax authorities with unlimited power?

1.

Introduction

On 15 July 2016 Poland introduced general anti-avoidance regulations,1 which – after only a couple of years of being in force – were amended as of 1 January 2019.2 The Polish regulation is not a direct implementation of the ATAD3 and in some areas it may be perceived as going far beyond the ATAD’s general anti-avoidance rule template (hereinafter such rules will be referred to as the ‘GAAR’). After those modifications, the Polish GAAR seems to be pushing the boundaries of the term ‘aggressive tax optimization’ so far that one may have doubts whether it does not establish the rule that the taxpayer should perform its business activity in such a way as to pay the highest tax possible, obliging the taxpayer which has alternative ways of achieving the business purpose, to choose the one which triggers the higher taxation. This would however remain contrary to the motives of the ATAD, which clearly indicate that ‘within the Union, GAARs should be applied to arrangements that are not genuine; otherwise, the taxpayer should have the right to choose the most tax efficient structure for its commercial affairs’.4 Even though the motives of the ATAD indicate that the directive establishes only the minimum EU standards of anti-abuse,5 in the case of the GAAR, this standard is far ahead of what has been traditionally identified as tax law abuse by CJEU

1 The clause was added to the Tax Ordinance by Ustawa z dnia 13 maja 2016 r. o zmianie ustawy – Ordynacja podatkowa oraz niektórych innych ustaw [Act of 13 May 2016 amending Tax Ordinance and selected other acts], J. of L. 2016, item 846. 2 Amendments were introduced by Ustawa z dnia 23 października 2018 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych, ustawy – Ordynacja podatkowa oraz niektórych innych ustaw [Act of 23 October 2018 amending the corporate income tax act, tax ordinance and selected other acts], J. of L. 2018, item 2193. 3 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, Official Journal L193, 19.7.2016 (further referred to as: ATAD) 4 Motive 11 to the ATAD. 5 Motive 16 to the ATAD.

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rulings.6 Therefore, doubts may arise as to whether further extending the scope of the GAAR beyond the ATAD standard is permissible, and in particular whether such an extension will not remain contrary to the fundamental freedoms, notably in the case of cross-EU transactions.7 Taking the above into account, in this article the authors compare the Polish GAAR (in force in 2019) to the ATAD pointing to the most controversial issues connected with the current wording of the Polish regulations. As the 2018 amendments to the Polish GAAR raise also constitutional concerns, in this publication selected doubts in this area are also mentioned, to provide the reader with a better understanding of the fundamentals of the Polish legal system, of which the GAAR is a part.

2.

The Polish tax system and the pre-GAAR anti-abuse practice

Poland is a statutory law country. The Polish tax system, before the introduction of the GAAR, seemed quite prone to tax abuses. The Polish Constitution explicitly imposes the nullum tributum sine lege principle. At the same time a substantial part of the doctrine and judicature is in favour of a literal interpretation of the law. Such an approach is particularly strong in the area of tax law, in which it is generally claimed that teleological interpretation may not lead to imposing on a taxpayer any obligation other than that one explicitly listed in the literal wording of the law. Consequently many doctrine representatives argue that neither analogia iuris/analogia legis nor the principle of substance over form may be applied to impose a tax. Moreover, before enacting the GAAR, only limited anti-abuse regulations were present. In particular, after the introduction of modern income tax law in the 90’s, tax abuse was combated mainly by case-law.8 However such case-law lacked strong legal grounds. As a result, such an approach was challenged in the decisive Supreme Administrative Court ruling of 24 November 20039 by seven judges. In the justification of this ruling it was stated that, before the introduction of the

6 M.F. de Wilde, Chapter 14: Is the ATAD’s GAAR a Pandora’s Box? in: The Implementation of AntiBEPS Rules The EU: A Comprehensive Study, P. Pistone, D. Weber (ed.), Amsterdam 2018. 7 B. Kuźniacki, The GAAR (Article 6 ATAD), in: A guide to the anti-tax avoidance directive, W. Haslehner, K. Pantazatou, G. Kofler, A. Rust (ed.), Elgar Online 2020, p. 133. 8 B. Brzeziński, Narodziny i upadek orzeczniczej doktryny obejścia prawa podatkowego [Birth and death of the judicature of anti-avoidance doctrine], Przegląd Orzecznictwa Podatkowego, 2004, No. 1, p. 7–13; G. Kujawski, General and Specific Anti-Avoidance Provisions in Polish Tax Law, European Taxation, 2006, No. 6, p. 163–165. 9 Judgment of Supreme Administrative Court of 24 November 2003, FSA 3/03.

Polish General Anti-Avoidance Rule

first Polish GAAR in 2003, the tax authorities had no grounds for disregarding the tax effect of civil law acts, even if they were executed solely to avoid taxation. While this ruling did not fully legalize tax optimization, it clearly pointed out to the administrative courts that in combating tax avoidance they should base their judgments on the specific regulations of the law rather than just a general anti-abuse theological approach to interpretation of the legal provisions. As already mentioned, in the meantime, in 2003, Poland implemented its first GAAR, introducing art. 24b § 1 of the Tax Ordinance. According to it: ‘In resolving tax cases, tax authorities and tax audit authorities will disregard the tax effects of legal acts if they prove that no other material benefits than those following from a decrease in a tax liability, increase in loss, increase in overpayment or refund of tax could have been expected from the performance of those acts.’ Article 24b provided the tax authorities with the power to disregard, for the purposes of tax assessment, valid legal acts, in the case of identification that the act was concluded to avoid taxation. The original GAAR was soon revoked by the ruling of the Constitutional Tribunal of 11 May 2004. In this judgment the Tribunal found the GAAR noncompliant with Article 2 (establishing, amongst other matters, the rule of law), in connection with Article 217 of the Constitution (nullum tributum sine lege principle). The Tribunal indicated that the wording of the GAAR was contrary to the principle of the specificity of legal provisions in connection with the law certainty principle. In this respect, the Tribunal, on the one hand challenged the vagueness of the original GAAR scope, and on the other hand, pointed out that this GAAR did not clearly indicate how the tax amount should be established in the case of its application. The fact that the original GAAR was revoked heavily impacted the administrative court’s approach to the tax planning activities of taxpayers. While the original GAAR was still binding, the administrative courts issued a number of rulings, in which they claimed that before the introduction of the original GAAR there were no legal grounds for combating tax avoidance. When the Constitutional Tribunal revoked the GAAR, this line of reasoning was continued. It should be noted, though, that a few years after the original GAAR had been revoked by the Constitutional Tribunal, the Polish legislator decided to implement art. 199a of the Tax Ordinance. Pursuant to § 1 of the indicated Article ‘in determining the substance of a legal act, the tax authority takes into account the intention of the parties and the purpose of the act, and not only the literal wording of the declarations of intent of the parties to the act’. Based on § 2 ‘if, under the pretence of performing a legal act a different legal act is performed, the tax effects shall be derived from that concealed legal act’. The § 3 states that the tax authority in the case of having doubts relating to the existence of the legal relationship or right should seek resolution of these doubts in a civil law court.

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Art. 199a of the Tax Ordinance provides tax authorities with the right (in fact it obliges them) to assess the nature of taxpayers’ acts on the grounds of civil law while determining the tax liability. At the same time, according to the predominant standpoint, if the tax authority finds a taxpayer’s legal act to be a valid civil law act, then it must not disregard its tax consequences based on art. 199a, even if the act was undertaken solely to obtain tax benefit.10 On the grounds of art. 199a, the act may be reclassified only if it is apparent, e.g. when the wording of the act does not correspond with the intent of the parties to the act relating to achieving legal effects prescribed to the act by the law. According to the selected Supreme Court rulings, if the act is indeed executed, it shall be considered valid (shall not be treated as apparent).11 Taking this into account, it is generally considered that art. 199a of the tax ordinance is not a tax anti-abuse regulation,12 but is closer to the substance over form principle. The correctness of such an approach seems to be further confirmed by the fact that art. 199a of the Tax Ordinance had not been revoked when the GAAR were introduced for the second time in 2016. To summarise, before the introduction of the new GAAR, the predominant standpoint had been that (1) the tax may apply only to situations explicitly listed in the tax law, (2) the taxpayer had been free to undertake actions aimed at decreasing the tax burden (3) the tax authorities had been obliged to respect the tax effects of valid civil law acts prescribed by the tax law. Historically such an approach led many taxpayers to conduct steps aimed at circumventing the regulations imposing tax obligations and/or performing step-up on the tax value of assets, by means of using structural flaws in the income tax regulations. That is how it had been generally until the GAAR was once more introduced in 2016, when the tax authorities again took wide-ranging steps to combat more and also less aggressive tax planning. The introduction of the GAAR, though, also affected the tax authorities’ approach towards taxpayers’ actions undertaken in times when the GAAR was not in force. Currently the tax authorities are widely challenging all actions (structures) that they identify as aggressive tax optimization.

10 See amongst others: W. Nykiel, M. Wilk, Nieprzydatność art. 199a § 2 ordynacji podatkowej w walce z unikaniem opodatkowania a następstwa czynności pozornych [Non-applicability of Article 199a § 2 of the Tax Ordinance against tax avoidance versus consequences of scam acts], Przegląd Podatkowy, 2017, No. 2, p. 17–23. 11 Judgement of Supreme Court of 14 March 2001 r., II UKN 258/00; Judgement of Supreme Court of 29 May 2013 r., I UK 649/12, Judgement of Supreme Court of 13 March 2012 r., II PK 170/11. 12 For detailed analysis please refer to: M. Kondej, Granice optymalizacji podatkowej w zakresie podatków dochodowych przed wejściem w życie klauzuli przeciwko unikaniu opodatkowania [Civil legal boundaries of corporate income tax optimization (analysis of tax optimization schemes)], Poznań 2017, p. 126–131.

Polish General Anti-Avoidance Rule

For periods when the GAAR was not present, to combat tax avoidance, they resort to different legal grounds, most notably to: (1) general regulation of income tax law requiring taxable cost to be related to the taxpayer’s revenue, claiming that costs resulting from tax optimization were incurred not to obtain revenue, but to lower the taxable base, (2) transfer pricing, claiming that OECD guidelines always provided grounds for non-recognition and re-classification of transactions, even though such possibilities were explicitly introduced into the Polish tax law only in 2019,13 (3) regulations establishing the tax liability of foreign companies in Poland, if they have their place of management or permanent establishment in Poland, challenging in this way tax advantages granted by usage of such companies of tax optimization schemes, (4) the abovementioned Art. 199a of the Tax Ordinance, claiming – contrary to the dominant standpoint – that this regulation entitles the tax authorities to disregard the consequences of acts undertaken for the sole reason of obtaining a tax benefit. The jurisprudence in all those areas is generally still evolving and does not seem entirely stable.

13 This topic is discussed in detail in a number of articles, amongst others: F. Majdowski, Sola scriptura czy w drodze wykładni – zasada rynkowości jako quasi-ogólna klauzula przeciwko unikaniu opodatkowania? cz. 1 [Sola scriptura or interpretation – arm’s length principle as quasi anti avoidance rule. Part 1], Przegląd Podatkowy, 2018, No. 7, p. 36–41; F. Majdowski, Sola scriptura czy w drodze wykładni – zasada rynkowości jako quasi-ogólna klauzula przeciwko unikaniu opodatkowania? cz. 2 [Sola scriptura or interpretation – arm’s length principle as quasi anti avoidance rule. Part 2], Przegląd Podatkowy, 2018, No. 8, p. 30–35; H. Litwińczuk, Przekwalifikowanie (nieuznanie) transakcji dokonanej pomiędzy podmiotami powiązanymi w świetle regulacji o cenach transferowych przed i po 1.01.2019 r. [Reclassification of the transaction (disregarding transaction) between related parties in light of transfer pricing regulation before and after 1.01.2019], Przegląd Podatkowy, 2019, No. 3, p.12–18; K. Lasiński-Sulecki, W. Morawski, Wytyczne OECD jako urojona podstawa prawna działań organów podatkowych w zakresie cen transferowych – uwagi w kontekście non-recognition i recharacterisation rules [OECD Guidelines as deluded legal ground for tax authorities actions in field of transfer pricing – remarks relating to non-recognition and recharacterisation rules], in: Współczesne problemy prawa podatkowego – teoria i praktyka. Księga jubileuszowa dedykowana Profesorowi Bogumiłowi Brzezińskiemu (tom I) [Current problems of the tax law theory and practice. Anniversary Publication dedicate Bogumił Brzeziński (tome I)], J. Głuchowski et. al. (ed.), Warszawa 2019.

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3.

Conditions of GAAR application

As already mentioned, as of 15 July 2016, the new general anti-avoidance clause was introduced into the Polish Tax Ordinance. This regulation was amended in 2018 with effect from 1 January 2019.14 The stated objective of those amendments was mainly to accommodate the Polish GAAR so as to comply with the ATAD. According to the current wording of Art. 119a § 1 of the Tax Ordinance, the taxpayer’s action does not result in a tax advantage if obtaining this tax advantage, which in the circumstances remains contrary to the object or aim of the tax act or provision of the tax act, remained the main or one of the main reasons for the action, if the way in which the action had been performed was artificial. Based on the above, for the GAAR to apply, the following conditions have to be jointly meet: 1) the taxpayer must undertake an action or actions, resulting in obtaining a tax advantage, 2) the tax advantage must remain contrary to the object or aim of the tax act or provision of the tax law (further such a tax advantage will be referred to as unjustified), 3) obtaining such a tax advantage must remain the main or one of the main reasons for the undertaken action, 4) the way in which a given taxpayer’s action is performed must remain artificial. The above listed conditions more or less correspond with those established by the ATAD. The devil is in the details. 3.1

Taxpayer’s action resulting in obtaining a tax advantage

The first prerequisite for the GAAR to apply is identification of a taxpayer’s action aimed at obtaining a tax advantage. The Polish legislator uses the term ‘action’ while the ATAD refers to the term ‘arrangement’. This may cause some doubts relating to the actual scope of the Polish GAAR applicability. In particular, in Poland the term ‘action’ (Polish: czynność) may be perceived as referring to a civil law act (Polish: czynność cywilnoprawna). We are aware of a doctrine view according to which

14 Detailed analysis of the 2016 GAAR was presented amongst others in: D. Gajewski (ed.), Klauzula przeciwko unikaniu opodatkowania [General anti avoidance rule], Warszawa 2018; M. Guzek, M. Stefaniak, Klauzula przeciwko unikaniu opodatkowania. Komentarz praktyczny [General anti avoidance rule. Practical commentary], Warszawa 2018; M. Kondej, Klauzula przeciwko unikaniu opodatkowania. Komentarz do przepisów materialnoprawnych [General anti avoidance rule. Commentary to the substantive regulation.], Poznań 2018.

Polish General Anti-Avoidance Rule

the GAAR is applicable only to civil law acts.15 Nonetheless, we expect that in the practice of tax authorities and tax administrative courts the term action will be interpreted broadly, to match the meaning of the ATAD term ‘arrangement’. Similarly to the ATAD, the Polish GAAR is applicable both to a single action as well as a series of actions. At the same time the Polish legislator decided to clarify that the GAAR is (1) applicable to the series of actions only if they remain related to each other, (2) it does not matter whether those actions are undertaken by the same or different parties. Such a clarification seems useful, specifying when the tax authorities should apply the GAAR to a particular taxpayer‘s action and when to the whole series of related actions. For the GAAR to apply, the taxpayer’s actions must result in obtaining a tax advantage. The tax advantage, according to the Tax Ordinance, is understood broadly. A tax advantage arises when: − tax liability does not arise or is postponed in time or its amount is decreased or a tax loss arises or the amount of loss is increased, − tax overpayment arises or its value is increased or right to receive a tax refund arises or its value is increased, − the tax remitter is not obliged to withhold tax, as a result of the above mentioned situations. Such a broad definition of the tax advantage seems to put into this category most ordinary actions and events. For example incurring any tax deductible cost constitutes a tax advantage on the grounds of the Polish GAAR. This practically means that it is not the existence of a tax advantage, but rather other conditions of GAAR applicability, that determine whether the taxpayer’s actions should qualify as tax avoidance. 3.2

Tax advantage being contrary to the object or aim of the tax act or provision of the tax act, as one of the main aims of a taxpayer’s action

As a result of 2019 amendments, the Polish GAAR is applicable to tax advantages which remain contrary to the object or aim of the tax act or provision of the tax act. Prior to 2019, for the GAAR to apply, the tax advantage should have been contrary to the object and aim of the specific provision of the tax law. Comparing the GAAR wording before and after the amendments, the 2019 change seems to be aimed at

15 Such a view was presented by, amongst others: G. Kujawski, Klauzula generalna unikania opodatkowania. Komentarz do zmian w Ordynacji podatkowej [General anti avoidance rule. Comments to the tax ordinance], Warszawa 2017, p. 116; M. Guzek, M. Stefaniak, Klauzula przeciwko unikaniu opodatkowania. Komentarz praktyczny [General anti avoidance rule. Practical comments], Warszawa 2018, Legalis/el. Chapter II 1.1.2.

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eliminating the requirement of citing the specific regulation of the law that the taxpayer is abusing. In this context, the historical regulation seemed closer to the ATAD standard, according to which the GAAR shall be applicable to those tax advantages that defeat the object or purpose of the applicable tax provision. The current GAAR wording leaves much space for the tax authorities to assess that the tax advantage is unjustified.16 It also raises concerns as to whether the wording of the GAAR is not contrary to nullum tributum sine lege constitutional principles. As already mentioned, according to the Polish Constitution, tax obligations, in particular the amount of tax due, must be explicitly defined in the tax law. Thus, in our view, for any anti-avoidance clause to apply, first there must be material law provisions which specify the tax consequences of a given factual situation. Only if the taxpayer abuses such a regulation (e.g. by circumventing it or overexploiting it), will the anti-abuse rule apply. In this respect, the regulation which allows the tax authorities to apply the GAAR based on the sole fact that the tax advantage is contrary to the object/aim of a tax act rather than specific tax provision, seems to us too vague to sustain the test of its legal certainty. In particular, to our minds, the tax law is so complex that it is hard to clearly indicate the aim of the tax act as a whole, other than providing the state with funds in the amount determined by the provisions of the tax act. Note also that Polish acts of law – unlike the EU Directives – do not have preambles, which could state the aims of these acts. Thus, applying the GAAR to taxpayer’s acts contrary to the object or aim of the tax act as a whole, leads to the risk that the tax authorities will try to discretionarily impose the tax on taxpayers based e.g. on the reasoning that that the given factual situation, in view of the aim of the act (e.g. in view of the expected scope of income taxes), is supposed to be taxed, while there is no specific provision which could support such conclusion in the tax law. Prior to 2019, the GAAR in Poland was applicable only when obtaining a tax advantage was the only or the prevailing aim of a taxpayer’s actions. The 2016 GAAR applicability test could be thus approximated to ‘essential purpose test’, as established in CJEU rulings.17 Amendments, which came into force as of 1 January 2019, implemented the ATAD standard, according to which for the GAAR to apply it is sufficient that the tax benefit is one of the main aims of the taxpayer’s actions (further referred to as: one of the main purposes test/primary purpose test). From

16 We use a term ‘unjustified tax advantage’, for the tax advantage being contrary to the object or aim of the specific provision of the tax law as such advantage is, from a technical perspective, not illegal, but rather unacceptable from the point of view of the tax legislator. Theoretically this unacceptability should have its grounds in general legal and taxation principles (e.g. principle of the universality of taxation, principle of equality under the law, tax justice principle etc.). 17 A. Olesińska, A. Zalasiński, Poland Report, Cahiers de droit fiscal international, 2018, vol. 103a, p. 610.

Polish General Anti-Avoidance Rule

the current practice it seems that the assessment of what the main purpose of the taxpayer’s action is is made by the tax authorities by comparing the expected economic gains resulting from the undertaken actions to the amount of unjustified tax advantage. This, taking into account the wording of the law, seems generally to be the correct approach. It should however be stipulated that the ‘one of the main purposes test’ should be a ‘semi-objective’ rather than an ‘objective’ test, meaning that it should be the reliably expected gains rather than the gains that were actually achieved by the given taxpayer that should be compared to the amount of unjustified tax advantage for the purpose of determining whether the GAAR is applicable. In this respect it should also be noted that many of the non-tax advantages that the taxpayer may want to achieve by his actions are difficult to convert into monetary amounts. While we have no doubts that such advantages should also be taken into account, while determining GAAR applicability, assessing their importance seems to leave quite a lot of discretionary power to the tax authorities. This seems to be one of the main weaknesses of the primary purpose test. 3.3

Form of action being artificial

The most significant difference between the ATAD standard and the Polish GAAR is the understanding of artificiality. According to the ATAD, local GAARs should be applicable to arrangements which are not genuine taking into account all relevant facts and circumstances. The arrangement shall be regarded as non-genuine to the extent that it is not put into place for valid commercial reasons which reflect economic reality. Under the Polish GAAR before 2019, artificiality had been understood as a situation in which a taxpayer acting reasonably, aiming at the realization of lawful aims other than obtaining a tax advantage contrary to the object and purpose of the provision of the law, would not have chosen such a form. In other words the taxpayer, who had more than one reasonable way of achieving his aims, had the right to choose the form which resulted in the lowest tax burden. Such a wording remained, in our view, more or less in accordance with the ATAD standard. Starting from 2019 the Polish law no longer points out what should be understood as an artificial form of transaction. Instead, Article 119c § 1 of the Tax Ordinance states that the form of action is not artificial, if taking into account existing circumstances, an entity acting reasonably, aiming at realization of lawful aims, other than obtaining a tax advantage contrary to the object or aim of the tax act or provision of the act, would apply such a form predominantly for justified economic reasons. Such a wording raises concerns as to whether the taxpayer, having available two equal (or similar), from a business (non-tax) point of view, alternative ways of achieving his lawful aims, is entitled to choose the one which results in the lower tax burden. Literally, on the grounds of Art. 119c § 1 of the Tax Ordinance, each of

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those forms should be considered artificial. Such an understanding would however mean that the Polish GAAR is far stricter than the ATAD, as based on the ATAD it is only the situation in which the taxpayer makes an arrangement without valid commercial reasons reflecting economic reality, that is considered non-genuine. In this respect, it needs to be emphasized that the Polish legislator decided to link the artificiality condition with the ‘one of the main purposes’ test. He treats as an artificial situation one in which the taxpayer would not undertake a given act, if no unjustified tax advantage was available. This seems a significant departure from the ATAD standard where the non-genuineness of a transaction, being a close equivalent of the Polish artificiality, is a condition which does not depend on the fact of whether a taxpayer achieves an unjustified tax advantage. In other words, on the grounds of the ATAD, one may argue that the taxpayer, as long as his steps are commercially justified, is entitled to achieve a tax advantage prescribed by the tax law, even if in given circumstances this advantage may be viewed as not justified. Such an understanding of the ATAD seems to us to be in line with the role that anti-abuse regulations should play in a legal system. In particular in our view, as the term ‘anti-abuse’ suggests, such rules should be aimed at preventing instrumental use of the law, by means of the creation by an abuser of an artificial legal reality, to circumvent or overexploit the scope or, less often, the disposition of a legal norm. At the same time, taking into account the principles of the rule of law and legal certainty, anti-abuse rules may not be used to deprive an entity of the rights prescribed in the law, even if that law has significant flaws, as long as the entity resorts to it, using a standard course of action and there is no abusive element, particularly artificiality / non-genuineness, in his action. Having this in mind, we are of the opinion that the fact that in the Polish GAAR the legislator decided to link the artificiality condition with ‘one of the main purposes test’, claiming as artificial each form of action which the taxpayer would not have undertaken if no unjustified tax advantage was available, goes too far. Such a regulation is contrary to the rule of law and the legal certainty principle, based on which it is the wording of the law which determines the legal consequences of an act. To our minds, even though the aim of the provision may impact on its interpretation, such a theological interpretation should not go beyond what stands in the text of the law. Therefore we are of the opinion that for the Polish GAAR to remain in line with the above mentioned constitutional principles, the artificiality condition would have to be interpreted in accordance with the ATAD standard, rather than in accordance with the literal wording of 119c § 1 of the Tax Ordinance. In other words we are in favour of an interpretation according to which artificiality may be assigned only to those of the taxpayer’s actions whose form does not correspond with the commercial reasons standing behind the taxpayer’s aims.

Polish General Anti-Avoidance Rule

3.4

Exemptions from GAAR applicability

The GAAR is not applicable to VAT, state fees and non-tax budgetary receivables. Nonetheless it should be noted that VAT law has its own anti-abuse clause and Polish tax authorities and administrative courts are widely referencing the CJEU antiabuse doctrine in their rulings. Additionally the GAAR is not applicable towards the transaction for which the taxpayer received a so-called protective opinion (see further sections for more details). Starting in January 2019 the existence of a specific anti avoidance rule (SAAR) does not any longer preclude the application of the GAAR. While previously the GAAR was not applicable in cases to which other tax regulations could have been applied to prevent tax advantage, it became apparent that, that taxpayers were referring to this rule to challenge the outcomes of the GAAR proceedings, claiming that other tax regulations, particularly SAARs, should have been applied instead. Such a successful claim, raised at the right time, could lead to tax liability being subject to the statute-of-limitations, effectively resulting in no further possibility of challenging the tax advantage. Nonetheless in our view the GAAR should still be treated as a last resort instrument. particularly in circumstances where SAAR exists it should not be used to extend SAAR scope.

4.

The GAAR as a regulation applicable based on a decision of the tax authorities

It should be noted that currently in Poland it is not entirely clear whether GAAR is applicable ex lege The justification for 2019 GAAR amendments, made it quite clear that the legislator’s intention was that the GAAR should be applicable only based on the tax authorities’ decision, meaning that the taxpayer should not be entitled to apply the GAAR on his own. In other words the legislator’s aim was that the taxpayer who undertakes actions qualified under the GAAR as a tax avoidance should initially disclose tax effects of those actions, resulting from material tax law, in his tax settlements.18 Only after the tax authorities issue their decision should he be entitled to correct his settlements applying the GAAR. Nonetheless the legislator’s intention was not explicitly transferred into the wording of the law, which is likely to lead to disputes in this area. The legislator’s intention for the GAAR to be applicable only based on the tax authorities decision (such as is at least the Polish legislator’s intention explicitly stated

18 This means also that the taxpayer performing actions which are under the GAAR qualified as tax avoidance and disclosing them in the books, should not incur fiscal-penal liability.

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in the justification of the 2019 amendments), seems to us contrary to the ATAD. The Directive obliges the member states to ignore a tax avoidance arrangement for the purposes of calculating the corporate tax liability. This means to us, that the tax law should oblige the taxpayer to report, from the very beginning, income in the correct amount, that is ignoring eventual unjustified tax advantages which are the result of non-genuine arrangements (arrangements subject to the GAAR). Having this in mind, we do not see grounds for forbidding the taxpayer to apply the GAAR on his own, as seems to be the Polish legislator’s intention. Moreover, we are of the opinion that any tax regulation applicability may not be dependent on the tax authorities’ choice of whether to issue a tax decision. This view is supported by the fact that, on the grounds of the principle of universality of taxation and of the principle of equality under the law, the amount of tax due should be equal for all entities being in the same factual circumstances. To our minds, a situation in which the amount of the tax due depends on the discrete decision of the tax authorities would remain contrary to those rules. It is clear though, that if the tax authorities want to challenge taxpayers settlements based on GAAR such proceedings may be carried out only by the Head of the National Revenue Administration (‘Head of NRA’). Other tax authorities are not entitled to issue decisions based on the GAAR. The Head of the NRA may initialize a GAAR proceeding of his own or take over proceedings carried out by other tax authorities. The tax authorities may also ask the Head of NRA to take over the proceedings, although the Head of the NRA has the right to refuse, if regulations other than the GAAR allow subordinated tax authorities to prevent effects of tax optimization. The GAAR proceeding is a two-instance procedure. Before issuing a first instance decision, the Head of the NRA is obliged to provide the taxpayer with his assessment of the case. The taxpayer has 14 days to present his standpoint. During this period he may also correct, on his own, tax settlements according to the standpoint of the Head of the NRA. Such correction limits by half the amount of additional tax liability that is imposed on the taxpayer as a result of the GAAR application. If the taxpayer does not correct his settlements in line with the tax authorities standpoint, the Head of the NRA issues a decision. The taxpayer has the right to appeal against such a decision, but it is also the Head of the NRA who hears the appeal. At the second instance the taxpayer has also the right to demand the opinion of the committee for tax avoidance matters19 on the case (if such an opinion had not

19 The committee for tax avoidance matters is an expert body consisting of both Ministry of Finance representatives and independent legal experts, including, among other academics, a tax adviser, and an ex judge.

Polish General Anti-Avoidance Rule

been issued before based on a Head of NRA request). The opinion is not binding on the tax authorities. The decision of the Head of the NRA acting as a second instance authority is enforceable, but the taxpayer may appeal against it to the administrative courts. Such a proceeding is also a two-instance proceeding. The control of the administrative courts is limited to verification of whether the decision is in accordance with the law. While through procedural claims the party may challenge the factual background established in the decision, the administrative court does not, as a rule, conduct evidentiary proceedings. From 2019 the taxpayer may apply for so-called ‘reversal of effects of taxoptimization’ disclosing information about undertaken actions resulting in an unjustified tax advantage. Based on a relevant taxpayer’s motion, the Head of the NRA may issue a decision pointing out what tax effects the taxpayer’s actions have under the GAAR as well as providing information on how the effects of tax-optimization may be reversed. During such a proceeding an assumption is made that the taxpayer’s actions resulting in a tax advantage were artificial, and that obtaining a tax advantage was the main or one of the main aims of those actions and the tax advantage remains contrary to the object or aim of the tax act of provision of the tax act. The decision of the Head of the NRA provides the taxpayer with the opportunity to correct his settlements, which is otherwise, according to the tax authorities, not available. Additionally, according to the Ministry of Finance, if a taxpayer corrects his settlements based on such decision, additional tax liability, which is normally due in the case of GAAR application, should not be imposed on him.20 As of the date of preparation of this article the ‘reversal of effects of tax-optimization’ had not been utilized in practice and the legislator proposed legislative changes to make it more popular.

5.

Consequences of GAAR application

Depending on the factual circumstances, in a case in which the tax authorities decide to apply the GAAR: 1) the tax effects of the taxpayer’s actions are determined as if a taxpayer undertook so-called appropriate action. An action shall be considered appropriate if the entity could, in the given circumstances, undertake it, (1) acting reasonably, aiming at achieving lawful goals other than obtaining a tax advantage being

20 Head of NRA explanations relating to reversal of effects of tax-optimization procedure of 05.07.2019 (Available at: https://www.gov.pl/web/finanse/informacja-szefa-krajowej-administracji-skarbowej– cofniecie-skutkow-unikania-opodatkowania–nowy-rodzaj-procedury-w-ordynacji-podatkowej)

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contrary to the object or aim of the tax act or provision of the tax act and (2) the form of action is not artificial. As of 2019 the appropriate action may be lack of action. The taxpayer has the right to point to the appropriate (deemed) action; 2) the tax effect of the taxpayer’s actions is determined, as if the taxpayer undertook no action at all, in the case that the sole reasons for the taxpayer’s actions was to achieve a tax advantage which, in the given circumstances, remains contrary to the object or aim of the tax act or provision of the tax act. 3) however, in a case in which the tax advantage had been achieved by the application of a provision of the act concerning a tax exemption or a deduction, the tax is determined as if such exemption/deduction is not applicable. The last of the above listed effects of GAAR application seems the most controversial, as it leads to a situation where the tax effects of the taxpayer’s abusive actions may be completely detached from the economic nature of his actions.21 In particular, in many cases this regulation may result in a material tax liability arising, which would never have been due if the taxpayer had decided to take an alternative, reasonable way of achieving his commercial goals. As a result, such a GAAR disposition makes use of the tax exemptions in Poland increasingly risky. When issuing a decision based on the GAAR, the Head of NRA generally imposes on a taxpayer a so-called ‘additional tax liability’. Regarding income taxes, excluding lump-sum income taxes, an additional tax obligation amounts basically to 10% of the overstated tax loss or taxable income. In the case of other taxes the base of the additional tax obligation is 40% of the obtained tax advantage. In certain conditions the additional tax obligation may be doubled or even tripled. At the same time, if the taxpayer, during GAAR proceedings, decides to correct tax settlements on his own, within the statutory deadline, the tax obligation is decreased by 50%. The Head of the NRA may refrain from imposing the additional tax liability if he finds that the taxpayer acted in good faith (e.g. if based on existing circumstances the taxpayer had reasons to reliably believe that the tax advantage that he achieved was not contrary to the object or aim of the tax act or provision of the tax act).

6.

Protective opinions and individual rulings

The Polish regulations provide the taxpayer with the possibility to apply for a protective opinion, if he has doubts on the GAAR applicability to a given situation.

21 See also: M. Kondej, Zmiany w przepisach klauzuli ogólnej przeciwko unikaniu opodatkowania wchodzące w życie w 2019 r. [Changes to the general anti-avoidance rule coming into force as of 2019], Praktyka Podatkowa, 2018, No. 1, p. 4–20.

Polish General Anti-Avoidance Rule

The application should contain detailed information about the factual situation that took place or is going to take place. The administrative fee for issuing opinions amounts to PLN 20 thousand (+ PLN 5 thousand for each additional entity if there is a joint application case). The protective opinion is issued by the Head of NRA. If he refuses to issue the protective ruling, the taxpayer may appeal to the court. However, the fact that the proceedings may take approximately 3 years diminishes the attractiveness of this option. The protective opinion covers only the GAAR applicability. It neither formally protects the taxpayer from SAARs application nor confirms that the interpretation of the material tax law applied by the taxpayer is correct. As a side note it should be mentioned that the Polish tax law provides the taxpayer also with the possibility of applying for a binding tax ruling to confirm the interpretation of the material law regulations. However, the Polish tax authorities have the right to refuse to issue such a ruling, in a case where there is a reasonable presumption that the given case may be subject to the GAAR. Based on this regulation the tax authorities reject many taxpayers’ applications. This in practice results in difficulties in confirming the tax consequences of even those transactions which are not tax motivated. The taxpayer looking for the formal confirmation of the tax effects of his intended action may have first to apply for a protective opinion, to gain confirmation that the GAAR is not applicable and only later apply for a binding tax ruling confirming the consequences of his actions on the grounds of material tax law.22 Such proceedings may however easily take nine months, assuming a lack of any appeals.

7.

GAAR practice

Even though the GAAR came into force in the middle of 2016, the number of formal proceedings initiated based on the GAAR remains limited. The Head of NRA up to 31 June 2021 conducted 73 proceedings concerning application of GAAR. 36 of them concerned personal income tax, 24 corporate income tax and 13 other taxes. 28 of the proceedings were finalized in form of decision, which means that the taxpayer settlements were challenged based on the GAAR. In at least ten proceedings the appeal from the first instance decision was filed. In most cases (8)

22 It should be noted though that even if the taxpayer holds a protective opinion, the tax authorities may still try to refuse to issue a binding tax ruling relating to interpretation of the material law provisions.

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the decision was upheld, however two decisions were revoked as a result of appeal and a new decision, still challenging the taxpayer settlements, was issued. The committee for tax avoidance matters issued up to 31 June 2021 10 opinions all favourable to the Head of NRA.23 In a few of those opinions the committee stressed that application of GAAR to (1) 2016 tax settlements as well as to (2) the tax advantages being effects of taxpayers actions undertaken before GAAR came into force raises major concerns as regards constitutionality of the enacted intertemporal rule.24 The committee for tax avoidance matters found GAAR applicable to: 1. a few cases where sale of shares, was preceded by share-for-share exchanged, which allowed step-up on tax value of contributed shares25 2. transfer of trademarks to the SPV followed up by licensing of those trademarks to their formal owner.26 Up to the end of June 2021, 83 applications for protective opinions were filed. 35 such options were issued. It should be noted that around 20 of those applications concerned the same legal issue relating to a taxpayer right to lower tax amortization rates in time of benefiting from the state aid. In ten cases Head of NRA found GAAR applicable and refused to issue an opinion. A further 16 of the taxpayers’ applications were rejected on formal grounds. The protective opinions were issued inter alia as regards: − a global motivational programme based on derivatives carried by a Polish company, which effectively allowed the employees to settle the tax based on a lower personal income tax rate; − a debt restructuring transaction carried out by a bank, executed in form, which allowed the bank to recognize loss on granted credit as a tax deductible cost; − a merger, which allowed the acquiring company to deduct its historical tax losses from the taxable gains of company being acquired, as amongst other matters, the taxpayer was able to point to economic benefits from the merger exceeding the arising tax advantage,

23 The number of the opinions may be though considered somehow misleading as the opinions partially referred to the same cases but different tax proceedings (e.g. different parties to the proceeding). 24 Similar concerns were raised by the doctrine. See amongst other: B. Brzeziński, K. Lasiński-Sulecki, W. Morawski, Stosowanie regulacji GAAR do operacji dokonanych przed jej wejściem w życie. Czy walka o efektywność systemu podatkowego usprawiedliwia już wszystko? [Application of GAAR to actions undertaken before introduction of this norm. Do pursue toward effectiveness of the tax system justify everything?], Przegląd Podatkowy, 2021, No. 3, p. 13–26. 25 E.g. The committee for tax avoidance matters resolution 3/2019 of 18 December 2019, 2/2020 of 2 March 2020, 6/2020 of 8 October 2020. 26 E.g. The committee for tax avoidance matters resolution 1/2021 of 1 March 2021 r.

Polish General Anti-Avoidance Rule

− creation of a family holding, in particular in the form of an alternative investment company. The tax authorities refused to issue a protective ruling, in particular for: − An acquisition transaction, for the purpose of which a bidding company was created and after the acquisition the downstream merger of the bidding and target companies was planned. As a result of the reverse merger a loss on the sale of shares would have occurred. The tax authorities came to the conclusion that a taxpayer acting reasonably would not perform such complicated steps to takeover another company (which – based on the facts described – we disagree with as the companies’ actions seem justified); − A demerger of the company followed by its transformation into a partnership. The restructuring assumed the transfer of gains from previous years to the newly established company. The transfer effectively allowed those gains to be transferred to shareholders without any tax on dividend; − An incentive plan for board members, based on derivatives, allowing them to benefit from a lower personal income tax rate; − A sale of shares, preceded by share-for-share exchange (i.e. in-kind contribution of shares), which effectively allowed step-up on tax value of shares being sold. A few court rulings relating to the refusal to issue a protective opinion were already issued, most in first instance court proceedings. They are generally favourable to the Head of NRA. It is also worth mentioning that the Head of NRA, after the implementation of the GAAR, started issuing tax alerts, relating to the structures which potentially may be subject to the GAAR. His alerts concern, amongst other matters: − tax step-ups on goodwill by means of in-kind contribution of an enterprise to the company, followed by sale of company assets; − tax step-ups by means of donation within tax capital groups; − tax step-ups by means of donation of intellectual property to a partnership followed by lease of that property; − Employee incentive plans, based on issuing derivatives to employees, aimed at lowering their effective personal income tax rate; − establishing structures aimed at double-tax treaty abuse; − usage in the group structure of foreign companies, effectively managed from Poland, without recognizing them as subject to taxes in Poland. Another, already mentioned, sign of GAAR practice is the high number of refusals of applications for individual rulings based on the reasonable presumption that the GAAR may be applicable.

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8.

Summary

Establishing GAARs and other anti-avoidance measures is like walking a tightrope. On one hand the legislator must ensure the effectiveness of the law, while on the other hand it should respect the principles of the rule of law and legal certainty. One carelessly established regulation may be like a step off a cliff, resulting in the whole GAAR becoming unconstitutional and/or breaching fundamental rights. In the case of Poland, 2019 amendments to the GAAR may be viewed as this one step too far – as is already claimed by representatives of the tax doctrine.27 The fact that the legislator linked together two conditions of GAAR applicability – the ‘one of the main purposes test’ and the ‘artificiality (non-genuineness) test’, which on the grounds of the ATAD remain separate prerequisites for triggering the anti-abuse rule, results in a situation in which the GAAR literally may be applicable, not only to abusive taxpayers’ actions, but also to commercially justified steps, if only tax authorities assess that the tax advantage resulting from them is contrary to the object or aim of the tax law act or provision of that act. Taking into account the vagueness of the term ‘tax advantage contrary to the object or aim of the tax act or provision of that act’ this leaves the tax authorities with enormous discretionary power. Such a situation, from the authors’ point of view, may lead to breaching in certain cases the principles of legality and legal certainty. While it is for us entirely clear that anti-abuse regulations are indispensable to ensure justice and equality in the area of taxes, they may not be formulated in a way which negates the rule of law, overriding it by the rule of tax authorities’ discretionary power. Our concern is even more severe, when we consider the harsh sanctions that a taxpayer may suffer in a case where the tax authorities find anti-abuse rules applicable to him. It may not only be the tax advantage that the taxpayer will be deprived of. The amount of the tax liability that he may be assessed with, in the worst case scenario, may remain many times bigger than the one that he would have been supposed to pay if he had chosen an alternative, reasonable way of achieving his lawful aims. What is more, this tax liability is likely to be further increased by the amount of punitive ‘additional tax liability’. Taking this together with the fact that the Polish tax authorities tend sometimes to interpret the law, not according to its actual aim, but rather looking at fiscal revenues, makes us deeply concerned about the risk of the anti-abuse rule being an excessively used weapon.

27 See amongst others: A. Gomułowicz, Klauzula przeciwko unikaniu opodatkowania, czyli – Ave Caesar morituri te salutant [General anti avoidance rule – Ave Caesar morituri te salutant], Przegląd Podatkowy, 2019, No. 10, p. 14–20.

Polish General Anti-Avoidance Rule

References Legal acts Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, Official Journal L193, 19.7.2016. Ustawa z dnia 13 maja 2016 r. o zmianie ustawy – Ordynacja podatkowa oraz niektórych innych ustaw [Act of 13 May 2016 amending Tax Ordinance and selected other acts], J. of L. 2016, item 846. Ustawa z dnia 23 października 2018 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych, ustawy – Ordynacja podatkowa oraz niektórych innych ustaw [Act of 23 October 2018 amending the corporate income tax act, tax ordinance and selected other acts], J. of L. 2018, item 2193.

Jurisdiction Judgment of Supreme Administrative Court of 24 November 2003, FSA 3/03. Judgement of Supreme Court of 14 March 2001 r., II UKN 258/00. Judgement of Supreme Court of 29 May 2013 r., I UK 649/12. Judgement of Supreme Court of 13 March 2012 r., II PK 170/11. Committee for tax avoidance matters resolution 3/2019 of 18 December 2019. Committee for tax avoidance matters resolution 2/2020 of 2 March 2020. Committee for tax avoidance matters resolution 6/2020 of 8 October 2020. Committee for tax avoidance matters resolution 1/2021 of 1 March 2021.

Literature Brzeziński B., Narodziny i upadek orzeczniczej doktryny obejścia prawa podatkowego [Birth and death of the judicature of anti-avoidance doctrine], Przegląd Orzecznictwa Podatkowego, No. 2004, No. 1. Brzeziński B., Lasiński-Sulecki K., Morawski W., Stosowanie regulacji GAAR do operacji dokonanych przed jej wejściem w życie. Czy walka o efektywność systemu podatkowego usprawiedliwia już wszystko? [Applcation of GAAR to actions undertaken before introduction of this norm. Do pursue towards effectiveness of the tax system justify everything?], Przegląd Podatkowy, 2021, No. 3. Gajewski D. (ed.), Klauzula przeciwko unikaniu opodatkowania [General anti avoidance rule], Warszawa 2018. Gomułowicz A., Klauzula przeciwko unikaniu opodatkowania, czyli – Ave Caesar morituri te salutant [General anti avoidance rule – Ave Caesar morituri te salutant], Przegląd Podatkowy, 2019, No. 10.

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Guzek M., Stefaniak M., Klauzula przeciwko unikaniu opodatkowania. Komentarz praktyczny [General anti avoidance rule. Practical commentary], Warszawa 2018. Kondej M., Granice optymalizacji podatkowej w zakresie podatków dochodowych przed wejściem w życie klauzuli przeciwko unikaniu opodatkowania [Civil legal boundaries of corporate income tax optimization (analysis of tax optimization schemes)], Poznań 2017. Kondej M., Klauzula przeciwko unikaniu opodatkowania. Komentarz do przepisów materialnoprawnych [General anti avoidance rule. Commentary to the substantive regulation.], Poznań 2018. Kondej M., Zmiany w przepisach klauzuli ogólnej przeciwko unikaniu opodatkowania wchodzące w życie w 2019 r. [Changes to the general anti-avoidance rule coming into force as of 2019], Praktyka Podatkowa, 2018, No. 1. Kujawski G., General and Specific Anti-Avoidance Provisions in Polish Tax Law, European Taxation, 2006, No. 6. Kujawski G., Klauzula generalna unikania opodatkowania. Komentarz do zmian w Ordynacji podatkowej [General anti avoidance rule. Comments to the tax ordinance], Warszawa 2017. Kuźniacki B., The GAAR (Article 6 ATAD), in: A guide to the anti-tax avoidance directive, W. Haslehner, K. Pantazatou, G. Kofler, A. Rust (ed.), Elgar Online 2020. Lasiński-Sulecki K., Morawski W., Wytyczne OECD jako urojona podstawa prawna działań organów podatkowych w zakresie cen transferowych – uwagi w kontekście nonrecognition i recharacterisation rules [OECD Guidelines as deluded legal ground for tax authorities actions in field of transfer practing – remarks relating to non-recognition and recharacterisation rules], in: Współczesne problemy prawa podatkowego – teoria i praktyka. Księga jubileuszowa dedykowana Profesorowi Bogumiłowi Brzezińskiemu (tom I) [Current problems of the tax law – theory and practice. Anniversary Publication dedicate Bogumił Brzeziński (tome I)], J. Głuchowski et. al. (ed.), Warszawa 2019. Litwińczuk H., Przekwalifikowanie (nieuznanie) transakcji dokonanej pomiędzy podmiotami powiązanymi w świetle regulacji o cenach transferowych przed i po 1.01.2019 r. [Reclassification of the transaction (disregarding transaction) between related parties in light of transfer pricing regulation before and after 1.01.2019], Przegląd Podatkowy, 2019, No. 3. Majdowski F. , Sola scriptura czy w drodze wykładni – zasada rynkowości jako quasiogólna klauzula przeciwko unikaniu opodatkowania? cz. 1 [Sola scriptura or interpretation – arm’s length principle as quasi anti avoidance rule. Part 1], Przegląd Podatkowy 2018, No. 7. Majdowski F., Sola scriptura czy w drodze wykładni – zasada rynkowości jako quasiogólna klauzula przeciwko unikaniu opodatkowania? cz. 2 [Sola scriptura or interpretation – arm’s length principle as quasi anti avoidance rule. Part 2], Przegląd Podatkowy 2018, No. 8 Nykiel W., Wilk M., Nieprzydatność art. 199a § 2 ordynacji podatkowej w walce z unikaniem opodatkowania a następstwa czynności pozornych [Non-applicability of Article 199a § 2

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of the Tax Ordinance against tax avoidance versus consequences of scam acts], Przegląd Podatkowy 2017, No. 2. Olesińska A., Zalasiński A., Poland Report, Cahiers de droit fiscal international 2018, vol. 103a. Stefaniak M., Klauzula przeciwko unikaniu opodatkowania. Komentarz praktyczny [General anti avoidance rule. Practical comments], Warszawa 2018. Wilde M.F., Chapter 14: Is the ATAD’s GAAR a Pandora’s Box? in: The Implementation of Anti-BEPS Rules in EU: A Comprehensive Study P. Pistone, D. Weber (ed.), Amsterdam 2018.

Netography Head of NRA explanations relating to reversal of effects of tax-optimization procedure of 05.07.2019, https://www.gov.pl/web/finanse/informacja-szefa-krajowej-administracjiskarbowej–cofniecie-skutkow-unikania-opodatkowania–nowy-rodzaj-procedury-wordynacji-podatkowej (downloaded on: 23.09.2021

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New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – current legal developments

1.

Introductory remarks

The European Union has taken an active role in the past few years, which have been dominated by the debate around aggressive tax planning, base erosion and profit shifting (BEPS), tax competition and transparency. As stated in the Communication from the Commission to the European Parliament and the Council: A Fair and Efficient Corporate Tax System in the European Union – 5 Key Areas for Action,1 Europe needs a framework for fair and efficient taxation of corporate profits in order to distribute the tax burden more equitably. An essential element of a fair and efficient tax system is corporate taxation, which is not only an important source of revenue for the Member States but also an important factor influencing companies’ business decisions. In the EU, the debate around corporate taxation began to emerge as early as the 1960s as economic and political integration within the EU led to more cross-border activity. Problems which could hamper the development of the Single Market, such as double taxation, gained in importance. The focus was on preventing such tax obstacles; as a result of these developments, the Parent-Subsidiary Directive2 and Interest and Royalties Directive3 were adopted for this purpose. It has been agreed that mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States may be necessary in order to create within the Community conditions analogous to those of an internal market and, thus, to ensure the effective functioning of such an internal market. Such restructuring operations ought not to be hampered by restrictions, disadvantages or distortions arising, in particular, from the tax provisions of the Member States.

1 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52015DC0302 (downloaded 04.10.2021). 2 Council Directive 90/435/EEC of 23 July 1990 on a common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, O.J. UE L 225, 20.08.1990, p. 6. 3 Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, O.J. UE L 157, 26.06.2003, p. 49.

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Therefore, the Merger Directive4 provided for such operations tax rules which are neutral from the point of view of competition in order to allow enterprises to adapt to the requirements of the internal market to increase their productivity and to improve their competitive strength at the international level. Recently, the EU has also been providing the foundation for a more coherent and competitive EU approach in the global context. Internationally, the OECD is working on the Base Erosion and Profit Shifting (BEPS) project to close loopholes that facilitate tax avoidance. The EU, at the same time, has been 1) rebuilding on these international reforms the common system of corporate taxation within the EU and 2) integrating the results of the BEPS project at the EU level.5 Currently in the EU, a novel approach to corporate taxation is needed to meet the goal of fairer and more efficient taxation and to effectively tackle corporate tax avoidance. One of the EU solutions to implementing the OECD BEPS measures is to focus on ensuring effective taxation where profits are generated. Alongside other tools, it has been decided to explore concrete measures to ensure that the objectives of the currently adopted directives in the field of corporate taxation are achieved.6 In relation to these objectives, the Parent-Subsidiary directive has been amended.7 While implementing the amendment of the directive, some of the Member States, including Poland, also took a closer look at the implementation of the Merger Directive and the Interest-Royalties Directive, assessing and reviewing the existing tools that were introduced into the national system and which would also safeguard the achievements of the objectives of these directives, such as anti-abuse provisions. These two legislative trends in the field of corporate taxation in Poland, which aim to improve the effectiveness of the fight against tax fraud and tax evasion by the use of specific anti-tax-avoidance rules, are the subject of this study.

4 Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office, of an SE or SCE, between Member States, O.J. UE L 225, 20.08.1990, p. 1. 5 Annex 4 in the Staff Working Document regarding links with the OECD BEPS project. 6 Communication from the Commission to the European Parliament and the Council: Action plan to improve the effectiveness of the fight against tax fraud and tax evasion, SWD (2012) 403 final, SWD (2012) 404 final, https://eur-lex.europa.eu/legal-content/PL/TXT/?uri=CELEX%3A52012DC0722 (downloaded 04.10.2021). 7 Council Directive (EU) 2015/121 of 27 January 2015, amending Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, O.J. UE L 21, 28.01.2015, p. 1.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

2.

Preventing abuse of dividend tax exemption in the EU (de minimis rule)

Because the consolidation of companies from different Member States proved to be necessary for the creation of an effectively functioning common market within the European Union, the European Commission took actions at the EU level to remove all restrictions on the consolidation processes of companies resulting, in particular, from tax regulations of the Member States. Double taxation of profits from shares held by parent companies in subsidiaries (dividends) was considered one such restriction. In the national system, this phenomenon was commonly eliminated by the Member States. In the case of groups of companies with an international dimension, the situation was much more complex.8 In order to eliminate the above restriction, the Council of the European Communities adopted directive 90/435/ EEC of 23.07.1990 on a common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.9 The directive seeks to ensure the neutrality, from the tax point of view, of the distribution of profits by a company established in one Member State to its parent company established in another Member State.10 Directive 90/435 entered into force on 30.07.1990, with Member States being required to transpose its provisions into the national system by 01.01.1992. Then, on 18.01.2012, this directive was replaced by Council Directive 2011/96/EU of 30.11.2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.11 The current directive corresponds to the content of the preceding directive 90/435, as it was introduced primarily for the sake of the transparency of its provisions, which had been amended several times before. In addition to the provisions contained in directive 2011/96 to eliminate double taxation of dividends paid between companies of different Member States, art. 1 section 2, in its original wording, contained a rather laconic provision according to which Member States were entitled to the application of national provisions or provisions of international agreements aimed at preventing

8 E. Prejs, Implementacja do polskiego porządku prawnego klauzuli zapobiegającej nadużyciom zwolnienia od opodatkowania dywidend [Implementation of the clause preventing the abuse of dividend tax exemption into the Polish legal system], in: Nowe narzędzia prawne w podatkach dochodowych i majątkowych [New legal tools in income and wealth taxes], Wolters Kluwer Polska, 2018, p. 353 and subsequent. 9 O.J. UE L 225, 20.8.1990, p. 6, as amended. 10 Judgment of the Court of Justice of the European Union of 8 March 2017, Wereldhave Belgium and Others, C-448/15, EU:C:2017:180. Also E. Prejs, Implementacja (above no. 8), p. 354 and subsequent. 11 O.J. UE L 345, 29.12.2011, p. 8, as amended.

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tax fraud and abuse.12 Article 1(2) of the Parent-Subsidiary directive reflects the general principle of EU law that EU law cannot be relied on for fraudulent or abusive ends.13 The cited provision of the directive authorised Member States to introduce tax provisions or provisions of international agreements that constituted the basis for a total or partial refusal to apply the privileged system of income taxation related to participation in the company’s capital in the event that the main or one of the principal purposes of the taxpayer’s arrangement was to avoid taxation, commit tax fraud or abuse the law.14 The provision of the directive in its original wording has been in force since its adoption. Apart from the wording quoted above, the directive did not contain, in particular, legal definitions allowing for the identification of tax avoidance, tax fraud or abuse or measures of their characteristics. Some authors have highlighted that the reference by the tax administration to the content of this clause required its implementation into the national system;15 however, this point of view has been rejected by the CJEU in its recent judgment.16 Importantly, directive 2011/96 did not provide for an obligation to introduce an anti-avoidance clause in that version.17 The existing anti-abuse measures in force in the Member States covered a wide range of forms and objectives developed in the context of national or international practice to take into account the specific needs of Member States and the characteristics of their tax systems.18

12 Judgment of the Court of Justice of the European Union of 20 December 2017 r., Deister Holding i Juhler Holding, C-504/16 and C-613/16, EU:C:2017:1009. 13 Judgments of the Court of Justice of the European Union of 7 December 2017, Eqiom and Enka, C-6/16, EU:C:2017:641; of 22 November 2017, Cussens and Others, C-251/16, EU:C:2017:881; 5 July 2007, Kofoed C-321/05, EU:C:2007:408; of 6 April 2006, Agip Petroli, C-456/04, EU:C:2006:241; of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C-196/04, EU:C:2006:544; of 21 February 2006, Halifax and Others C-255/02, EU:C:2006:121; and of 9 March 1999, Centros, C-212/97, EU:C:1999:126. 14 It is worth noting that a derogation from the tax rules provided for by that directive is not required. The Member States may, in any event, exercise the option provided for in that article only whilst observing the general principles of EU law and, more specifically, the principle of proportionality (see, by analogy, judgments of the Court of Justice of the European Union of 17 July 1997, LeurBloem, C-28/95, EU:C:1997:369 and of 8 March 2017, Wereldhave Belgium and Others, C-448/15, EU:C:2017:180). 15 A. Zalasiński, Some Basic Aspects of the Concept of Abuse in the Tax Case Law of the European Court of Justice, Intertax 2008, No. 4, p. 158. 16 Judgment of the Court of Justice of the European Union of 26 February 2019, N Luxembourg 1 and others, C-115/16, ECLI:EU:C:2019:134. 17 F. Debelva, J. Luts, The General Anti-Abuse Rule of the Parent-Subsidiary Directive, European Taxation, 2015, June, p. 223. 18 E. Prejs, Implementacja (above n. 8), p. 355 and subsequent.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

On 25.11.2013, the European Commission proposed to amend directive 2011/ 96.19 The goal of this project was the introduction of a general anti-tax-avoidance clause to ensure the correct application of the common system of dividend taxation within the European Union. As a result of the above actions, on 27.01.2015, the Council adopted a directive amending directive 2011/96, which revised art. 1 of this directive by introducing a general clause preventing tax fraud in the field of taxation of dividends.20 According to its content, Member States are obliged not to grant benefits resulting from directive 2011/96 to any arrangement or series of arrangements put into place for the main purpose or a principal purpose of obtaining a tax advantage that defeats the object or purpose of this directive as such individual or serial arrangements – given all the relevant facts and circumstances – are therefore not genuine.21 An individual arrangement may cover more than one stage or part of a transaction. Another provision contained in section 3 added to art. 1 of directive 2011/96 indicates that a unit or serial arrangement is considered not to be genuine in so far as it is not introduced for legitimate commercial reasons that reflect economic reality. Therefore, directive 2011/96, in its currently binding version, requires the existence of several conditions, the cumulative fulfilment of which allow the application of the tax avoidance clause provided for therein, such as the existence of an individual or serial arrangement, the main purpose or one of the principal purposes of their introduction being to obtain a tax advantage, granting a tax advantage would violate the object or purpose of the directive or the individual or the serial arrangement is not of a real nature. These circumstances will be discussed in the following sections of this article. Member States were required to implement this anti-avoidance clause by 31.12.2015 at the latest. Before the revision of the directive, many Member States – in a more general or more specific way – applied more or less restrictive national rules or contractual provisions to combat tax evasion, tax fraud or abuse. However, some Member States have not introduced such national provisions at all. In this regard, the Council considered that the inclusion in the directive of a minimum clause common to all Member States to prevent abuses and the

19 Proposal for a Council Directive amending Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, COM(2013) 814 (25.11.2013), https://eur-lex.europa.eu/legalcontent/en/TXT/?uri=CELEX%3A52013PC0814 (accessed 17.05.2018). 20 Council Directive (EU) 2015/121 of 27 January 2015 amending directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, O.J. UE L 21, 28.01.2015, p. 1. 21 E. Prejs, Implementacja (above no. 8), p. 356 and subsequent.

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avoidance of taxation of dividends (‘de minimis rule’) would be very helpful and would ensure greater consistency in its uniform application in individual Member States. The EU legislator also reserved in the preamble to the directive that the application of anti-abuse clauses should be proportionate and serve the specific purpose of eliminating unitary or serial fictitious arrangements that do not reflect economic reality. When assessing whether an individual or serial arrangement constitutes abuse, the tax administrations of the Member States should carry out an objective analysis of all relevant facts and circumstances. If the individual stages or parts of an individual arrangement – considered individually – are not real, tax authorities should also apply an anti-abuse clause to eliminate those specific stages or parts, without prejudice to the other real stages or parts of the arrangement.

3.

Preventing abuse of interest and royalty tax exemption in the EU

In a Single Market having the characteristics of a domestic market, transactions between companies of different Member States should not be subject to less favourable tax conditions than those applicable to the same transactions carried out between companies of the same Member State. This requirement was not met as regards interest and royalty payments. National tax laws coupled, where applicable, with bilateral or multilateral agreements may not always ensure that double taxation is eliminated, and their application often entails burdensome administrative formalities and cash-flow problems for the companies concerned. On 03.06.2003, the Council adopted directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.22 The directive is designed to eliminate withholding tax obstacles in the area of cross-border interest and royalty payments within a group of companies by abolishing withholding taxes on royalty payments and on interest payments arising in a Member State. Interest and royalty payments are subject to tax one time in a Member State of their beneficial owner. These interest and royalty payments shall be exempt from any taxes in that State provided that the beneficial owner of the payment is a company or permanent establishment in another Member State. The directive was to be implemented by 01.01.2004. In the cases of the Czech Republic, Greece, Latvia, Lithuania, Poland, Portugal, Slovakia and Spain, the transitional arrangements have been agreed upon by the EU.23

22 O.J. UE L 157, 26.06.2003, p. 49. 23 In the case of Poland, a transitional period as regards the application of the provisions of the 2003/ 49/EC directive was in force until 01.07.2013.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

However, it was also necessary not to preclude Member States from taking appropriate measures to combat fraud or abuse. As stated in art. 5 section 1 of directive 2003/49, the directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of fraud or abuse. Whilst article 5(1) of directive 2003/49 provides that the directive is not to preclude the application of domestic or agreement-based provisions required for the prevention of fraud or abuse, that provision, nevertheless, cannot be interpreted as excluding the application of the general principle of EU law, namely that abusive practices are prohibited.24 Member States may, in the case of transactions for which the principal motive or one of the principal motives is tax evasion, tax avoidance or abuse, withdraw the benefits of this directive or refuse to apply this directive. Although directive 2003/49 itself does not define abuse, other EU directives, such as directive 2011/96 and the CJEU judgments, provide necessary pointers that might be used for its interpretation.

4.

Preventing the use of restructuring operations of business entities in tax optimisation schemes in the EU

In connection with the creation of the internal markets in the European Union, a number of factors, including some of a tax nature, have been identified that may affect the efficient allocation of resources within the European Union. These factors have become the determinant of the scope of the harmonisation of corporate income tax rules in the European Union. Due to the economic objectives of harmonisation, it has been limited to eliminating those tax obstacles that relate to the taxation of cross-border events at the Community level in a different way compared to the conditions prevailing in national markets. When analysing the factors limiting the free movement of capital within the EU, Member States recognised as a significant obstacle in this respect the situation in which certain operations related to the restructuring of companies and carried out with the participation of companies established in different EU Member States are treated in a less favourable manner in their tax systems compared to analogous operations involving companies established in one Member State. Restructuring operations such as mergers, divisions, transfer of assets or exchanges of shares are considered necessary in order to create conditions within the Community for the effective functioning of an internal market. Such operations ought not to be hampered by restrictions, disadvantageous conditions or distortions arising,

24 Judgment of the Court of Justice of the European Union of 26 February 2019, N Luxembourg 1 and others, C-115/16, ECLI:EU:C:2019:134.

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in particular, from the tax provisions of the Member States.25 This goal was not achieved by applying simple legislative measures consisting in extending to the Community level internal systems in force in the Member States, as the differences between these systems were too far-reaching and could cause distortions. In these circumstances, there was a need to adopt uniform tax rules at the EU level providing that (as was the case for restructuring operations involving companies from one Member State) capital gains disclosed during events aimed at changing the structure of the enterprise are not taxable at the time of disclosure but at the time of their realisation.26 In the pursuit of the abovementioned objective, on 23.07.1990, the Council of the European Communities adopted directive 90/434/EEC on a common tax system for mergers, divisions, contribution of assets and exchanges of shares of companies having their registered offices in different Member States.27 Member States were obliged to transpose their provisions into national law by 01.01.1992. On 14.12.2009, the directive was repealed and its provisions were replaced with the identical provisions of Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable in the case of mergers, divisions, divisions by spin-off, contribution of assets and exchange of shares concerning companies of different Member States and the transfer of the registered office of an SE or an SCE from one Member State to another.28 Directive 2009/133 entered into force on 15.12.2009, subject to the earlier deadlines for transposing its provisions into the national system. Directive 2009/133 introduces a neutral tax system common to all EU Member States for the operations listed in art. 1 therein. The basis of this system is a deferred tax mechanism, the essence of which is to postpone the moment when tax obligation arises in relation to capital gains disclosed both on the side of the company and its partner as a result of a restructuring event during which they are actually realised.29

25 Judgment of the Court of Justice of the European Union of 20 May 2010, Modehuis A. Zwijnenburg BV vs. Staatssecretaris van Financiën, C-352/08, EU:C:2010:282. 26 B. Brzeziński, M. Kalinowski (eds.), Tax law of the European Union, Gdańsk 2017, p. 281 and also E. Prejs, Zapobieganie wykorzystaniu operacji restrukturyzacyjnych podmiotów gospodarczych w schematach optymalizacji podatkowych [Preventing the use of restructuring operations of business entities in tax optimisation schemes], in: Nowe narzędzia prawne w podatkach dochodowych i majątkowych [New legal tools in income and wealth taxes], Wolters Kluwer Polska, 2018, p. 335 and subsequent. 27 Council Directive 90/434/EEC of 23 July 1990 on a common system of taxation applicable in the case of mergers, divisions, contribution of assets and exchanges of shares, concerning companies of different Member States; O.J. UE L 225, 20.08.1990, p. 1 – version of original text. 28 O.J. UE L 310, 25.11.2009, p. 34, as amended. 29 Judgment of the Court of Justice of the European Union of 19 December 2012, 3D I, C-207/11, EU:C:2012:81 and of 20 May 2010, Modehuis A. Zwijnenburg, C-352/08, EU:C:2010:282.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

The application of the deferred tax mechanism in relation to capital gains disclosed as a result of restructuring depends on the occurrence of a number of conditions described in detail in In addition, in accordance with art. 15 section 1 (a) of directive 2009/133,30 Member States have the option of refusing, fully or partially, the application of its provisions. Such a refusal is justified when, among other cases, the main or one of the principal purposes of the restructuring operation is to commit tax evasion or tax avoidance. This provision allows Member States to refuse to apply all or part of the provisions of that directive or to withdraw the privileges arising therefrom where the restructuring operation it covers, with the participation of companies from different Member States, has as its primary purpose or one of its principal purposes tax evasion or tax avoidance.31 When analysing the content of the cited provision, it should first be noted that art. 15 of directive 2009/133 does not indicate in what legal form a Member State should express a refusal to apply the directive if the situations referred to in that provision take place. It should be noted, however, that the directive is a legal act which binds Member States as to the purpose set out therein. This means, however, that achieving this goal generally requires the implementation of its provisions into the domestic law of the Member States. Therefore, it was assumed that the rules for refusing to apply these provisions in a manner consistent with directive 2009/133 refer, in fact, to the provisions of national tax law, and the practical application of rules restricting the application of the privileged tax system requires their explicit regulation in national law.32 However, art. 15 section 1 (a) of directive 2009/133 reflects the general principle of EU law which prohibits the abuse of rights;33 further, as is apparent from the Court’s recent case law, the exercise by Member States of the right to refuse to grant the benefits of the directive by invoking the prohibition of

30 Respectively art. 11 section 1 (a) of directive 90/434. 31 Judgments of the Court of Justice of the European Union of 17 July 1997, Leur-Bloem vs. Inspecteur der Belastingdienst/Ondernemingen Amsterdam 2, C-28/95, EU:C:1997:369 and of 10 November 2011, Foggia – Sociedade Gestora de Participações Sociais SA vs. Secretário de Estado dos Assuntos Fiscais, C-126/10, EU:C:2011:718. 32  Judgments of the Court of Justice of the European Union of 17 July 1997, Leur-Bloem, C-28/95 and of 5 July 2007, C-321/05, Hans Markus Kofoed vs. Skatteministeriet, EU:C:2007:408. See also E. Prejs, Zapobieganie (above no. 26), p. 338 and subsequent. 33 The application of EU law cannot be extended to abusive activities, (i.e. acts carried out not as part of ordinary commercial transactions but only to take advantage of the benefits provided for by Union law). As in the judgments of the Court of Justice of the European Union of 9 March 1999, Centros Ltd vs. Erhvervs- og Selskabsstyrelsen, C-212/97, EU:C:1999:126 and of 21 February 2006, Halifax plc, Leeds Permanent Development Services Ltd and County Wide Property Investments Ltd vs. Commissioners of Customs & Excise, C-255/02, EU:C:2006:121; see also the abovementioned judgement of the Court of Justice of the European Union of 5 July 2007, Kofoed, C-321/05.

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the abuse of rights without prior implementation of art. 15 section 1 (a) of directive 2009/133 into the national system is also found to be authorised.34 Each Member State subject to directive 2009/133 is required to adopt in its national legal order all necessary provisions to ensure that the directive is fully effective, in line with its intended purposes.35 It is up to the Member States to determine, taking into account the principle of proportionality, the provisions necessary to comply with that legislation.36 Member States are free to choose the manner and means of implementing the directives, which makes it possible to ensure that they achieve their objectives to a larger extent.37 Therefore, in order for the legal situation arising from the national transposing legislation to be precise and clear enough to enable entities to become familiar with the content of their rights and obligations, the transposition of a directive does not necessarily require legislative action in each Member State. In some cases, the directive may be transposed, depending on its content, by referring to the general legal context so that a formal and explicit repetition of the directive’s provisions in specific national provisions is not necessary.38 In the absence of an explicit provision implementing art. 15 section 1 (a) of the directive, it is therefore necessary to determine whether the refusal to use the benefits arising therefrom is based on national provisions or a general rule prohibiting the abuse of rights or other provisions on tax fraud or avoidance, which could be interpreted in accordance with art. 15 section 1 (a) of directive 2009/133 and, thus, could justify taxing immediately the restructuring transaction.39

34 Judgment of the Court of Justice of the European Union of 26 February 2019, N Luxembourg 1 and others, C-115/16, ECLI:EU:C:2019:134. 35 Judgments of the Court of Justice of the European Union of 10 March 2005, Commission vs. Germany, C-531/03, EU:C:2005:159, and of 16 June 2005, Commission of the European Communities vs. Italian Republic, C-456/03, EU:C:2005:388. 36 Judgment of the Court of Justice of the European Union of 16 June 2005, Commission vs. Italy, C-456/03, EU:C:2005:388. 37 Ibidem. 38 Judgments of the Court of Justice of the European Union of 5 July 2007, Kofoed, C-321/05; of 6 June 2005, Commission against Italy, C-456/03; and of 6 April 2006, Commission of the European Communities vs. Republic of Austria, C-428/04. 39 Judgment of the Court of Justice of the European Union of 5 July 2007, Kofoed, C-321/05.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

5.

Implementation of the de minimis clause into the Polish national system

Under the Polish Corporate Income Tax Act,40 dividends, like other income from a share in the profits of legal persons, are taxable when they are paid to a shareholder. The taxpayer of the tax on dividends is the legal entity receiving the income. In accordance with art. 10 section 141 of the CIT Act in the version applicable before 01.01.2016, income (revenue) from a share in the profits of legal persons, subject to art. 12 section 1 (4a) and (4b), was the income (revenue) actually obtained from this share.42 Dividend tax takes the form of withholding tax. It is collected by a company making a dividend payment that acts as a tax remitter (art. 26 section 1 of the CIT Act). According to the content of art. 22 section 1 of the CIT Act, income tax on income (revenue) from dividends and other revenue from participation in the profits of legal persons having their registered office or management in the territory of Poland is, as a rule, set at 19% of the obtained revenue. With reference to directive 2011/96 pursuant to art. 20 section 3 of the CIT Act, income (revenues) obtained by taxpayers residing in Poland from dividends and other revenues from participation in profits of legal persons having their registered office or management outside the territory of Poland (‘incoming dividends’) are exempt from income tax if the following conditions are jointly met: 1. the entity paying out dividends and other revenues from participation in the profits of legal persons is a company subject to income tax on all its income, regardless of where it is earned, whether in an EU Member State other than Poland or another country belonging to the European Economic Area; 2. the entity obtaining income (revenue) from dividends and other income from the share in the profits of legal persons referred to in section 1 is liable to income tax and has its seat or management office in the territory of the Republic of Poland; 3. the company referred to in section 2 directly holds not less than 10% of shares (stocks) in the capital of the company referred to in section 1; and 4. the company referred to in section 2 does not benefit from the exemption from income tax on all its income, regardless of the source from which it is earned.43

40 Ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych [The Act of 15 February 1992 on Corporate Income Tax, hereinafter the ‘CIT Act’], J. of L. of 2020, item 1406 as amended. 41 Currently art. 7b of the CIT Act, added by art. 2 section 9 of the act of 27 July 2017, J. of L., item 2175, amending the said act with effect from 01.01.2018. 42 E. Prejs, Implementacja (above no. 8), p. 367 and subsequent. 43 E. Prejs, Implementacja (above no. 8), p. 369.

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In addition, the condition for the application of the exemption is, in accordance with art. 20 sections 9 and 15 of the CIT Act, for the beneficiary to hold shares in the company paying out continuously for a period of two years and to hold the ownership of those shares. In accordance with art. 20 section 11 of the CIT Act, the above exemption does not apply if the payment of dividends or other receivables from participation in the profits of legal persons was made as a result of the liquidation of the company making the payment. Similar to the case of incoming dividends, revenues from a share in the profits of legal persons having their registered office or management board in the territory of Poland paid to companies based in another EU Member State benefit from tax exemption, provided that the subjective and objective conditions specified in art. 22 section 4–4d of the CIT Act are jointly met (outgoing dividends). In accordance with art. 22 section 4 of the CIT Act, income (revenue) from dividends and other income from participation in the profits of legal persons is exempt from income tax if the following conditions are jointly met: 1. the entity paying out dividends and other income from the share in the profits of legal persons is a company which is an income taxpayer with its registered office or management in the territory of Poland; 2. the entity paying out dividends and other revenues from participation in the profits of legal persons is a company subject to income tax on all its income in Poland, an EU Member State other than Poland, or other country belonging to the European Economic Area, regardless of where it is earned; 3. the company referred to in section 2 directly holds not less than 10% of shares (stocks) in the capital of the company referred to in section 1; and 4. the company referred to in section 2 does not benefit from the exemption from income tax on all its income, regardless of the source from which it is earned. However, pursuant to the content of art. 22 section 4a of the CIT Act, the exemption referred to in section 4 shall apply in the event that the company obtaining income (revenue) from dividends and other income from participation in the profits of legal persons, having its registered office or management board in the territory of Poland, holds shares (stocks) in the company paying these benefits in the amount referred to in section 4 (3) continuously for a period of two years.44 In addition, pursuant to art. 20 section 15 and art. 22 section 4d of the CIT Act, exemption of dividends from taxation applies: 1. if the holding of shares referred to in art. 22 section 4 (3) results from the ownership title; 2. in relation to income obtained from shares held on the basis of

44 E. Prejs, Implementacja (above no. 8), p. 369.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

a) ownership or b) other than ownership, provided that this income (revenue) would benefit from the exemption if the holding of these shares had not been transferred. At the same time, as of 01.01.2016, the CIT Act was extended by art. 22c.45 According to its content, in the version applicable on that date, the exemption of dividends from tax does not apply if 1) the income from dividends is obtained in connection with the conclusion of a contract or other legal act (or many related legal acts) of which the principal or one of the principal purposes was to obtain exemption from this income tax, 2) obtaining this exemption does not solely result in the elimination of double taxation of this income 3) the abovementioned activities are not of a real nature. In addition, pursuant to the content of art. 22c section 2 sentence 1 of the CIT Act, for the purpose of section 1, it is recognised that a contract or other legal action has no real character to the extent that it is not made for legitimate economic reasons. In particular, this applies to situations when, by way of actions referred to in section 1, the ownership of shares of the company paying out the dividend is transferred, or the company obtains income (revenue) paid out in the form of dividends or other income from participation in the profits of legal persons. As introduced in the cited provision of art. 22c of the CIT Act, the general clause preventing tax avoidance regarding revenues from participation in the profits of legal persons introduces premises for recognising that the activities undertaken by the taxpayer constitute tax avoidance and, as a consequence, the income related to these activities does not fall within the scope of tax exemption. The ability of tax authorities to refer to the general clause contained in the provision cited depends on a number of cumulative conditions, such as: − the principal purpose or one of the principal purposes of a legal act or many related legal acts was to obtain an exemption for an income share in the profits of legal persons from income tax (subjective test); − obtaining an exemption for revenues from participation in the profits of legal persons from taxation does not solely result in the elimination of double taxation of these revenues; and − the abovementioned activities are not of a real nature.

45 Art. 22c of the CIT Act added by art. 2 section 4 of the act of 9 October 2015, J. of L., item 1932, amending the said act with effect from 31.12.2015.

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Unlike directive 2011/96 itself, the legislator used the term ‘legal act’ for the purposes of the provision under analysis. This solution did not seem accurate as the wording has a significantly narrower scope of meaning than the expression ‘arrangement’ used in directive 2011/96. In the wording of art. 22c of the CIT Act as of 01.01.2016, the general clause on counteracting the avoidance of taxation of dividends did not seem to apply to actual activities, which contradicted both the letter and the purpose of art. 1 of directive 2011/96. Doubts were also raised by the legislator’s reference in the content of the general clause to the condition that obtaining an income exemption from participation in the profits of legal persons does not solely result in the elimination of double taxation.46 The text of the Polish act was not in line with the provisions of directive 2011/96.47 Although the directive as an act of EU law only binds to the purpose and requires transposition into the national order, which does not necessarily involve the repetition of its provisions in the national provisions of the Member State at the language level, nevertheless, the content of art. 22c of the CIT Act did not refer to the objective test introduced by the directive. In order to establish the existence of an abuse, it was required to establish that despite meeting the formal conditions laid down by the relevant provisions of the directive, granting a tax exemption for income from participation in the profits of legal persons would be contrary to the object or purpose of the directive. As of 01.01.2019, the provision of art. 22c of the CIT Act had been reviewed.48 Maintaining the trend associated with the seal of tax systems in the CIT Act, it is proposed to clarify the content and the scope of the specific anti-avoidance clause contained in this article. First of all, the scope of the de minimis clause has been extended to situations of abuse or tax avoidance in the application of withholding tax exemption, which is currently regulated in art. 21 paragraph 3 of the CIT Act (i.e. exemption from taxation for interest and royalties due to the provisions of directive 2003/49). The proposed solution is in line with the rights of Member States under art. 5 paragraph 2 of this directive.

46 F. Majdowski, Implementacja klauzuli antyhybrydowej oraz tzw. małej klauzuli antyabuzywnej do ustawy o podatku dochodowym od osób prawnych na skutek ‘uszczelniania’ dyrektywy o spółkach matkach i spółkach córkach [Implementation of the anti-hybrid clause and the so-called small anti-abusive clause into the Corporate Income Tax Act as a result of ‘sealing’ the directive on parent companies and daughter companies], Przegląd Podatkowy 2016, no. 2, p. 40. 47 E. Prejs, Implementacja (above no. 8), p. 371 and subsequent. 48 Ustawa o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych, ustawy – Ordynacja podatkowa oraz niektórych innych ustaw z dnia 23 października 2018 r. [Act amending the act on personal income tax, the act on corporate income tax, the act – Tax Ordinance and some other acts of 23 October 2018], J. of L. of 2018 r., item 2193.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

Secondly, in place of the previous premise (i.e. the conclusion of the contract or performing another legal act or multiple related legal acts), the Polish legislator introduced a broader catalogue of events allowing for assessing the context of the existing structure and actual or legal dependencies in which the taxpayer intends to take advantage of tax exemption (i.e. making a transaction or other activity or multiple transactions or other activities). The tax exemption provisions shall not apply provided that enjoying the exemption was contrary, in given circumstances, to the subject or intention of the provisions providing for it. The current phrasing of art. 22c of the CIT Act refers to the wording of the general tax avoidance clause contained in the Tax Ordinance Act and the directives and allows for the verification of the right to an exemption in the context of the subject and purpose of the act. Finally, the amendment implements the concept of artificiality (unreality). The tax exemption shall not apply provided that enjoying the exemption was the main or one of the principal purposes of effecting a transaction or other act or multiple transactions or other acts, whereas the mode of action was artificial. The mode of action is not artificial if, based on the existing circumstances, it shall be assumed that the subject, acting in a reasonable manner and guided by lawful objectives, would apply this mode of action predominantly for justified economic reasons. The reasons referred to in the first sentence do not include a goal of enjoying the exemption contrary to the subject or intention of those provisions. A given act is not of a real nature to the extent that it was not carried out for justified economic reasons. In this regard, the content of art. 22c of the CIT Act is, in fact, a repetition of art. 1 of the directive. In the opinion of the tax authorities, whether a given legal act is real results from the fact that its performance had a rational economic justification corresponding to the nature of the conducted business activity. The lack of real nature of the activities, according to authorities, may be indicated, among other ways, by the following: − the use of intermediaries, including those with tax residence in countries with favourable tax jurisdiction; − excessive complexity or lack of economic content of the activity; − hiding the true purpose and meaning of the economic event; or − the inadequacy or redundancy of a given legal structure for the implementation of such an event.49

49 Warning against tax optimisation related to the abuse of the tax exemption for dividends no. 005/17 of 3 November 2017, https://mf-arch2.mf.gov.pl/pl/web/bip/ministerstwo-finansow/ wiadomosci/ostrzezenia-i-wyjasnienia-podatkowe/-/asset_publisher/M1vU/content/ostrzezenieprzed-optymalizacja-podatkowa-zwiazana-z-naduzyciem-zwolnienia-podatkowego-dla-dywidend? redirect=https%3A%2F%2Fmf-arch2.mf.gov.pl%2Fpl%2Fweb%2Fbip%2Fministerstwo-finansow%2Fwiadomosci%2Fostrzezenia-i-wyjasnienia-podatkowe%3Fp_p_id%3D101_INSTANCE_ M1vU%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_

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The occurrence of the above elements, of course, does not necessarily indicate tax avoidance; however, in the absence of an economic justification for the actions taken, an adequate saturation of the abovementioned elements – provided that the other conditions specified in art. 22c of the CIT Act are met – may result in such an assessment. In the current state of the case law, there are not many examples of the application of art. 22c of the CIT Act in practice. Noteworthy, however, is the refusal to initiate proceedings on the application for an advance ruling on income tax from legal persons, taking into account that the de minimis clause could potentially apply,50 as well as the warnings by the Ministry of Finance against tax optimisation.51 On 03.11.2017, the Ministry of Finance also published a warning against tax optimisation related to the abuse of the tax exemption for dividends.52

6.

Implementation of directive 2009/133 into the Polish system

6.1

Deferred taxation mechanism

The provisions of the Polish Act on corporate income tax have been partially adapted to the solutions contained in directive 90/434 as of 1.01.1999, except that the provisions introduced at that time were applicable only to mergers of domestic

col_id%3Dcolumn-2%26p_p_col_count%3D1#p_p_id_101_INSTANCE_M1vU_ (accessed 18.05.2018). 50 Judgment of the Provincial Administrative Court in Gdańsk of 10 May 2017, I SA/Gd 312/17 and the judgment of the Provincial Administrative Court in Bydgoszcz of 11 April 2017, I SA/Bd 166/17. 51 Warning of the Ministry of Finance against tax optimisation within tax capital groups, no. 004/17 of 26 June 2017, https://mf-arch2.mf.gov.pl/pl/web/bip/ministerstwo-finansow/wiadomosci/ ostrzezenia-i-wyjasnienia-podatkowe/-/asset_publisher/M1vU/content/ostrzezenie-ministerstwafinansow-przed-optymalizacja-podatkowa-w-ramach-podatkowych-grup-kapitalowych?redirect= https%3A%2F%2Fmf-arch2.mf.gov.pl%2Fpl%2Fweb%2Fbip%2Fministerstwo-finansow%2Fwiadomosci%2Fostrzezenia-i-wyjasnienia-podatkowe%3Fp_p_id%3D101_INSTANCE_M1vU%26p_p_ lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_id%3Dcolumn2%26p_p_col_count%3D1#p_p_id_101_INSTANCE_M1vU_ (accessed 18.05.2018). 52 Warning against tax optimisation related to the abuse of the tax exemption for dividends no. 005/17 of 3 November 2017, https://mf-arch2.mf.gov.pl/pl/web/bip/ministerstwo-finansow/ wiadomosci/ostrzezenia-i-wyjasnienia-podatkowe/-/asset_publisher/M1vU/content/ostrzezenieprzed-optymalizacja-podatkowa-zwiazana-z-naduzyciem-zwolnienia-podatkowego-dla-dywidend? redirect=https%3A%2F%2Fmf-arch2.mf.gov.pl%2Fpl%2Fweb%2Fbip%2Fministerstwo-finansow%2Fwiadomosci%2Fostrzezenia-i-wyjasnienia-podatkowe%3Fp_p_id%3D101_INSTANCE_ M1vU%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_ id%3Dcolumn-2%26p_p_col_count%3D1#p_p_id_101_INSTANCE_M1vU_ (access: 18.05.2018).

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

companies. The essence of the changes was the introduction to art. 10 section 2 tax of law mechanisms of deferred taxation in relation to income arising from the merger of companies.53 This provision was subsequently amended many times, extending its application in both objective scope and subjective scope.54 On 1.01.2001, in the content of art. 10 section 4 of the CIT Act, an additional restriction was introduced to the application of the deferred taxation mechanism to income arising from merger operations where such operations were not carried out for legitimate economic reasons but rather the main or one of the principal purposes of such operations was to avoid or evade taxation.55 The content of art. 10 section 4 of the Act was then the subject of several amendments under which the general clause contained therein preventing the avoidance of taxation of income disclosed as a result of a restructuring operation also applies to the division of companies,56 exchange of shares57 and transfer of assets in the form of an enterprise or an organised part thereof.58 In the currently binding wording of the CIT Act, the existing content of art. 10 of this Act, as of 01.01.2018, was completely repealed, and the statutory matter pertaining so far to this provision in the field of taxation of income arising from restructuring operations was transferred to art. 12 of the said Act. Based on art. 12 section 4 (3e) and (3f) of the CIT Act, tax revenues do not include revenues of the value of the assets of the acquired or divided company received by the acquiring company corresponding to the issue value of shares allocated to the shareholders of the merged companies or a divided company, nor do they include the value of the assets of the acquired or divided company corresponding to the percentage share of the acquiring company in the share capital of the company being acquired or divided, determined on the last day preceding the day of merger or division and received by the acquiring company whose share in the share capital of the company being acquired or divided is not less than 10%. The deferred taxation mechanism also applies to the shareholders of the company being acquired. In the light of art. 12 section 4 (12) of the CIT Act, in the event of a merger or division of companies, tax revenue also does not include the revenue of 53 Article 10 section 2 of the CIT Act in the wording given by art. 1 section 7 (b) of the act of 20.11.1998, J. of L. of 1998, item 931, amending the said act with effect from 01.01.1999. 54 E. Prejs, Zapobieganie (above no. 26), p. 345 and subsequent. 55 Article 10 section 4 of the CIT Act in the wording given by art. 1 section 6 (c) of the act of 9 June 2000, J. of L. of 2000, item 700, amending the said act with effect from 01.01.2001. 56 Article 10 section 4 of the CIT Act in the wording given by art. 1 section 5 (e) of the act of 27 July 2002, J. of L. of 2002, item 1179, amending the said act with effect from 01.01.2003. 57 Article 10 section 4 of the CIT Act in the wording given by art. 2 section 3 (a) of the act of 5 September 2016, J. of L. of 2016, item 1550, amending the said act with effect from 01.01.2017. 58 Article 12 section 13 added by art. 2 section 13 (f) of the act of 27 October 2017, J. of L. of 2017, item 2175, amending the said act with effect from 01.01.2018.

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a shareholder of an acquired or divided company constituting the issue value of shares allocated by the acquiring or newly formed company. Taxable income is also not the value of the contribution specified in the company’s statute or articles of association if the subject of the contribution in kind to the company or cooperative is an enterprise or an organised part thereof (art. 12 section 4 (25) (b) in conjunction with art. 12 section 1 (7) of the CIT Act). The deferred taxation mechanism also applies to the operation of restructuring exchanges of shares. In the light of art. 12 section 4d of the CIT Act, an economic operation is considered an exchange of shares if a company acquires shares in another company from a shareholder of that other company and, in exchange for shares of that other company, transfers its own shares to a partner of that other company or, in exchange for shares of that other company, transfers to the partner of that other company its own shares with payment in cash of an amount not higher than 10% of the nominal value of its own shares or, in the absence of a nominal value, the market value of these shares, and if as a result of the acquisition, 1. the acquiring company will obtain an absolute majority of voting rights in the company whose shares are acquired, or 2. the acquiring company, which holds an absolute majority of voting rights in the company whose shares are acquired, increases the number of shares in that company.59 In the event of an exchange of shares transaction being found, the revenue does not include the value of shares transferred to a shareholder of that other company or the value of shares acquired by the company provided that the entities participating in this transaction are subject to taxation on all their income, regardless of where it is achieved, whether in a Member State of the EU or another country belonging to the EEA. However, the deferred taxation mechanism does not apply when the main or one of the principal purposes of mergers, divisions, exchanges of shares or contributions in kind is tax avoidance or evasion.60 At the same time, in art. 12 section 14 of the CIT Act, the legislator presumes that the main or one of the principal purposes of mergers of companies, divisions of companies, share exchanges or contributions in kind is to avoid or evade taxation if these operations are not carried out for legitimate economic reasons. Despite the relatively long duration of the clause against the avoidance of taxation of income disclosed as a result of restructuring operations, so far, there has been a lack of administrative court case-law examples of its application in tax assessment

59 E. Prejs, Zapobieganie (above no. 26), p. 346 and subsequent. 60 Article 12 section 13 of the CIT Act.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

cases that could indicate the practice of its application. At most, it is possible to identify examples of decisions that were issued as a result of a taxpayer’s request for interpretation of tax law provisions regarding the legal effects of applying the analysed clause in an individual case. This issue will be the subject of analysis in the next item of this study. 6.2

Refusal to apply the privileged tax system and its effects

Although the scale of the phenomenon related to the reference by the tax authorities to the clause on counteracting tax avoidance by restructuring operations is not large (as can be deduced from the number of administrative court decisions issued in such cases), in one case related to its application, an important legal issue has emerged which comes down to the question of the tax consequences of a restructuring operation whose main purpose or one of its principal purposes is to avoid or evade tax. If the restructuring operation has not been carried out for justified economic reasons, it is presumed that the main purpose or one of the principal purposes of this activity is to avoid or evade tax.61 In current judicial practice formed before the amendment of the Corporate Income Tax Act with effect from 01.01.2018, tax authorities presented a position on this issue, according to which the execution of restructuring operations (e.g. mergers, the division of companies, exchange of shares or transfer of assets in the form of a company or an organised part thereof) is neutral on the basis of the Corporate Income Tax at the time of the operation as long as all the conditions in this regard are met. The deferred tax mechanism and, consequently, the tax exemption disclosed as a result of the revenue restructuring operation will not, therefore, apply if the main purpose or one of the principal purposes of the operation is tax avoidance or evasion. Citing the content of art. 10 section 4 and 4a62 of the CIT Act, tax authorities rightly pointed out that if the hypothesis specified in this provision was updated, there would be no legal grounds to apply the exemption from capital gains tax disclosed as a result of such a restructuring operation. It is hard to disagree with this position. Based on art. 15 section 1 (a) of directive 2009/ 434, Member States may refuse, exceptionally and in specific cases, the application of all or part of the provisions of the directive or withdraw privileges, in particular when the primary objective or one of the principal purposes of the exchange of shares is tax abuse or tax avoidance. Therefore, the legislator is entitled to collect tax on such income arising as of the day of the operation without restrictions resulting from the content of the directive in question. This does not mean, however, that the

61 E. Prejs, Zapobieganie (above no. 26), p. 349 and subsequent. 62 Article 12 sections 13 and 14 of the CIT Act.

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regulations in force in this regard are not subject to assessment from the point of view of primary law, although the invocation of protection arising from economic freedoms requires, as a rule, a demonstration that national regulations treat crossborder and domestic operations differently. However, this situation does not occur under the Polish CIT Act, which applies taxation on restructuring operations with a cross-border element, as well as those with a purely internal element, within the identical legal regime.63 Since pursuant to art. 10 section 4 and 4a of the CIT Act, art. 10 section 2 (1) of the CIT Act did not apply, it could not set rules regarding the determination of the tax base of the abovementioned income at the time of the transaction. However, this does not change the fact that in the case of restructuring operations, the subject of taxation is the benefit on the side of the company corresponding to the excess of the acquired assets of the company being acquired over the nominal value of the shares granted to the partners of the company being acquired or divided, which means that in accordance with the basic assumption of the CIT Act, the tax base of this tax is income (i.e. revenue less the costs of obtaining it).64 This view corresponds to the position presented in the case law of administrative courts.65 In the judgment of 21.12.2017, the Provincial Administrative Court in Poznań, analysing the facts of a case regarding the merger of companies consisting in the acquisition of a company whose acquiring company is the sole shareholder, indicated that the exclusion of the tax privilege in the form of neutrality of the restructuring operation as a result of the application of the clause on tax avoidance results in the application of general, rather than more restrictive, taxation principles to the achieved income from restructuring operations.66 This means that the income that arises as a result of the restructuring operation in the amount of the market value of the acquired assets should be reduced by the cost of obtaining it determined on the basis of art. 15 section 1k or art. 16 section 1 (8) of the CIT Act.67 In the current legal status, as a result of the amendment to the CIT Act on 01.01.2018,68 taxable revenue is the value of the assets of the acquired or divided company received by the acquiring or newly established company as of the date 63 E. Prejs, Zapobieganie (above no. 26), p. 349 and subsequent. 64 Differently according to interpretacja podatkowa Dyrektora Krajowej Informacji Podatkowej z dnia 11 lipca 2017 [Tax ruling of the Head of the National Revenue Information System of 11 July 2017], 0112-KDIL3–3.4010.10.2017.1.MC. 65 E. Prejs, Zapobieganie (above no. 26), p. 350 and subsequent. 66 Judgment of the Provincial Administrative Court in Poznan of 21 December 2017, I SA/Po 1031/17. 67 Judgment of the Provincial Administrative Court in Poznan of 21 December 2017, I SA/Po 1031/17. On the contrary judgment of the Provincial Administrative Court in Gliwice of 31 July 2019, I SA/Gl 197/19. 68 Article 12 section 1 (8c) of the CIT Act added by art. 2 section 13 (a), fifth indent of the act of 27 October 2017, J. of L. of 2017, item 2175, amending the said act with effect from 01.01.2018.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

of merger or division and the value of the contribution specified in the statute or articles of association.69 In accordance with art. 12 section 1 (8b) of the said Act, the income of the shareholder of the company being divided will be the issue value of shares determined as of the date of division of the acquiring company or the newly formed company allocated to the shareholder of the company being divided if the assets acquired as a result of the division – and, in the case of division by a spin-off, the assets acquired as a result of the division or assets remaining in the company – do not constitute an organised part of the enterprise. According to art. 12 section 1B of the Act, the revenue specified in section 1 (7) arises, as a rule, on the day of registration of the company or cooperative or the entry in the register of the increase of the company’s share capital. The benefits referred to in the above provisions constitute the income from capital gains referred to in art. 7b of the CIT Act. If the merger, division of companies, exchange of shares or transfer of assets was carried out in order to avoid or evade taxation, the revenue exclusion contained in the individual provisions of art. 12 section 4 of the CIT Act will not be applicable; therefore, taxation will take place at the time of the restructuring operation itself. In turn, art. 15 sections 1m, 1ma and 1k regulated the issue of tax-deductible expenses in the discussed scope.70 6.3

Specific Anti-Avoidance Tax Rules under the New Polish Deal as of 1 January 2022

The changes under the New Polish Deal extended the application of the de minimis clause to CIT exemptions introduced by a new holding company regime (as detailed in Chapter 5b) as an alternative to the existing exemptions applicable to dividends based on art. 20 sec. 3 or art. 22 sec. 4 of the CIT Act. Effective 1 January 2022, the taxpayer, if a holding company, can take advantage of the dividend exemptions detailed in art. 20 sec. 3 or art. 22 sec. 4 of the CIT Act, or else rely upon dividend exemptions under the new holding company regime in relation to a given subsidiary 69 Article 12 section 1 (7) of the CIT Act in the wording given by art. 2 section 13 (a), third indent of the act of 27 October 2017, J. of L. of 2017, item 2175, amending the act with effect from 01.01.2018. 70 P. Woźniakiewicz, S. Krempa, Zmiany w zakresie dotyczącym ustalania przychodów i kosztów przy dokonywaniu operacji restrukturyzacyjnych oraz wnoszenia aportów [Exemption for the removal of repairs and costs for repair tools and repair contributions in kind], in: Nowe narzędzia prawne w podatkach dochodowych i majątkowych [New taxes on financial and property costs], Wolters Kluwer Polska, 2018, p. 179 and subsequent; M. Potyrała, Czy walka z nadużyciami zakończy funkcjonowanie podatkowych grup kapitałowych w Polsce? [Will the fight against fraud end the functioning of tax capital groups in Poland?], in: Nowe narzędzia prawne w podatkach dochodowych i majątkowych [New legal tools in income and property taxes], Wolters Kluwer Polska, 2018, p. 15 and subsequent.

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(art. 24n of the CIT Act) and the exemption from the sale of shares in that subsidiary (art. 24o of the CIT Act). Article 24n paragraph 1 of the CIT Act establishes the exemption from taxation of dividends received by a holding company from a subsidiary, as described in art. 7b paragraph 1 point 1 a of the CIT Act, corresponding to 95% of the amount of that dividend. The portion of the dividend not covered by the tax exemption (i.e., 5% of the dividend amount) will be subject to CIT in Poland at a 19% tax rate under the rules for the taxation of dividends. The newly introduced tax exemption is accompanied by anti-abusive regulations. The first of these anti-abusive regulations (art. 24n (3) (1) of the CIT Act) provides that the new exemption is not applicable to dividends from a subsidiary, provided that the conditions prescribed in art. 24a sec. 3 point 3 b and c of the CIT Act are met (i.e., at least 33% of the income of the company is derived from dividends and other income from shares, transfer of shares, receivable debts, interest, etc., and the income tax actually paid by the company is less than the difference between the corporate income tax that would be due from the company if it was a resident taxpayer and the income tax actually paid by that company in the state of its residence. The above conditions cannot be met for the subsidiary in the tax year in which the dividend is paid to the holding company or in any of the five preceding tax years. However, this restriction does not apply to a subsidiary that is a tax resident in an EU or EEA member state, and which conducts significant real economic activity in that country (as detailed in art. 24a (16), (18) and (18a) of the CIT Act71 . Another anti-abusive regulation (art. 24n (3) (2) of the CIT Act) excludes a holding company from applying the exemption in the part in which a subsidiary reduces its tax burden in the country of tax residence by deducting dividends paid to the holding company (by deducting dividends from the tax base or from the tax). A similar regulation is contained in art. 20 sec. 16 of the CIT Act. In addition, the de minimis rule detailed in art. 22c of the CIT Act also applies. Effective from 1 January 2022, Poland also introduced a tax exemption for capital gains (art. 24o of the CIT Act). The New Polish Deal provides for the introduction of these preference in the form of a CIT exemption for income obtained by a holding company from the sale of shares or stocks in a subsidiary. This exemption only applies if the buyer of the shares or stocks is an unrelated entity within the meaning of art. 11a paragraph 1 point 3 of the CIT Act. The ability to apply the exemption only to unrelated entities is intended to limit the risk of potential aggressive tax optimization schemes, and also reflects the purpose of the new regulations – that is, to not extend the exemption to already existing capital groups whose structures changed before the implementation of the Act.

71 Article 24n (4) of the CIT Act.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

The anti-abusive regulations detailed in art. 22c of the CIT Act are also applicable to the tax exemption of income obtained by a holding company from the sale of shares or stocks in a subsidiary.

7.

Summary

Most of the EU countries, many years before ATAD, provided a general antiavoidance rule in their general tax law; however, in the 2009/133/EC, 2011/96 and 2003/49/EC directives, there are respective SAARs. Although the wording of the anti-tax avoidance clauses differs, the Parent-Subsidiary directive, the Merger Directive and the Royalty and Interest Directive have similar legal consequences: the tax authorities of the Member States can refuse to grant the directive’s benefits. All these statutory SAARs provide no single definition for tax avoidance, but all SAARs in these directives provide a clause for the taxpayers to rebut the presumption of tax avoidance. The Polish legislator has implemented the anti-avoidance clauses contained in the directives in national legislation by introducing changes to the CIT Act. Currently, Polish tax authorities have tools capable of improving the effectiveness of the fight against tax fraud and tax evasion by the use of specific anti-tax-avoidance rules. Unfortunately, there are currently no clear examples from the case law of national courts that deal with abuse-of-law situations based on newly introduced regulations. The jurisprudence of the CJEU will certainly be helpful in their interpretation.

References Legal acts Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States, O.J. L 225, 20.8.1990, p. 1. Council Directive 90/435/EEC of 23 July 1990 on a common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, O.J. L 225, 20.08.1990, p. 6. Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, O.J. L 157, 26.06.2003, p. 49. Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares

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concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States, O.J. L 310, 25.11.2009, p. 34. Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, O.J. L 345, 29.12.2011, p. 8. Council Directive 2015/121/EU of 27 January 2015 amending directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, O.J. L 21, 28.01.2015, p. 1. Ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych [The Act of 15 February 1992 on Corporate Income Tax, the ‘CIT Act’], J. of L. of 2020, item 1406 as amended. Ustawa o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych, ustawy – Ordynacja podatkowa oraz niektórych innych ustaw z dnia 23 października 2018 r. [Act amending the act on personal income tax, the act on corporate income tax, the act – Tax Ordinance and some other acts of 23 October 2018], J. of L. of 2018 r., item 2193.

Jurisdiction Judgment of the Court of Justice of the European Union of 17 July 1997, Leur-Bloem, C-28/95, EU:C:1997:369. Judgment of the Court of Justice of the European Union of 9 March 1999, Centros, C-212/97, EU:C:1999:126. Judgment of the Court of Justice of the European Union of 10 March 2005, Commission vs. Germany, C-531/03, EU:C:2005:159. Judgment of the Court of Justice of the European Union of 16 June 2005, Commission of the European Communities vs. Italian Republic, C-456/03, EU:C:2005:388. Judgment of the Court of Justice of the European Union of 21 February 2006, Halifax plc, Leeds Permanent Development Services Ltd and County Wide Property Investments Ltd vs. Commissioners of Customs & Excise, C-255/02, EU:C:2006:121. Judgment of the Court of Justice of the European Union of 6 April 2006, Agip Petroli, C-456/ 04, EU:C:2006:241. Judgment of the Court of Justice of the European Union of 6 April 2006, Commission of the European Communities vs. Republic of Austria, C-428/04, ECLI:EU:C:2006:238. Judgment of the Court of Justice of the European Union of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C-196/04, EU:C:2006:544. Judgment of the Court of Justice of the European Union of 5 July 2007, Kofoed C-321/05, EU:C:2007:408. Judgment of the Court of Justice of the European Union of 20 May 2010, Modehuis A. Zwijnenburg BV vs. Staatssecretaris van Financiën, C-352/08, EU:C:2010:282.

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

Judgment of the Court of Justice of the European Union of 10 November 2011, Foggia – Sociedade Gestora de Participações Sociais SA vs. Secretário de Estado dos Assuntos Fiscais, C-126/10, EU:C:2011:718. Judgment of the Court of Justice of the European Union of 19 December 2012, 3D I, C-207/ 11, EU:C:2012:81. Judgment of the Court of Justice of the European Union of 8 March 2017, Wereldhave Belgium and Others, C-448/15, EU:C:2017:180. Judgment of the Court of Justice of the European Union of 7 September 2017, Eqiom and Enka, C-6/16, EU:C:2017:641. Judgment of the Court of Justice of the European Union of 22 November 2017, Cussens and Others, C-251/16, EU:C:2017:881. Judgment of the Court of Justice of the European Union of 20 December 2017 r., Deister Holding i Juhler Holding, C-504/16 and C-613/16, EU:C:2017:1009. Judgment of the Court of Justice of the European Union of 26 February 2019, N Luxembourg 1 and others, C-115/16, ECLI:EU:C:2019:134. Judgment of the Provincial Administrative Court in Bydgoszcz of 11 April 2017, I SA/Bd 166/17. Judgment of the Provincial Administrative Court in Gdańsk of 10 May 2017, I SA/Gd 312/17. Judgment of the Provincial Administrative Court in Poznan of 21 December 2017, I SA/Po 1031/17. Judgment of the Provincial Administrative Court in Gliwice of 31 July 2019, I SA/Gl 197/19. Interpretacja podatkowa Dyrektora Krajowej Informacji Podatkowej z dnia 11 lipca 2017 [Tax ruling of the Head of the National Revenue Information System of 11 July 2017], 0112-KDIL3-3.4010.10.2017.1.MC.

Literature Brzeziński B., Kalinowski M. (eds.) Tax law of the European Union, Gdańsk 2017 Debelva F., Luts J., The General Anti-Abuse Rule of the Parent-Subsidiary Directive, European Taxation, June 2015. Majdowski F., Implementacja klauzuli antyhybrydowej oraz tzw. małej klauzuli antyabuzywnej do ustawy o podatku dochodowym od osób prawnych na skutek ‘uszczelniania’ dyrektywy o spółkach matkach i spółkach córkach [Implementation of the anti-hybrid clause and the so-called small anti-abusive clause into the Corporate Income Tax Act as a result of ‘sealing’ the directive on parent companies and daughter companies], Przegląd Podatkowy 2016, no. 2. Potyrała M., Czy walka z nadużyciami zakończy funkcjonowanie podatkowych grup kapitałowych w Polsce? [Will the fight against fraud end the functioning of tax capital groups in Poland?], in: Nowe narzędzia prawne w podatkach dochodowych i majątkowych [New legal tools in income and property taxes], Wolters Kluwer Polska, 2018.

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Prejs E., Implementacja do polskiego porządku prawnego klauzuli zapobiegającej nadużyciom zwolnienia od opodatkowania dywidend [Implementation of the clause preventing the abuse of dividend tax exemption in the Polish legal system], in: Nowe narzędzia prawne w podatkach dochodowych i majątkowych [New legal tools in income and wealth taxes], Wolters Kluwer Polska, 2018. Prejs E., Zapobieganie wykorzystaniu operacji restrukturyzacyjnych podmiotów gospodarczych w schematach optymalizacji podatkowych, [Preventing the use of restructuring operations of business entities in tax optimisation schemes], in: Nowe narzędzia prawne w podatkach dochodowych i majątkowych [New legal tools in income and wealth taxes], Wolters Kluwer Polska, 2018. Woźniakiewicz P., Krempa S., Zmiany w zakresie dotyczącym ustalania przychodów i kosztów przy dokonywaniu operacji restrukturyzacyjnych oraz wnoszenia aportów [Exemption for the removal of repairs and costs for repair tools and repair contributions in kind], in: Nowe narzędzia prawne w podatkach dochodowych i majątkowych [New taxes on financial and property costs], Wolters Kluwer Polska, 2018. Zalasiński A., Some Basic Aspects of the Concept of Abuse in the Tax Case Law of the European Court of Justice, Intertax 2008, no. 4.

Netography Communication from the Commission to the European Parliament and the Council: A Fair and Efficient Corporate Tax System in the European Union – 5 Key Areas for Action, /* COM/2015/0302 final */ https://eur-lex.europa.eu/legal-content/EN/TXT/?uri= CELEX%3A52015DC0302 (downloaded 4.10.2021). Communication from the Commission to the European Parliament and of the Council: Action plan to improve the effectiveness of the fight against tax fraud and tax evasion, SWD (2012) 403 final, SWD (2012) 404 final, https://eur-lex.europa.eu/legal-content/PL/ TXT/?uri=CELEX%3A52012DC0722 (downloaded 4.10.2021). Warning against tax optimalisation related to the abuse of the tax exemption for dividends, no. 005/17, of 3 November 2017, https://mf-arch2.mf.gov.pl/pl/web/bip/ministerstwofinansow/wiadomosci/ostrzezenia-i-wyjasnienia-podatkowe/-/asset_publisher/ M1vU/content/ostrzezenie-przed-optymalizacja-podatkowa-zwiazana-z-naduzyciemzwolnienia-podatkowego-dla-dywidend?redirect=https%3A%2F%2Fmf-arch2.mf.gov. pl%2Fpl%2Fweb%2Fbip%2Fministerstwo-finansow%2Fwiadomosci%2Fostrzezenia-iwyjasnienia-podatkowe%3Fp_p_id%3D101_INSTANCE_M1vU%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_id%3Dcolumn2%26p_p_col_count%3D1#p_p_id_101_INSTANCE_M1vU_ (downloaded 4.10.2021). Warning of the Ministry of Finance against tax optimalisation within tax capital groups, no. 004/17, of 26 June 2017: https://mf-arch2.mf.gov.pl/pl/web/bip/ministerstwofinansow/wiadomosci/ostrzezenia-i-wyjasnienia-podatkowe/-/asset_publisher/M1vU/ content/ostrzezenie-ministerstwa-finansow-przed-optymalizacja-podatkowa-w-

New Specific Anti-Avoidance Tax Rules in Polish Corporate Income Tax – Current legal developments

ramach-podatkowych-grup-kapitalowych?redirect=https%3A%2F%2Fmf-arch2.mf.gov. pl%2Fpl%2Fweb%2Fbip%2Fministerstwo-finansow%2Fwiadomosci%2Fostrzezenia-iwyjasnienia-podatkowe%3Fp_p_id%3D101_INSTANCE_M1vU%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_id%3Dcolumn2%26p_p_col_count%3D1#p_p_id_101_INSTANCE_M1vU_ (downloaded 4.10.2021). Proposal for a Council Directive amending directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, COM (2013) 814 (25.11.2013), https://eur-lex.europa.eu/legal-content/en/TXT/? uri=CELEX%3A52013PC0814 (downloaded 4.10.2021).

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The new Exit Tax regime in Poland – going beyond the minimum standard

1.

Introductory remarks

Exit tax or departure tax is a kind of emigration tax to be imposed mainly on entrepreneurs, but also on individuals, when a taxpayer decides to transfer with its economic activities abroad (changing the tax residence or transferring particular assets abroad). The concept of exit tax refers to a tax that is imposed on natural or legal persons, or other entities whose subjectivity is recognized in the field of tax law, in connection with their change of tax jurisdiction, in which it is considered that the taxpayer has disposed of the assets in his possession and has subjected to taxation the capital gains thus disclosed.1 The term ‘exit tax’ is also used in the literature on the subject in relation to a tax imposed in connection with the taxpayer’s transfer of his assets outside the territory of the country, or excluding those components from the scope of national tax jurisdiction.2 In this case there appears a fiction that the taxpayer disposes of his assets and is, therefore, obliged to pay capital gains tax although the gain has not yet been realized.3 Such a measure corresponds to the principle of fiscal territoriality and is intended to prevent situations that might jeopardize the right of the state involved to exercise its powers to tax in relation to

1 K. Suchojad, Podatek od niezrealizowanych zysków – modelowa koncepcja a rozwiązania polskie [Tax on unrealized gains – model concept versus Polish solutions], Monitor Podatkowy 2019, No. 2, p. 27; J. Jankowski, Optymalizacja podatkowa w podatkach dochodowych – dopuszczalność i prawne granice [Tax optimization in income taxes – admissibility and legal limits], Warszawa 2019, database Legalis – online access. 2 Por. B. Larking, The IBFD International Tax Glossary, , IBFD Publications, 2005, dostęp online IBFD Tax Research Platform na dzień 13.10. 2019; F. de Man, T. Albin, Contradicting Views of Exit Taxation under OECD MC and TFEU: Are Exit Taxes Still Allowed in Europe?, [w:] INTERTAX, 2011, Volume 39, Issue 12, , p. 615; K. Cejie, Emigration Taxes – Several Questions, Few Answers: From Lasteyrie to National Grid Indus and beyond, INTERTAX, 2021, Volume 40, Issue 6/7, p. 382; M. Dahlberg, Internationell beskattning – en lärobok, Studentlitteratur AB, 2005, p. 105 ; F. Zimmer, Exit Taxes in Norway, World Tax Journal, 2009, No. 1, p.115; R. Betten, Income Tax Aspects of Emigration and Immigration of Individuals, IBFD (1998) and The Tax Treatment of Transfer of Residence by Individuals, vol. LXXXVIIb, IFA Cahiers, Kluwer 2002. 3 R. Betten, Income Tax Aspects of Emigration and Immigration of Individuals, Amsterdam 1998, p. 12.

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the capital gains generated within its tax jurisdiction.4 Without the infrastructure created by governments on the territory of the state, the entities would not be able to obtain wealth. When the taxpayer exits a state, that state wants to be able to collect tax for the wealth that the taxpayer has accumulated using its infrastructure. The rules on exit tax are aimed at ensuring the preservation of the taxing rights of the exit state over income which was created under its tax jurisdiction.5 The primary purpose of an exit tax is to ensure that, as a result of the change of residence by a taxpayer, income accruing when that person was a resident does not escape from taxation because of the excluded or limited taxing rights permitted to the source state under its domestic law or by virtue of a tax treaty’s obligations.6 Exit tax is not a new institution. It has been introduced in many countries worldwide.7 In the EU imposing the exit tax is seen by the states as an instrument preventing the erosion of the tax base.8 Such a reversal is related to the fact that fighting against tax avoidance and tax evasion has become a primary objective of the EU tax policy, although several EU Member states have enacted legislation to protect themselves against the loss of the tax revenues caused by transfer of taxpayer’s residency many years before the EU started its actions.9 European Union law did not initially regulate issues related to the exit tax. EU Member States have been preserved in this area, their freedom in the making of national rules which impose direct taxes.10 Although the imposition of direct taxes should generally be

4 S. Peeters, Exit Taxation: From an Internal Market Barrier to a Tax Avoidance Prevention Tool, EC Tax Review, 2017, vol. 26, Issue 3, p. 122. 5 K. Suchojad, Podatek (above n. 1), p. 27. 6 G. Beretta, Mobility of Individuals after BEPS: The Persistent Conflict between Jurisdictions, Bulletin for International Taxation July 2018, p. 444; K. Moser, Recent Developments and Challenges Regarding Exit Taxes in the Context of Tax Treaties: Article 13 of the OECD Model and Change of Residence, Bulletin for International Taxation 2019, Volume 73, No. 10, p. 1; A. Nowak-Piechota, Propozycja wprowadzenia podatku od wyjścia w związku z implementacją Dyrektywy ATAD [Proposal to introduce an exit tax in connection with the implementation of the ATAD Directive], Monitor Podatkowy 2018, No. 7, p. 22. 7 For example Germany (1972), Denmark (1987), Austria (1994), the Netherlands (1997), France (1998) – see the national reports in Cahiers De Droit Fiscal International Vol. 72b: Tax problems of the liquidation of corporations, Kluwer Law International, IFA Oslo Congress, 2002. 8 R. Szudoczky, Exit Tax, in: The EU Common Consolidated Corporate Tax Base: Critical Analysis, edited by D. Weber, J. van de Streek, Wolters Kluwer 2018, p. 111–121. 9 B.M. Carramaschi, Exit Taxes and the OECD Model Convention: Compatibility and Double Taxation Issues, Tax Notes International, Volume 49, Number 3, 2008, p. 284, for similar findings; L. de Broe, Hard times for emigration taxes in the EC, in: A tax globalist: the search for the borders of international taxation: Essays in honour of Maarten J. Ellis, (eds.) H.P.A.M. Arendonk, F.A. van Engelen, S.J.J.M. Jansen, Amsterdam 2005, p. 211. 10 M. Lang, P. Pistone, J. Schuch, C. Staringer, Introduction to European Tax Law on Direct Taxation, Linde Verlag GmbH, 2018, p. 227.

The New Exit Tax Regime in Poland – going beyond the minimum standard

within the competence of the Member States, the state must exercise this competence in accordance with EU law.11 This means that although Poland is in principle entitled to a tax type exit tax, it should be examined whether the adopted national provisions which impose on taxpayers a tax burden on unrealized capital gains in connection with the ’transfer’ of their activity outside the territory of Poland, constitute a restriction of fundamental freedoms enjoyed by taxpayers under the provisions of the Treaty on the Functioning of the European Union, further quoted as TFEU. Also the Final Report on Action 6 of the OECD/G20 BEPS Project mentions exit taxation as a recommendation for countries, to be introduced in their domestic laws in order to prevent the circumvention of domestic capital gains taxation through the use of treaty benefits, i.e. the exclusive right of the state of residence to the taxing of capital gains. Accordingly, exit taxes are considered as a domestic SAAR. The revised Commentary on Article 1 of the OECD Model (2017) explicitly accepts the application of domestic SAAR in a cross-border context.12 In Poland so far, until 1 January 2019 exit tax was not known as a legal structure, although it had been talked about for several years.

2.

The Anti-Tax Avoidance Directive and Exit Taxation

As mentioned above, the issue of exit taxation is of particular concern within the European Union where the European Commission issued a Communication in December 2006 COM(2006) 825 final in the light of various cases in the Court of Justice,13 and the ECOFIN adopted a Resolution on coordinating exit taxation at its meeting on 2 December 2008.14 On 20 June 2016 the Council adopted the Directive (EU) 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market.15 The Anti-Tax Avoidance Directive (ATAD) contains five legally-binding anti-abuse measures, which all Member States should apply against common forms of aggressive tax planning. In order to prevent 11 Judgments of the Court of Justice of the European Union of 20 November 2011, C-155/09, European Commission v Hellenic Republic, ECLI:EU:C:2011:22; 16 June 2011, C-10/10, European Commission v Republic of Austria, ECLI:EU:C:2011:399; 1 December 2011, C-250/08, European Commission v Kingdom of Belgium, ECLI:EU:C:2011:793; 1 December 2011, C-253/09, European Commission v Republic of Hungary, ECLI:EU:C:2011:795. 12 K. Moser, Recent Developments (above n. 6), p. 17. 13 https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2006:0825:FIN:en:PDF (downloaded on: 4 October 2021). 14 Council Resolution of 2 December 2008 on coordinating exit taxation; O.J. L 323, 18.12.2008, p. 1. 15 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market; O.J. L 193, 19.7.2016, p. 1–14.

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companies from avoiding tax when re-locating assets the Directive provides for exit taxation.16 As it is stated in the ATAD preamble the main target of the Directive was to lay down rules against the erosion of tax bases in the internal market and the shifting of profits out of the internal market. The ATAD introduces a minimum standard on the exit taxation rules which Member States should have been applying as from 1 January 2019, which in fact seems to be codification of the jurisprudence of the ECJ decided on exit taxation and the fundamental freedoms. It is noteworthy that this anti-avoidance measure does not directly correspond to any Action Plan on Base Erosion and Profit Shifting (BEPS), as it originates from the discussions on the international aspects of the Common Consolidated Corporate Tax Base (CCCTB).17 However, exit taxation targets the prevention of tax base erosion in the State of origin when the taxpayers try to reduce their tax bill by moving their tax residence and/or assets to a low-tax state, since such practices distort the market, erode the tax base of the State of departure, and shift profits to the low-tax jurisdiction of destination.18 The ATAD determines rules of timing and tax jurisdiction in the exit state for the taxation of unrealized capital gains imposed in the case when a taxpayer relocates its residence, business, or assets to another Member State or a third country.19 The exit tax is only applicable in the case of loss of a future taxation. The ATAD obliges the Member States to introduce exit taxation rules applicable to the entities subjected to corporate tax.20 Article 3 of the ATAD refers to the de minimis nature of the Directive and provides that the Directive shall not preclude the application of domestic or agreement-based provisions aimed at safeguarding a higher level of protection for domestic corporate tax bases. This means that the Directive just sets the minimum level of the tax base protection and Member States are free to introduce higher standards of protection.

16 S. Peeters, Exit Taxation (above n. 4), p. 122. 17 R. Aloys, Anti-Tax Avoidance Directive (2016 /1164): New EU Policy Horizons, European taxation, Vol. 56, 2016, No. 11, p. 500. 18 European Commission, Proposal for a Council Directive Laying down Rules against Tax Avoidance Practices That Directly Affect the Functioning of the Internal Market, Brussels, 28.1.2016, COM(2016) 26 final, p. 7–8. 19 S. Peeters, Exit Taxation (above n. 4), p. 122. 20 K. Suchojad, Podatek (above n. 1), p. 27.

The New Exit Tax Regime in Poland – going beyond the minimum standard

3.

Exit tax in Poland – current regulation

3.1

New tax package adopted by the Polish Parliament the 26 October 2018

Starting from 1 of January, 2019 the PIT Act21 and the CIT Act22 have been amended to adjust Polish tax laws to changes in the EU law introduced in the 2016 ATAD. This obligation applies to the Act on corporate income tax-in the scope of taxation of natural persons, there may be other regulations than the ATAD Directive stipulates. However, their introduction took place because of the constitutional requirement of equality of entities and the related need to use analogous solutions for legal and natural persons.23 Exit tax in Poland has been implemented in Polish income tax systems and does not constitute a separate tax.24 3.2

Transfers covered by exit taxation in Poland

The exit tax in Poland is imposed on the following tax events: − a transfer of an asset of a taxpayer outside the territory of Poland which results in the fact that Poland loses, entirely or in part, the right to tax the income from the disposal of this asset, whereas the asset being transferred shall remain in the ownership of the same subject (Poland loses the right to tax income from the (deemed) disposal of this asset); or − a change of tax residence by the taxpayer subject to unlimited tax liability in Poland, which results in the fact that Poland loses, entirely or in part, the right to tax the incomes from the disposal of the asset owned by this taxpayer, in relation to the transfer of his place of residence to another state (the company will cease to be subject to worldwide taxation in Poland).25

21 Ustawa z dnia 26 lipca 1991 r. o podatku dochodowym od osób fizycznych [The Act of 26 July 1991 on Personal Income Tax, hereinafter: the ‘PIT Act’], J. of L. 2021, item 1128 as amended. 22 Ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych [The Act of 15 February 1992 on Corporate Income Tax, hereinafter: the ‘CIT Act’] J. of L. of 2020, item 1406 as amended. 23 W. Modzelewski, J. Bielawny, M. Słomka, Komentarz do Art. 30da Opodatkowanie podatkiem od dochodów z niezrealizowanych zysków, in: Komentarz do ustawy o podatku dochodowym od osób fizycznych, [Commentary to Art. 30da of PIT Act [in:] Commentary to PIT Act], Issue No. 13, Warszawa 2019, database Legalis – online access. 24 A. Nowak-Piechota, Propozycja wprowadzenia podatku od wyjścia [Proposal to introduce an exit tax], Monitor Podatkowy 2018, No. 7, p. 22 and W. Modzelewski, J. Pyssa (eds.): Komentarz do ustawy o podatku dochodowym od osób prawnych. Komentarz, [Commentary on the CIT Act], Issue No. 14, Warszawa 2019, database Legalis – online access. 25 Article 30da (2) of the PIT Act, art. 24F (2) of the CIT act.

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In the case of natural persons, if an asset is not related to the economic activity of the natural person, the income tax on unrealized profits is applied only to the assets that constitute so called ‘personal property’ which means it can be applied only in the case of the transfer of all the rights and duties in a partnership, shares in a company or partnership, shares and other securities, financial derivative financial instruments, and capital fund participation units, provided the taxpayer had had his place of residence in the territory of Poland for at least 5 years in total within a ten-year period preceding the day of changing the tax residence.26 Imposing an income tax on unrealized gains as a result of a change of the tax residence will not apply to cases when the assets, following the change of tax residence, are still related to the foreign PE of the taxpayer who has changed the tax residence situated in the territory of Poland.27 The transfer of the asset outside the territory of Poland within the scope of the exit tax covers also the cases in which a taxpayer subjected to unlimited tax liability transfers to his foreign establishment an asset which has so far been related to the economic activity pursued in the territory of Poland. In the case of a taxpayer subjected to unlimited tax liability, exit tax covers transfers to the country of his tax residence, or to a country other than Poland, in which he pursues economic activity via a foreign permanent establishment (PE), an asset related so far to the economic activity pursued in the territory of Poland via the foreign PE as well as transfers of economic activity, in whole or in part, pursued so far via a foreign PE situated in the territory of Poland.28 Comparing national regulation to the provisions provided for in the ATAD, the Polish regulation covers all the transfers mentioned in the directive: transfer of assets from a head office to its permanent establishment,29 transfer of assets from a permanent establishment to its head office or another permanent establishment,30 transfer of tax residence31 and transfer of a business carried on by the permanent establishment.32 The taxation on unrealized profits will not apply if the total market value of the assets being transferred does not exceed the amount of 4,000,000 PLN. This limitation is applicable to individuals only.33 In the case of CIT taxpayers, the exit tax is to be imposed regardless of the market value of assets.

26 27 28 29 30 31 32 33

Article 30da (3) of the PIT Act. Article 24f (4) of the CIT Act, art. 30 da (5) of the PIT Act. Article 24f (3) of the CIT Act, art. 30 da (4) of the PIT Act. Article 5(1) (a) of the ATAD. Article 5(1) (b) of the ATAD. Article (1) (c) of the ATAD. Article 5(1) (d) of the ATAD. Article 24f of the CIT Act, art. 34da (14) of the PIT Act.

The New Exit Tax Regime in Poland – going beyond the minimum standard

Some of the transfers of assets are exempted from income tax on unrealized gains, such as: 1) assets donated for the purposes defined in Article 4 of the Act on Public Benefit Activity34 to organizations specified in the provisions governing the public benefit activity in this Act, carrying on the public benefit activity in the field of public tasks and fulfilling the said purposes – in the case where the taxpayer does not hold the right to participate in the profits or property of this organization; and 2) assets intended for the official use of employees, directly related to the performed work, not constituting fixed or current assets within the meaning of the provisions on accounting.35 General tax exemptions and deferrals specified in Article 21 and Article 24 shall not apply to the income tax on unrealized profits.36 3.3

The tax base and the tax rate

Income tax on the unrealized profits of corporations shall amount to 19% of the tax base, whereas with respect to taxation of personal income taxpayers, two tax rates have been provided for (19% and 3%).37 The tax rate for the PIT taxpayers shall amount to 3% only, if the tax value of an asset is not determined (i.e. if according to separate provisions tax deductible costs on the transfer of an asset cannot be recognized). The tax at a rate of 19% applies to the taxable base calculated as the difference between the market value of the asset over its tax value at the time of transfer of the asset or the day prior to that on which the company ceases to be a resident in Poland.38 The tax base for imposing the income tax on unrealized profits shall be the total amount of income from unrealized profits determined for individual assets. In case

34 Ustawa z dnia 24 kwietnia 2003 r. o działalności pożytku publicznego i o wolontariacie [The Act of 24 April 2003 on Public Benefit and Volunteer Work] J. of L 2020, item 1057 as amended. 35 Article 24h of the CIT Act, art. 30 dd (1) of the PIT Act. 36 W. Modzelewski, J. Pyssa (ed.), Komentarz do ustawy o podatku dochodowym od osób prawnych. Komentarz [Commentary to CIT Act], Issue No 13, Warszawa 2018. 37 Article 24f (1) of the CIT Act and art. 30da (1) of the PIT Act. See also: W. Modzelewski, J. Pyssa (ed.): Komentarz do Art. 24f [Opodatkowanie podatkiem od dochodów z niezrealizowanych zysków], in: Komentarz do ustawy o podatku dochodowym od osób prawnych. Komentarz [Commentary to Art. 24f of the CIT Act, in: Commentary to CIT Act], Issue No 13, Warszawa 2018. 38 Article 24f (5) of the CIT Act.

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an enterprise or its organized part is transferred, the income from unrealized profits shall apply to the entire enterprise or its organized part. According to art. 30da (7) PIT and art. 24f (5) of the CIT Act, the income from unrealized profits shall be the surplus of the market value of the asset, determined as at the day of its transfer or as at the day preceding the day of change of the tax residence, in excess of its tax value. The tax value of an asset is a value previously not recognized as the tax-deductible cost that would have been used by the taxpayer as a tax-deductible cost if the asset had been disposed of against consideration.39 The tax value of the asset shall not be determined when, in line with separate provisions, the tax-deductible cost from the disposal of this asset would not have been taken into account for the purpose of imposing the income tax. If the value of the asset adopted by the taxpayer for taxation of the income from unrealized profits deviates from its market value for unjustified reasons and, consequently, the taxpayer fails to declare income from unrealized gains or shows these income at an understated value, the taxpayer’s incomes and due income tax from unrealized gains shall be determined by a tax authority.40 Taxable amount does not include any capital losses that might occur in the future. If the taxpayer subjected to unlimited tax liability resident in Poland earns income also outside the territory of Poland and such income is taxed by the other state equivalent to the tax on the income from unrealized gains, such income shall be accumulated with the income earned in the territory of Poland. In such a case an amount equal to a tax paid in a foreign state shall be deducted from the tax on the total amount of incomes. The amount deducted may not, however, exceed the part of the tax assessed before deduction and proportionally corresponding to the income earned in the other taxing state.41 3.4

Temporary transfers outside the scope of the rule

Polish exit regulations also define tax exemptions from taxation on income from unrealized gains for assets temporarily transferred outside the territory of Poland. According to art. 24g CIT and art. 30 dc PIT Act imposition of the income tax from unrealized profits shall not apply to any asset transferred outside the territory of Poland for a definite time, but no longer than 12 months, if: 1) transfer of the asset is directly linked to the liquidity management policy of the taxpayer’s enterprise situated in the territory of Poland and the territory of another state;

39 Article 24f (8) of the CIT Act, art. 30 da (10) of the PIT Act. 40 Article 24f (9) of the CIT Act, art. 30 da (11) of the PIT Act. 41 Article 24f (11) of the CIT Act, art. 30 da (13) of the PIT Act.

The New Exit Tax Regime in Poland – going beyond the minimum standard

2) transfer of securities or other assets is effected under a contract of conveyance of ownership in order to secure a receivable debt; or 3) in the case of financial institutions – the transfer takes place in order to meet the prudential capital requirements set forth under European Union law for credit institutions and investment firms. In the case of an asset temporarily transferred outside the territory of Poland, the taxpayer is obliged to declare the market value of the assets transferred temporarily in the tax year for which the statement is submitted, and the expected date of transferring them back to the territory of Poland, if these assets will remain outside the territory of Poland until the statement submission date. If, prior to the lapse of 12 months counted from the first month following the month in which an asset was transferred outside the territory of Poland, or the partnership which was transferring the asset was acquired by a company, the legal existence of the taxpayer expires, including by its liquidation or take-over by another subject, or if the taxpayer transformed the form of the pursued activity into a sole-shareholder company, the market value of the asset declared previously as temporarily transferred outside the territory of Poland shall be subject to taxation on unrealized capital gains.42 In the latter case the taxpayers shall be obliged to submit to the tax office a declaration on the amount of income from unrealized profits within 7 days from the acquisition, the expiry of the legal existence of the taxpayer, or transformation day, and to pay the due tax within this time limit. In the case of the PIT taxpayers if the value of the asset exceeds the total amount of 40,000,000 zlotys the taxpayer shall be obliged to show in the declaration all the transferred assets for the purpose of taxation. 3.5

Deferral of taxation for transfers to other Member States or to third countries that are parties to the EEA Agreement

Poland has decided on a limited deferral period rather than deferring the tax until ultimate sale of the assets.43 The taxpayer may apply to a competent tax authority for the spreading into instalments of the payment of the entire income tax or part of it on unrealized gains for a period no longer than 5 years counting from the end of the tax year in which the obligation to pay this tax has arisen, if the transfer of the asset or the transfer of the tax residence is effected in the territory of the European Union

42 Article 24g (3) of the CIT Act, art. 30 dc (3) of the PIT Act. 43 In this regard, the CJEU has held that the exit state is entitled to adopt an alternative criterion in the case of assets that are not meant to be disposed of.

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Member State or another state belonging to the European Economic Area which is a party to the agreement concluded with Poland or the European Union concerning mutual assistance for the recovery of claims relating to taxes, equivalent to mutual assistance provided for in Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures (OJ L 84, 31.3.2010, p. 1).44 In cases where there is a real risk of failure to recover the income tax on unrealized gains, the entire tax or part of it shall be spread into instalments upon the taxpayer submitting a security for performance of the tax obligation on this account together with a prolongation fee in the form provided for in the Tax Ordinance provisions on securities for the fulfillment of tax obligations. In assessing whether there is a real risk of failure to recover the income tax on unrealized gains, as it is prescribed in the Polish regulation, that it should be taken into account in particular whether: 1. the balance-sheet value of the taxpayer’s liabilities in the last 3 tax years does not exceed 50 per cent of the balance-sheet value of his assets; 2. the taxpayer has duly settled its tax obligations concerning income tax, including in the scope of the duties of the remitter of the income tax on receivables paid out under certain sources of income, and if there were arrears in these payments, whether they constituted a significant value that may affect the assessment of the taxpayer’s solvency and reliability; 3. the taxpayer holds shares in a foreign controlled entity. 4. in the last 5 tax years, proceedings were pending or have been pending as at the day of the submission of an application for spreading the tax into instalments, against the taxpayer, pursuant to the provisions regulating the tax avoidance or evasion; 5. the taxpayer granting guarantees and suretyships to related entities within the meaning of the transfer pricing provisions is economically justified and justified in terms of viability; 6. the related entities to the taxpayer, within the meaning of the transfer pricing provisions, are not at risk of bankruptcy or liquidation due to insolvency.45 The security for performance of the obligation to recover the income tax on unrealized gains may be also submitted by a subject having a place of residence, seat, or management office in a European Union Member State or another state belonging to the European Economic Area, whose financial and property standing provides the grounds for the assumption that he is able to fulfil the duties under this guarantee or this suretyship.

44 Article 24i (1) of the CIT Act, art. 30 de (1) of the PIT Act. 45 Article 24i (3) of the CIT Act, art. 30de (3) of the PIT Act.

The New Exit Tax Regime in Poland – going beyond the minimum standard

The payment of the income tax on unrealized profits shall be spread into instalments by virtue of a decision in which the tax authority shall, in particular determine the amount of and payment dates for the instalments as well as the amount of a prolongation fee and provide information about the circumstances resulting in the expiry of the decision. The decision spreading the tax into instalments however will expire in one of the following circumstances: 1. the taxpayer has transferred in any form the assets transferred outside the territory of the Republic of Poland, including to the foreign establishment situated outside the territory of the Republic of Poland; 2. the assets transferred outside the territory of the Republic of Poland, including those assigned to the foreign establishment, shall be retransferred to a state other than the EU Member State, unless this transfer is made to a state belonging to the European Economic Area which is a party to the agreement concluded with the Republic of Poland or the European Union concerning mutual assistance for the recovery of claims relating to taxes, equivalent to the mutual assistance provided for in Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures; 3. the taxpayer changes, once more, its tax residence to tax residence of a state other than a European Union Member State, unless the repeated change of the tax residence is made to a state belonging to the European Economic Area which is a party to the agreement concluded with the Republic of Poland or European Union concerning mutual assistance for the recovery of claims relating to taxes, equivalent to mutual assistance provided for in Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures; 4. the taxpayer is declared bankrupt or is liquidated; 5. the subject which granted to the taxpayer a security for the fulfilment of the tax obligation in the form of a guarantee or suretyship has been declared bankrupt, is liquidated or is taken over as a result of a merger or division by another subject or transformed into a partnership; 6. the taxpayer has failed to meet the payment date for any of the instalments or the prolongation fee46 . In the period of the spreading of the income tax from unrealized profits into instalments, the taxpayer is obliged, on the last day of each calendar year, to inform the tax office about the occurrence or non-occurrence of the above mentioned circumstances that might influence the tax deferral.

46 Article 24i (5) of the CIT Act, art. 30de (6) of the PIT Act.

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3.6

Declarations and reporting

Taxpayers are obliged to submit declarations to the tax office, in accordance with a specified form, on the amount of the income from unrealized profits by the 7th day of the month following the amount in which income from unrealized profits was earned and to pay the due tax by this deadline. In the case of natural persons, seven days will be counted following the month in which the total market value of the assets being transferred has exceeded the amount of 4,000,000 PLN. If after the month in which the total market value of the assets being transferred exceeds the amount of 4,000,000 PLN, the next assets are being transferred, the taxpayers shall be obliged to submit declarations by the 7th day of the month following the month in which the asserts are being transferred and to pay the due tax by this deadline. In the case of tax capital groups, the income from unrealized profits shall be determined as the total incomes of all the companies comprising this group. 3.7

Tax refund for PIT taxpayers

If the taxpayer, within 5 years counted from the end of the tax year in which he transferred the asset outside the territory of Poland, has transferred the said asset back to the territory of Poland, he may apply for a refund of the income tax on unrealized profits in the part attributable to this asset. The same would apply to the change of tax residence. If the taxpayer, within 5 years counted from the end of the tax year in which he changed his tax residence, has reverted to being a person subjected to unlimited liability in Poland, he may apply for a refund of the paid income tax on unrealized gains. This refund shall not apply to the tax attributable to the assets that are still related to the foreign establishment of the taxpayer, situated outside Poland.47

4.

Exit Tax in New Polish Deal as from 1 of January 2022

The Polish Deal sets out many significant tax changes48 . With a few exceptions, the new Polish Deal regime is scheduled to enter into force on January 1, 2022. Starting from January 1, 2022 under CIT ACT income tax on unrealized profits covers also change of tax residence by the taxpayer subject to unlimited tax liability in Poland which results in the fact that Poland loses the right to tax the incomes from

47 Article 30df of the PIT Act. 48 Act of 29 October 2021 on the amendment of the statute of income tax from natural persons, the statute of pension tax from legal persons and some other statutes (J. L., item 2105).

The New Exit Tax Regime in Poland – going beyond the minimum standard

the sale of the component asset owned by this taxpayer, in relation to the transfer of the place of his seat or management office to another state, including cross-border reorganizations49 . So in fact, with this date 19% exit tax shall be extended to cases of ‘international transformations’ (which may be interpreted, e.g. as cross-border mergers). What is more, ss it was stated above the taxpayer may apply to the tax office for spreading into installments of the payment of the entire or part of the income tax on unrealized profits for the period no longer than 5 years counting from the end of the tax year in which the obligation to pay this tax has arisen if the transfer of the component asset or the transfer of the tax residence is effected in the territory of the EU Member State or another state belonging to the EEA which concluded with Poland or EU concerning mutual assistance for the recovery of claims relating to taxes, equivalent to mutual assistance provided for in Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures (OJ L 84, 31.3.2010, p. 1). However, in case of a real risk of failure to recover the income tax on unrealized profits, the entire or part of this tax shall be spread into installments upon the taxpayer submitting a security for performance of tax obligation. Under Polish Deal in assessing whether there is a real risk of failure to recover the income tax on unrealized profits, it should be taken into account any longer whether the taxpayer holds shares in a foreign controlled entity. This prowision as of 1 January 2022 has been repealed50 . Also application of the provisions on exit tax to partnerships has been changed. In case the component asset is transferred by a partnership, the provisions on exit tax shall apply to taxpayers holding rights to participate in the incomes of such a partnership. This provisions shall apply accordingly to: 1) gratuitous transfer of a component asset to another subject situated in the territory of the Republic of Poland, 2) making a contribution of a component asset to a subject other than a company or cooperative – if, in connection with this transfer or making the contribution, Poland losesa right to impose tax on incomes from the sale of this component asset51 . The minister competent for public finance is not entited any more to determine, by regulation, the standard forms of the declaration or information to be submitted by the taxpayer together with further explanations as to the manner of filling them in, time limit and place for submitting them, as well as any necessary instructions,

49 Article 24f (2) (2) of the CIT Act. 50 Article 30de (3) (3) of the PIT Act, Article 24i (3) (3) of the CIT Act. 51 Article 30dh of the PIT Act.

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having regard for enabling the identification of the revenue office, identification of the taxpayer, applied method for valuation of the market value, and the correct calculation by the taxpayer of the income tax on unrealized profits52 .

5.

Conclusions – Assessment of compliance of the Polish regulations introducing exit tax with the EU law

The ATAD lays down rules in order to strengthen the average level of protection against aggressive tax planning in the internal market. These rules create a minimum level of protection for national corporate tax systems against tax avoidance practices across the Union. It should be emphasized, however, that the rules of taxation indicated in the directive apply to corporate taxpayers only e.g. all taxpayers that are subject to corporate tax in a Member State. In the preamble to the directive it is stated that ‘considering that it would result in the need to cover a broader range of national taxes, it is not desirable to extend the scope of this Directive to types of entities which are not subject to corporate tax in a Member State; that is, in particular, transparent entities.’ This does not mean, however, that Member States are not entitled to introduce it for natural persons. Taxation of individuals on ‘exit’ does not in itself constitute a breach of the ATAD or conflict with well-established case-law of the CJEU.53 First of all, it should be noted in this regard that according to art. 3 of the ATAD, this directive shall not preclude the application of domestic or agreement-based provisions aimed at safeguarding a higher level of protection for domestic corporate tax bases. This provision establishes the de minimis nature of the directive and provides that the directive shall not preclude the application of domestic agreementbased provisions aimed at safeguarding a higher level of protection for domestic corporate tax bases. This means that the ATAD just sets the minimum level of the tax base protection and the Member States are free to introduce higher standards of protection. However it is worth mentioning that a much higher level of protection will fall out of the scope of the ATAD and, as a prima facie restriction, it needs to be tested against the fundamental freedoms and other EU Law provisions as any regular domestic income tax provision. Moreover, as the Polish legislation on exit taxation in the CIT and PIT Acts was intended to implement the EU Law, its application and interpretation issues go to the jurisdiction of the CJEU. According to the Court’s settled case-law, where, in regulating purely internal situations, domestic legislation adopts the same solutions as those adopted in EU law for the same

52 Article 30di of the PIT Act and Article 24l of the CIT Act repealed as from 1.01.2022. 53 K. Suchojad, Podatek (above n. 1), p. 27.

The New Exit Tax Regime in Poland – going beyond the minimum standard

purpose, it is clearly in the European Union’s interest that, in order to forestall future differences of interpretation, provisions or concepts taken from the EU law are to be interpreted uniformly, irrespective of the circumstances in which they are to apply.54 In a case where the domestic legislation applies the terminology of the ATAD, but provides a higher level of protection e.g. applies to natural persons, the CJEU will eventually have the authority to give a final interpretation to these provisions. Thus, if the Member States has set stricter anti-avoidance rules, they will be potentially scrutinized by the CJEU and may be considered disproportionate.55 Secondly, in accordance with the principle of fiscal territoriality linked to a temporal component, the Member State can exercise its power of taxation in relation to the capital gains in its territory during the period of the company’s residency. The Member State of origin is entitled to levy tax on the capital gains, also in the case of a natural person, until the moment when the assets are transferred because of the preservation of allocation of powers of taxation between the Member States. However, exit taxes may also be problematic with respect to EU law, insofar as they constitute illegitimate restrictions to the four freedoms. In the case of legislative solutions adopted by the Polish legislators on exit taxation, it raises doubts as to whether a limited deferral period, rather than deferring the tax until the ultimate sale of the assets that is applicable to PIT taxpayers, is compatible with the EU law.56 As was stated in a number of CJEU judgments the immediate recovery of the exit tax debt is restrictive to the fundamental freedoms, although when examining the issue of justification regarding whether the national exit tax rule complies with the principle of proportionality, the Court applied a case-by-case different approach leading in many cases to a different outcome. The issue of an infringement of the freedom of establishment was raised for example in the DMC case,57 in which the CJEU considered among other matters the proportionality of an exit tax between immediate payment of the exit tax or a payment spread over a period of five years. In this ruling the CJEU clarified that the ability to spread payment of the unrealized gain tax over a period of five years is a satisfactory and proportionate measure in respect of the risk of non-recovery which increases with the passing of time.

54 Judgment of the Court of Justice of the European Union of 10 November 2011, C-126/10, Foggia – Sociedade Gestora de Participações Sociais SA v. Secretário de Estado dos Assuntos Fiscais, ECLI:EU:C:2011:718. 55 A. P. Dourado, The EU Anti-Tax Avoidance Package: Moving Ahead of BEPS, Intertax 2016, Issue 6/7, p. 442. 56 This view is presented in a complaint brought by the Polish National Tax Advisory Board to the European Commission. 57 Judgment of the Court of Justice of the European Union of 23 January 2014, C-164/12, DMC Beteiligungsgesellschaft mbH v. Finanzamt Hamburg-Mitte, ECLI:EU:C:2014:20.

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However in the recent Martin Wächtler case58 the Court stated that the immediate collection of the tax at issue at the time when the taxpayer’s domicile is transferred may, as a general rule, be justified by the need to ensure the effective collection of tax liabilities, but in the considered case, in the opinion of the Court, that measure goes beyond what is necessary in order to achieve that objective and must therefore be considered to be disproportionate. That conclusion was not called into question by the fact that the tax regime provided for the possibility of payment of that tax in instalments as the instalment-payment measure is incapable of eliminating the cash-flow disadvantage inherent in the obligation on the taxpayer to pay, at the time of the transfer of his domicile to another country, a proportion of the tax payable on the unrealized capital gains. It is the settled case law of the Court of Justice of the European Union that taxpayers should be provided with a choice of (i) either immediately paying the amount of tax due upon exit, or (ii) deferring payment. What the Court meant by the deferral of payment raises doubts which primarily concern whether deferment of payment means deferral until realization, or deferral by way of a payment in instalments. In an in-depth analysis of the CJEU judgments on exit taxation, the fact that there were the decisions in DMC59 and LabTec60 in which the deferral of exit taxes by way of an option to pay by instalments was expressly endorsed by the CJEU as constituting a proportionate restriction on freedom, and the fact the only CJEU exit tax case which refers expressly to deferral until realization of the capital gains was the National Grid Indus case,61 leads to the conclusion that the ‘deferral’ is simply mentioned by the CJEU in generic terms. Moreover, in the Wächtler case, the CJEU was addressing the rights of a German national to exercise freedom of movement under the Agreement between the European Community and its Member States, on the one part, and, on the other, the Swiss Confederation.62 In paragraph 68 of this judgment the CJEU held that, by parity of reasoning with its decisions in the exit tax cases, an immediate charge to tax in Germany at the point of migration by a German national to Switzerland was disproportionate.63 In this part of the decision, 58 Judgment of the Court of Justice of the European Union of 26 February 2019, C-581/17, Martin Wächtler v Finanzamt Konstanz, ECLI:EU:C:2019:138. 59 Judgment of the Court of Justice of the European Union of 23 January 2014, C-164/12, DMC Beteiligungsgesellschaft mbH v. Finanzamt Hamburg-Mitte, ECLI:EU:C:2014:20. 60 Judgment of the Court of Justice of the European Union of 21 May 2015, C-657/13, Verder LabTec GmbH & Co. KG v Finanzamt Hilden, ECLI: EU:C:2015:331. 61 Judgment of the Court of Justice of the European Union of 29 November 2011, C-371/10, National Grid Indus BV v. Inspecteur van de Belastingdienst Rijnmond/kantoor Rotterdam, ECLI:EU:C:2011:785. 62 Agreement signed in Luxembourg on 21 June 1999. 63 Judgment of the Court of Justice of the European Union of 26 February 2019, C-581/17, Martin Wächtler v. Finanzamt Konstanz, ECLI:EU:C:2019:138.

The New Exit Tax Regime in Poland – going beyond the minimum standard

as in the Panayi case at paragraph 60, the CJEU was merely commenting on the reasons why the existing German legislation remained disproportionate despite the existence of a provision for deferral in certain circumstances. The Court did not declare that, in order for the existing legislation to be made proportionate, the legislation of the Member States would need to be amended in order to provide for deferral until realization. If the CJEU had been ruling that, it would have expressis verbis cut himself off from the existing case-law on exit tax.64 The ATAD is also indicative that, so far as exit taxes are concerned, deferral by way of an option to pay by instalments is a proportionate restriction on the EU freedoms because Article 5 of that directive provides for exit taxes to be paid by way of five instalments, together with interest. In the author’s view, the deferral applied by the Polish legislator, of taxation for transfers to other Member States or to third countries that are parties to the EEA agreement in the form of five annual instalments, instead of immediate recovery, does not violate EU law. There is no doubt on the other hand that in the light of the Martin Wächtler case65 art. 24i (1) CIT Act, and art. 30 de (1) PIT Act are contrary to the provisions of the Agreement between the European Community and its Member States, on the one part, and the Swiss Confederation, on the other, on the free movement of persons, signed in Luxembourg on 21 June 1999, that preclude a tax regime of a Member State which, in a situation where a natural person who is a national of a Member State and who pursues an economic activity in the territory of the Swiss Confederation, transfers his domicile from the Member State whose tax regime is at issue to Switzerland, provides for the collection, at the time of that transfer, of the tax payable on unrealized capital gains with respect to assets owned by that national, whereas, if domicile is retained in Poland, the collection of the tax takes place only at the time when the capital gains are realized, that is on a disposal of the asset concerned.

64 Judgment of the Court of Justice of the European Union of 23 January 2014, C-164/12, DMC Beteiligungsgesellschaft mbH v. Finanzamt Hamburg-Mitte, ECLI:EU:C:2014:20 and judgment of the Court of Justice of the European Union of 21 May 2015, C-657/13, Verder LabTec GmbH & Co. KG v Finanzamt Hilden, ECLI: EU:C:2015:331. 65 Judgment of the Court of Justice of the European Union of 26 February 2019, C-581/17, Martin Wächtler v. Finanzamt Konstanz, ECLI:EU:C:2019:138.

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References Legal acts Council Resolution of 2 December 2008 on coordinating exit taxation; O.J. L 323, 18.12.2008, p. 1. Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market; O.J. L 193, 19.7.2016, p. 1–14. Ustawa z dnia 26 lipca 1991 r. o podatku dochodowym od osób fizycznych [The Act of 26 July 1991 on Personal Income Tax, hereinafter: the ‘PIT Act’], J. of L. 2021, item 1128 as amended. Ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych [The Act of 15 February 1992 on Corporate Income Tax, hereinafter: the ‘CIT Act’] J. of L. of 2020, item 1406 as amended. Ustawa z dnia 24 kwietnia 2003 r. o działalności pożytku publicznego i o wolontariacie [The Act of 24 April 2003 on Public Benefit and Volunteer Work] J. of L 2020, item 1057 as amended.

Jurisdiction Judgment of the Court of Justice of the European Union of 16 June 2011, C-10/10, European Commission v Republic of Austria, ECLI:EU:C:2011:399. Judgment of the Court of Justice of the European Union of 10 November 2011, C-126/ 10, Foggia – Sociedade Gestora de Participações Sociais SA v. Secretário de Estado dos Assuntos Fiscais, ECLI:EU:C:2011:718. Judgment of the Court of Justice of the European Union of 20 November 2011, C-155/09, European Commission v Hellenic Republic, ECLI:EU:C:2011:22. Judgment of the Court of Justice of the European Union of 29 November 2011, C-371/ 10, National Grid Indus BV v. Inspecteur van de Belastingdienst Rijnmond/kantoor Rotterdam, ECLI:EU:C:2011:785. Judgment of the Court of Justice of the European Union of 1 December 2011, C-250/08, European Commission v Kingdom of Belgium, ECLI:EU:C:2011:793. Judgment of the Court of Justice of the European Union of 1 December 2011, C-253/09, European Commission v Republic of Hungary, ECLI:EU:C:2011:795. Judgment of the Court of Justice of the European Union of 23 January 2014, C-164/12, DMC Beteiligungsgesellschaft mbH v. Finanzamt Hamburg-Mitte, ECLI:EU:C:2014:20. Judgment of the Court of Justice of the European Union of 21 May 2015, C-657/13, Verder LabTec GmbH & Co. KG v Finanzamt Hilden, ECLI: EU:C:2015:331. Judgment of the Court of Justice of the European Union of 26 February 2019, C-581/17, Martin Wächtler v Finanzamt Konstanz, ECLI:EU:C:2019:138.

The New Exit Tax Regime in Poland – going beyond the minimum standard

Literature Aloys R., Anti-Tax Avoidance Directive (2016 /1164): New EU Policy Horizons, European taxation, 2016, Vol. 56, no. 11. de Broe L., Hard times for emigration taxes in the EC, in: A tax globalist: the search for the borders of international taxation: Essays in honour of Maarten J. Ellis, (eds.): H.P.A.M. Arendonk, F.A. van Engelen, S.J.J.M. Jansen, Amsterdam 2005. Beretta G., Mobility of Individuals after BEPS: The Persistent Conflict between Jurisdictions, Bulletin for International Taxation July 2018. Betten R., Income Tax Aspects of Emigration and Immigration of Individuals, Amsterdam 1998. Betten R., The Tax Treatment of Transfer of Residence by Individuals, vol. LXXXVIIb, IFA Cahiers, Kluwer 2002. Carramaschi B.M., Exit Taxes and the OECD Model Convention: Compatibility and Double Taxation Issues, Tax Notes International (Jan. 21, 2008), p. 284. Cejie K., Emigration Taxes – Several Questions, Few Answers: From Lasteyrie to National Grid Indus and beyond, INTERTAX, 2012, Volume 40, Issue 6/7. Dahlberg M., Internationell beskattning – en lärobok, Studentlitteratur, 2005, 105. Dourado A. P., The EU Anti-Tax Avoidance Package: Moving Ahead of BEPS, Intertax 2016, Issue 6/7. European Commission, Proposal for a Council Directive Laying down Rules against Tax Avoidance Practices That Directly Affect the Functioning of the Internal Market; Brussels, 28.1.2016, COM(2016) 26 final. IBFD, International Tax Glossary, 2005. Lang M., Pistone P., Schuch J., Staringer C., Introduction to European Tax Law on Direct Taxation, Linde Verlag GmbH, 2018. de Man F., Albin T., Contradicting Views of Exit Taxation under OECD MC and TFEU: Are Exit Taxes Still Allowed in Europe?, INTERTAX, 2011, Volume 39, Issue 12. Moser K., Recent Developments and Challenges Regarding Exit Taxes in the Context of Tax Treaties: Article 13 of the OECD Model and Change of Residence, Bulletin for International Taxation, 2019, Volume 73, No. 10. National reports in Cahiers De Droit Fiscal International Vol. 72b: Tax problems of the liquidation of corporations, IFA Oslo Congress, Kluwer Law International, 2002. Nowak-Piechota A., Propozycja wprowadzenia podatku od wyjścia w związku z implementacją Dyrektywy ATAD [Proposal to introduce an exit tax in connection with the implementation of the ATAD Directive], Monitor Podatkowy 2018, No. 7. Peeters S., Exit Taxation: From an Internal Market Barrier to a Tax Avoidance Prevention Tool, EC Tax Reiew, 2017, Issue No 3; Suchojad K., Podatek od niezrealizowanych zysków – modelowa koncepcja a rozwiązania polskie [Tax on unrealized gains – model concept versus Polish solutions], Monitor Podatkowy 2019, No. 2.

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Szudoczky R., Exit Tax, in: The EU Common Consolidated Corporate Tax Base: Critical Analysis (eds.): D. Weber, J. van de Streek, Wolters Kluwer 2018. Zimmer F., Exit Taxes in Norway, World Tax Journal, 2009, No. 1.

Netography Jankowski J., Optymalizacja podatkowa w podatkach dochodowych – dopuszczalność i prawne granice [Tax optimization in income taxes – admissibility and legal limits], Warszawa 2019, database Legalis – online access. Modzelewski W., Bielawny J., Słomka M., Komentarz do ustawy o podatku dochodowym od osób fizycznych [Commentary to PIT Act], Issue No 13, Warszawa 2019, database Legalis – online access. Modzelewski W., Pyssa J. (eds.): Komentarz do ustawy o podatku dochodowym od osób prawnych. Komentarz [Commentary to CIT Act], Issue No. 13, Warszawa 2018; database Legalis – online access. Modzelewski W., Pyssa J. (eds.): Komentarz do ustawy o podatku dochodowym od osób prawnych. Komentarz [Commentary to CIT Act], Issue No 14, Warszawa 2019, database Legalis – online access. https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2006:0825:FIN:en:PDF (downloaded on: 4 October 2021).

Krzysztof Lasiński-Sulecki

Transfer pricing

1.

Introduction – transfer pricing in international agreements

Polish transfer pricing regulations have for many years been based on Article 9 of the OECD Model Convention and the OECD Guidelines. At the beginning of 2019, new statutory regulations in this area – much more extensive than their predecessors – entered into force. The basic provisions on transfer pricing are contained in double taxation treaties. The bilateral double tax treaties concluded by Poland are based on the OECD MC,1 although rather few agreements explicitly confirm this in their content.2 This is demonstrated more often by a rather significant similarity between the solutions adopted by Poland in bilateral treaties to the OECD MC, and sometimes by the fact that the explanatory memoranda of bills that agree to the ratification of a bilateral agreement contain references which testify to the fact that the works on the given treaty were based on OECD solutions.3 It is worth noting that the regulation of some international agreements binding Poland is more extensive than Article 9 of the OECD MC. Additional paragraphs are found, for example, in the agreements with Australia (1991),4 where the application

1 See M. Uss, Poland, in: M. Lang, P. Pistone, J. Schuch and C. Staringer (ed.), The Impact of the OECD and UN Model Conventions on Bilateral Tax Treaties, Cambridge 2012, p. 820. 2 See e.g. protokół w umowie między Rzecząpospolitą Polską a Republiką Austrii w sprawie unikania podwójnego opodatkowania w zakresie podatków od dochodu i od majątku z 2004 r. [protocol in the agreement between the Republic of Poland and the Republic of Austria for the avoidance of double taxation with respect to taxes on income and on capital of 2004], J. of L. of 2005, no 224, item. 1921, as amended. 3 See, for example, the Government’s bill on the ratification of the Convention between the Government of the Republic of Poland and the Government of the United Mexican States in respect of the avoidance of double taxation and prevention of tax evasion with regard to income taxes, signed in Mexico City on 30 November 1998, Parliamentary Print No. 252, Sejm of the 4th term (reference to the recommendations of the OECD Council with regard to the conclusion of double taxation treaties). See K. Lasiński-Sulecki, Ceny transferowe w prawie podatkowym i celnym [Transfer Pricing under Tax and Customs Law], LEX a Wolters Kluwer business, Warszawa 2014, pp. 77–78. 4 Umowa między Rzecząpospolitą Polską a Australią w sprawie unikania podwójnego opoatkowania i zapobiegania uchylenia się od opodatkowania w zakresie podatków od dochodu z 1991 r. [agreement between the Republic of Poland and Australia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 1991], J. of L. of 1992, no 41, item. 177, as amended.

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of Article 9(1) is explicitly extended to the situation where there is insufficient information on the profit that is to be attributed to the company). Similar solutions were adopted in the agreement with Malta (1994).5 In turn, the agreement with the Czech Republic (2011)6 provides for the exclusion of a corresponding adjustment in the case of a fiscal offence, gross negligence, or wilful omission. Such provisions were also introduced in agreements with Jordan (1997)7 and Mexico (1998).8 The agreement with Switzerland (1991)9 stipulates in Article 9(3) that changes in profit must not be made after the expiry of the limitation periods under national law.10 Among the most extensive versions of Article 9 are the provisions contained in the agreement with Cyprus (1992),11 which provides for a specific limitation

5 Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Malty w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu z 1994 r. [agreement between the Government of the Republic of Poland and the Government of Malta for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 1994], J. of L. of 1995, no 49, item. 256, as amended. Concerning the mentioned entitlements of the State Party, Article 9(2) has been deleted under the Protocol of 2011, J. of L. No 283, item 1661. 6 Umowa między Rzecząpospolitą Polską a Republiką Czeską w sprawie unikania podwójnego opodatkowania i zapobiegania uchylania się od opodatkowania w zakresie podatków od dochodu z 2011 r. [agreement between the Republic of Poland and the Czech Republic for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 2011], J. of L. of 2012, item 991. 7 Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Haszymidzkiego Królestwa Jordanii w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu z 1997 r. [agreement between the Government of the Republic of Poland and the Government of the Hashemite Kingdom of Jordan, for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income of 1997], J. of L. of 1999, No. 61, item 654. 8 Konwencja między Rządem Rzeczypospolitej Polskiej a Rządem Meksykańskich Stanów Zjednoczonych w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu z 1998 r. [convention between the Government of the Republic of Poland and the Government of the United Mexican States for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 1998], J. of L. of 2003, no 13, item. 131, as amended. 9 Konwencja między Rzecząpospolitą Polską a Konfederacją Szwajcarską w sprawie unikania podwójnego opodatkowania w zakresie podatków od dochodu i majątku z 1991 r. [Convention between the Republic of Poland and the Swiss Confederation for the Avoidance of Double Taxation with respect to taxes on income and capital of 1991], J. of L. of 1993, no 22, item. 92, as amended. 10 See K. Lasiński-Sulecki, Ceny transferowe [Transfer Pricing], (above No.3), p. 80. 11 Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Republiki Cypru w sprawie unikania podwójnego opodatkowania w zakresie podatków od dochodu i majątku z 1992 r. [agreement between the Government of the Republic of Poland and the Government of the Republic of Cyprus for the avoidance of double taxation with respect to taxes on income and capital of 1992], J. of L. of 1993, no 117, item. 523, as amended.

Transfer pricing

period for the application of the arm’s length rule (Article 9(3)), and at the same time its applicability in cases of fraud, wilful misconduct, or negligence was excluded. This solution was also adopted in the agreements with Egypt (1996)12 and Canada (1987).13 Article 9 of the agreement with Indonesia (1992),14 emphasises the possibility for both countries to make corrections to profits, communication of the state parties to the necessary extent, and making appropriate adjustments even after the deadlines provided for in national legislation.15 In contrast, in some contracts the regulation is less extensive and only covers one paragraph of Article 9 (primary adjustment). This form was given to Article 9 in numerous agreements concluded prior to 1998.16 Article 9 is formulated quite differently in the agreement with Belarus (1992).17 It contains, in fact, only a provision requiring the making of a corresponding adjustment. However, the obligation to make an appropriate adjustment implies the possibility of making a primary adjustment. There is no equivalent of Article 9 of the OECD MC in the agreement with Russia (1992).18 It is worth mentioning that, just as in the case of the agreement with

12 Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Arabskiej Republiki Egiptu w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu i majątku z 1996 r. [agreement between the Government of the Republic of Poland and the Government of the Arab Republic of Egypt for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital of 1996], J. of L. of 2003, No. 78, item 690. 13 Konwencja między Rzecząpospolitą Polska a Kanadą w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w w zakresie podatków od dochodu z 1987 r. [convention between the Republic of Poland and Canada for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 1987], J. of L. of 1990, No. 38, item 216. 14 Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Republiki Indonezji w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu z 1992 r. [agreement between the Government of the Republic of Poland and the Government of the Republic of Indonesia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income], J. of L. of 1994, No. 46, item 187. 15 See K. Lasiński-Sulecki, Ceny transferowe (above n. 3), p. 80. 16 See K. Lasiński-Sulecki, Ceny transferowe (above n. 3), p. 81. 17 Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Republiki Białoruś w sprawie unikania podwójnego opodatkowania w zakresie podatków od dochodu i majątku z 1992 r. [agreement between the Government of the Republic of Poland and the Government of the Republic of Belarus for the avoidance of double taxation with respect to taxes on income and capital], J. of L. of 1993, No. 120, item 534. 18 Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Federacji Rosyjskiej w sprawie unikania podwójnego opodatkowania w zakresie podatków od dochodu i majątku z 1992 r. [agreement between the Government of the Republic of Poland and the Government of the Russian Federation for the avoidance of double taxation with respect to taxes on income and capital], J. of L. of 1993, no 125, item. 569, as amended.

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Belarus (1992), and also in the case of the agreement with Russia, the absence of a provision in the bilateral treaty may be associated with the absence – at the time of conclusion of the agreement – of national transfer pricing regulations based on OECD solutions.19

2.

Soft-law in the area of transfer pricing

In the Polish legal order, transfer pricing regulations are partly contained in statutory acts and partly in subordinate acts. In the course of creating subordinate acts, softlaws created at the international level are taken into account. Thus, pursuant to Article 11j (1) of ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych [the Act of 15 February 1992 on corporate income tax, the CIT Act],20 the minister in charge of public finance determines, by way of an ordinance, the manner and procedure: 1) of assessing the compliance of the conditions established by related entities with the conditions that would be established between unrelated entities, including the criteria of comparability of those conditions, 2) of determining the amount of income (loss) of a taxpayer by means of assessment with the use of the methods referred to in Article 11d (1–3), including determining the remuneration for the transfer between related parties of economically significant functions, assets, or risk categories, 3) of eliminating double taxation in the case of adjusting the profits of related parties. In the course of the above activities, the Minister is to ensure the correctness of transfer pricing verifications made by taxpayers and tax authorities, taking into account the Organisation for Economic Cooperation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD TPGs). It is worth noting that, on the basis of the provision prior to the above, which contained a similarly formulated delegation to the Minister of Finance, the Supreme Administrative Court expressed a controversial view on the importance of the OECD TPGs. According to the judgement of that court of 20 June 2018 (II FSK 1165/15), when reproducing the meaning of legal norms contained e.g. in Article 11 of the Corporate Income Tax Act (in the context of the situation as it is) one 19 See E. Variychuk, The New Russian Transfer Pricing Law, Bulletin for International Taxation 2014, No. 11, p. 640 et seq. See K. Lasiński-Sulecki, Ceny transferowe [Transfer Pricing], (above n. 3), p. 81. 20 J. of L. 2020, item 1406, as amended.

Transfer pricing

should not be confined to a grammatical interpretation alone, with the omission of a functional interpretation. The point here is to take into account the essence of introducing into the tax system regulations that prevent erosion of the tax base through harmful (from the point of view of the State interest) transfers of profits between related entities (especially, but not only, those operating within the international structure). The Court also considered it necessary to emphasise that the importance of the OECD Transfer Pricing Guidelines is strengthened by the rule contained in Article 11(9) of the Corporate Income Tax Act. This provision, in the version in force in 2012, contains a delegation for the Minister of Finance to adjust, by way of a regulation, the manner and mode of ‘determining income by estimation’ and the manner and mode of ‘eliminating double taxation’ in the case of the adjustment of profits of associated enterprises, taking into account, in particular, the guidelines of the Organisation for Economic Cooperation and Development, as well as the provisions of the Convention of 23 July 1990 on the elimination of double taxation in the case of the adjustment of profits of associated enterprises and the Code of Conduct that supports the effective implementation of the Convention on the avoidance of double taxation in the case of the adjustment of profits of associated enterprises (Official Journal of EU C 176 of 28.07.2006, pp. 8–12)’. The Supreme Administrative Court further argued that the use of the phrase ‘determining by regulation...’ and ‘taking into account, in particular, the guidelines...’ by the legislator in Article 11(9) of the Corporate Income Tax Act indicates the imperative nature of the provision. Therefore, as regards the determination by regulation of the manner and mode of determining income by estimation, the Minister of Finance should be guided by the aforementioned OECD TPGs. In the view of the Supreme Administrative Court, the Court may assess whether the regulation (as a subordinate act) meets these criteria and whether its provisions – in the context of the OECD TPGs – are correctly interpreted.21 If the aim of introducing the arm’s length principle into international law is to be taken into account, the full reception of the OECD TPGs as binding law would be the most desirable.22 After all, even today the safest and most practical 21 See K. Lasiński-Sulecki, Czy zmiany Wytycznych OECD uzasadniają nowy sposób pojmowania przepisów o cenach transferowych w podatkach dochodowych? [Do the changes to the OECD Guidelines justify a new understanding of transfer pricing regulations in income taxes?], in: Ceny transferowe. Wybrane zagadnienia [Transfer Pricing. Selected Issues], D. Gajewski (ed.), Wolters Kluwer, Warszawa 2019, pp. 192–193 and the bibliography quoted there. 22 See A. Storck, OECD Transfer Pricing Guidelines – A Business Perspective, in: Practical Experience with the OECD Transfer Pricing Guidelines. Proceedings of a Seminar held in London in 1998 during the 52nd Congress of the International Fiscal Association, 1999, vol. 23b, The Hague–London–Boston 1999, p. 14; see K. Lasiński-Sulecki, Status prawny Wytycznych OECD w sprawie cen transferowych dla międzynarodowych przedsiębiorstw oraz administracji podatkowych i ich znaczenie w orzecznictwie polskich sądów na tle praktyki wybranych innych państw [Legal status of

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solution for multinational companies seems to be basing transfer pricing policies and documentation on the OECD TPGs. While companies sometimes face the accusation of certain inconsistencies with national legal requirements in this way, these inconsistencies can be explained by the need for a global policy, since transfer pricing is a problem that by definition goes beyond one tax jurisdiction.23 By contrast, basing policies solely on domestic solutions of individual states would significantly increase the likelihood of double taxation in an economic sense, as a result of, for example, the impossibility of valuing in line with the tax authorities of several countries at the same time, and would consequently lead to the elimination of one of the objectives of double taxation treaties, i.e. the elimination of double taxation in an economic sense.24 However, one should remember the catalogue of sources of law applicable in Poland. The OECD TPGs are a very important means of interpreting tax law and it is sensible to follow their content both when creating tax law and interpreting it. This directive applies to taxpayers as well as legislative and tax authorities. However, it is not acceptable to attribute a status similar to that of the provisions of law to the OECD TPGs. Therefore, they cannot be, for example, an independent basis for resolving a tax case. In specific situations, however, they could serve to break the result of the language interpretation of tax law provisions (statutory and regulatory), but only to the benefit of the taxpayer.25

the OECD Transfer Pricing Guidelines for international enterprises and tax administrations and their significance in the jurisprudence of Polish courts compared to the practice of selected other countries], in: Prawo finansowe po transformacji ustrojowej. Międzynarodowe i europejskie prawo podatkowe [Financial law after the political transformation. International and European tax law], I. Mirek, T. Nowak (ed.), Łódź 2013, p. 356. 23 A number of tax administrations seem to allow for such an approach – see e.g. M. Przysuski, What do Canada’s Transfer Pricing Recommendations Mean for Taxpayers, BNAI Tax Planning International Transfer Pricing, September 2005, quoted: Westlaw. See K. Lasiński-Sulecki, Czy zmiany Wytycznych OECD uzasadniają nowy sposób pojmowania przepisów o cenach transferowych w podatkach dochodowych? [Do the changes to the OECD Guidelines justify a new understanding of transfer pricing regulations in income taxes?], in: Ceny transferowe. Wybrane zagadnienia [Transfer Pricing. Selected Issues], D. Gajewski (ed.), Wolters Kluwer, Warszawa 2019, p. 194. 24 See G. Schindler, D. Henderson, IRS White Paper revisits Section 482, 2/3 Intertax 1989, No. 2/3, p. 60; H.N. Higinbotham, D.W. Asper, P.A. Stofregen, R.P. Wexler, Effective Application of Section 482 Transfer Pricing Regulations, Tax Law Review 1987, No. 2, p. 302; see K. Lasiński-Sulecki, Czy zmiany Wytycznych OECD uzasadniają nowy sposób pojmowania przepisów o cenach transferowych w podatkach dochodowych? [Do the changes to the OECD Guidelines justify a new understanding of transfer pricing regulations in income taxes?], in: Ceny transferowe. Wybrane zagadnienia [Transfer Pricing. Selected Issues], D. Gajewski (ed.), Wolters Kluwer, Warszawa 2019, pp. 194–195. 25 K. Lasiński-Sulecki, W. Morawski, Raporty BEPS i zmiany Wytycznych OECD a obowiązki podatników w sferze cen transferowych [BEPS reports and changes to the OECD Guidelines and the obligations of taxpayers in the area of transfer pricing], Przegląd Podatkowy 2018, No. 11, pp. 28–29.

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Therefore, the OECD TPGs should affect the shape of subordinate provisions. They may also affect the interpretation of the rules, but they must not lead to the breaking of the limits delineated by interpretation to the disadvantage of the taxpayer.

3.

Conditions for the application of transfer pricing provisions

According to Article 11c (1) of the CIT Act, related entities are obliged to set transfer prices on terms and conditions that would be established between unrelated entities. This regulation is a significant novelty in the Polish legal system, as it had no clear predecessor in the regulations in force until the end of 2018, although also in the previous regulations the tax authorities had a legal basis for adjusting transfer prices. Article 11c(2) of the CIT Act provides that if, as a result of the existing links, conditions different from those which would have been established between unrelated entities are established or imposed, and as a result the taxpayer shows income that is lower (loss) than that which would have been expected if the said links had not existed, the tax authority determines the income (loss) of the taxpayer without taking into account the conditions resulting from those links. When determining the amount of the taxpayer’s income (loss) in the situation referred to in Article 11c(2) of the CIT Act, the tax authority takes into account the actual course and circumstances of the conclusion and execution of the controlled transaction and the behaviour of the parties to that transaction (Article 11c(3) of the CIT Act). As set out in Article 11c(4) of the CIT Act, where the tax authority considers that in comparable circumstances unrelated entities guided by economic rationality would not have entered into the controlled transaction in question, or would have entered into another transaction, or would have carried out another action, hereinafter referred to as the ‘proper transaction’, taking into account: 1. the terms and conditions agreed between related parties, 2. the fact that the terms and conditions agreed between related parties preclude the determination of a transfer price at a level that would have been agreed to by economically unrelated parties acting on the basis of commercial considerations, taking into account options that were realistically available at the time of the transaction, – the authority shall determine the income (loss) of the taxpayer without taking into account the controlled transaction and, where justified, determine the income (loss) of the taxpayer from the proper transaction with respect to the controlled transaction.

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The following cannot be an exclusive basis for the application of the above – resulting from Article 11c(4) of the CIT Act rule: 1. difficulty in verifying the transfer price by the tax authority or 2. lack of comparable transactions occurring between unrelated entities in comparable circumstances. During the validity period of the advance pricing agreement, the tax authority does not determine tax liability (amount of loss) to the extent that the income (loss) reported by the taxpayer was determined in accordance with the conditions and methods recognised in the decision (Article 11c(6) of the CIT Act). Related entities are: a) entities where one entity has a significant influence on at least one other entity, or b) entities influenced significantly by: – the same other entity, or – spouse, relative, or affinity up to the second degree of a natural person having a significant influence on at least one entity, or c) a company without legal personality and its business partners, or d) a taxpayer and its foreign establishment, and in the case of a tax capital group, a capital company forming its part and its foreign establishment (Article 11a(1)(4) of the CIT Act). Exerting significant influence is defined in the Article 11a (2) of the CIT Act as: 1) holding, directly or indirectly, at least 25% of: a) shares in the capital, or b) voting rights in control, decision-making, or management bodies, or c) shares or rights to share in profits or assets or their expectancies, including participation units and investment certificates, or 2) the actual capacity of a natural person to influence key economic decisions taken by a legal person or an organisational unit without legal personality, or 3) being married or with affinity up to the second degree. According to Article 11a(3) of the CIT act holding indirectly a share or right means a situation in which one entity holds according to another entity a share or right through another entity or more entities, whereby the amount of indirectly owned share or right corresponds to: 1) the size of the share or right connecting any two entities from all the entities to be taken into account for the establishment of holding indirectly a share or right, where all the amounts of shares or rights connecting these entities are equal;

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2) the lowest amount of a share or right connecting entities, between which the size of a share or right held indirectly is determined, where the size of the shares or rights connecting these entities is different; 3) the total amount of shares or rights held indirectly, where the entities between which the amount of shares or rights held indirectly is determined are connected by more than one share or right held indirectly. In the case of relationships between entities not established or maintained for legitimate economic reasons, including relationships aimed at manipulating the ownership structure, or creating circular ownership structures, the entities between which such relationships occur are deemed to be related entities (Article 11a(4) of the CIT Act). On the other hand, Article 11i of the CIT Act states that if the terms of a transaction executed between a legal person or an organizational unit not having legal personality, having its registered office or management in the territory of the Republic of Poland, and an entity having its place of residence, registered office or management in the territory or in a country that applies harmful tax competition, differ from the terms which would be established between unrelated entities, none of which has its place of residence, registered office, or management in the territory or in a country that applies harmful tax competition, the provisions of Article 11c and Article 11d of the CIT Act apply mutatis mutandis. As stated in Article 11b(1), transfer pricing provisions do not apply to controlled transactions in which the price or manner of determining the price of the subject of such controlled transaction results from the provisions of the Acts or normative acts issued on their basis.

4.

 Methods of establishing transfer pricing

Article 11d(1) of the CIT Act provides for the obligation to verify transfer prices using the most appropriate method in the given circumstances, chosen from among the following methods: 1) comparable uncontrolled price; 2) resale price; 3) cost plus; 4) transactional net margin; 5) profit distribution. Pursuant to Article 11d (2) of the CIT Act, when it is not possible to apply the methods mentioned above, another method, including valuation techniques, which are the most appropriate in the given circumstances, shall be applied.

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When selecting the most appropriate method in given circumstances, particular consideration shall be given to the conditions which have been established or imposed between related parties, the availability of information necessary for the correct application of the method, and specific criteria for its application (Article 11d (3) of the CIT Act). As indicated in Article 11d(4) of the CIT Act, in determining the amount of income (loss), the tax authority applies the method adopted by the related party, unless the application of another method is more appropriate in the circumstances. Where the tax authority omits a controlled transaction, it waives the application of the method (Article 11d(5)(1) of the CIT Act). Where, in turn, the tax authority replaces the controlled transaction with a proper transaction, it applies the method appropriate for the proper transaction (Article 11d(5)(2) of the CIT Act).

5.

Transfer pricing adjustment

As stated in Article 11e of the CIT Act, a taxpayer may adjust transfer prices by changing the amount of obtained income or incurred tax-deductible costs if all of the following conditions are met: 1. in controlled transactions carried out by the taxpayer during the tax year, the conditions which would have been set by unrelated entities have been established; 2. significant circumstances affecting the conditions established during the tax year have changed or the actually incurred costs or obtained revenues which are the basis for calculating the transfer price are known, and ensuring their compliance with the conditions which would have been set by unrelated entities requires a transfer price adjustment; 3. at the moment of making the adjustment, the taxpayer has a statement of the related entity that that entity has made a transfer pricing adjustment in the same amount as the taxpayer; 4. the above-mentioned related entity has a place of residence, seat, or management in the territory of the Republic of Poland or in a state or territory with which the Republic of Poland concluded a double taxation convention and there is a legal basis for the exchange of tax information with that state; 5. the taxpayer will confirm the transfer pricing adjustment in the annual tax return for the tax year to which the adjustment relates.

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6.

 Income adjustment

As provided for in Article 11h(1) of the CIT Act, if the income of a taxpayer is recognized by the tax administration of another country as the income of a related entity having its place of residence, registered office, or management outside the territory of the Republic of Poland, and included in the taxable income of that entity, the income of the taxpayer is adjusted if the provisions of relevant international agreements to which the Republic of Poland is a party provide for such adjustment. Pursuant to Article 11h (2) of the CIT Act, the adjustment of income serves to eliminate double taxation by determining the income of the taxpayer which would be obtained by the taxpayer if the conditions agreed with a related entity having its residence, registered office or management outside the territory of the Republic of Poland corresponded to the conditions which would be agreed between unrelated entities. As stipulated in Article 11h (4) of the CIT Act, the above provisions apply also when: − the tax authority determined the income of the taxpayer in connection with establishing or imposing the conditions referred to in Article 11c(2), between the taxpayers having their residence, registered office, or management in the territory of the Republic of Poland, or − the taxpayer, after completing the tax inspection, used the right to correct the tax return on the amount of income (loss) earned in the tax year in a case where the inspection revealed irregularities in connection with establishing or imposing the conditions referred to in Article 11c (2), or − the taxpayer used the right to correct the previously submitted declaration, in accordance with Article 82(3) of ustawa z dnia 16 listopada 2016 r. o Krajowej Administracji Skarbowej [the Act of 16 November 2016 on the National Revenue Administration, J. of L. of 2018, item 508, as amended], and the customs and fiscal audit was completed with the notification referred to in Article 83 (2) of that Act.

7.

 Services of low added value

Pursuant to Article 11f (1) of the CIT Act in the case of controlled transactions which are low added value services, the tax authority shall waive the determination of the taxable person’s income (loss) to the extent of the cost mark-up for these services, if the following cumulative conditions are met: 1) the cost mark-up for these services has been determined using either the cost plus method or the transactional net margin, and amounts to: a) no more than 5% of the costs – in the case of purchasing the services;

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b) no less than 5% of the costs – in the case of supplying the services; 2) the service provider is not an entity having a residence, registered office, or management in the territory or in a country that applies harmful tax competition; 3) the service recipient has a calculation that encompasses the following information: a) type and amount of costs included in the calculation; b) the manner of application and justification for the selection of allocation keys for all related entities that use the services. The above provision applies to services explicitly indicated in the appendix to the CIT Act, which fulfil all of the following conditions: 1) they are services that support the business activity of the service recipient; 2) they do not constitute the main object of activity of a group of related entities; 3) the value of those services provided by the service provider to unrelated entities does not exceed 2% of the value of those services provided to related and unrelated entities; 4) they are not subject to further resale by the service recipient, except for the resale of services purchased in its own name but to another related entity (reinvoicing).

8.

 Interest rate on loans

Pursuant to Article 11g(1) of the CIT Act, in the case of a controlled transaction involving a loan, the tax authority shall waive the determination of the taxable person’s income (loss) in respect of the amount of interest on that loan if the following cumulative conditions are met: 1. the interest rate on the loan as of the date of concluding the agreement is determined on the basis of the type of basic interest rate and margin, specified in the notice of the minister in charge of public finance valid as of the date of concluding the agreement; 2. no fees related to granting or servicing the loan, including commissions or bonuses, other than interest, are to be paid; 3. the loan was granted for a period not exceeding 5 years; 4. during the financial year, the total level of liabilities or receivables of a related entity in respect of the capital of loans with related entities, calculated separately for loans granted and taken, amounts to not more than PLN 20,000,000 or the equivalent of that amount;

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5. the lender is not an entity having a residence, registered office, or management in the territory or in a country that applies harmful tax competition. The above regulations apply accordingly to the loan and the issue of bonds.

9.

 Advance pricing agreement

Related entities may protect themselves against the consequences of discrepancies in the assessment of compliance of the valuation with the arm’s length principle by concluding an advance pricing agreement. In a decision concerning the advance pricing agreement, the Head of the National Revenue Administration, at the request of a domestic entity, recognises the comparability of significant terms and conditions established between that domestic entity and its related entity or entities with the terms and conditions that would be established between independent entities, and confirms the correctness of the choice of the transfer pricing method in terms and conditions recognised by that authority, and also establishes: 1. the functional profile of the related entities to which the terms and conditions apply, including, in particular, the functions performed, risks incurred, and assets involved; 2. the transfer pricing algorithm; 3. other rules for applying the transfer pricing method. Polish law provides for the possibility of concluding a unilateral, bilateral, or multilateral advance pricing agreement.

10.

 Conclusions

It is since the 1990s that Polish transfer pricing regulations have been based on solutions developed within the OECD In 2019, the legal regulations applicable in Poland were significantly expanded. For example, a clear legal basis for the re-characterisation of transactions and disregarding transactions in their entirety in transactions between related parties was introduced. Perhaps more importantly, now the provisions explicitly stipulate that related parties must value transactions in accordance with the arm’s length principle. In view of the BEPS reports and the changes in the OECD TPGs, an evolution in the approach to individual transfer pricing methods can be expected. Owing to a more international view of the value creation process, advance pricing agree-

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ments – in particular those of a bilateral and multilateral nature – may be of key practical importance. As regards disputes over dimension, the role of mutual agreement procedure and arbitration will increase.

References Legal acts Convention of 23 July 1990 on the elimination of double taxation in the case of the adjustment of profits of associated enterprises and the Code of Conduct that supports the effective implementation of the Convention on the avoidance of double taxation in the case of the adjustment of profits of associated enterprises, Official Journal of EU C 176 of 28.07.2006, p. 8. Protokół w umowie między Rzecząpospolitą Polską a Republiką Austrii w sprawie unikania podwójnego opodatkowania w zakresie podatków od dochodu i od majątku z 2004 r. [protocol in the agreement between the Republic of Poland and the Republic of Austria for the avoidance of double taxation with respect to taxes on income and on capital of 2004], J. of L. of 2005, no 224, item. 1921, as amended. Umowa między Rzecząpospolitą Polską a Australią w sprawie unikania podwójnego opoatkowania i zapobiegania uchylenia się od opodatkowania w zakresie podatków od dochodu z 1991 r. [agreement between the Republic of Poland and Australia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 1991], J. of L. of 1992, no 41, item. 177, as amended. Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Republiki Białoruś w sprawie unikania podwójnego opodatkowania w zakresie podatków od dochodu i majątku z 1992 r. [agreement between the Government of the Republic of Poland and the Government of the Republic of Belarus for the avoidance of double taxation with respect to taxes on income and capital], J. of L. of 1993, No. 120, item 534. Konwencja między Rzecząpospolitą Polska a Kanadą w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w w zakresie podatków od dochodu z 1987 r. [convention between the Republic of Poland and Canada for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 1987], J. of L. of 1990, No. 38, item 216. Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Republiki Cypru w sprawie unikania podwójnego opodatkowania w zakresie podatków od dochodu i majątku z 1992 r. [agreement between the Government of the Republic of Poland and the Government of the Republic of Cyprus for the avoidance of double taxation with respect to taxes on income and capital of 1992], J. of L. of 1993, no 117, item. 523, as amended. Umowa między Rzecząpospolitą Polską a Republiką Czeską w sprawie unikania podwójnego opodatkowania i zapobiegania uchylania się od opodatkowania w zakresie podatków od

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dochodu z 2011 r. [agreement between the Republic of Poland and the Czech Republic for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 2011], J. of L. of 2012, item 991. Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Arabskiej Republiki Egiptu w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu i majątku z 1996 r. [agreement between the Government of the Republic of Poland and the Government of the Arab Republic of Egypt for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital of 1996], J. of L. of 2003, No. 78, item 690. Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Republiki Indonezji w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu z 1992 r. [agreement between the Government of the Republic of Poland and the Government of the Republic of Indonesia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income], J. of L. of 1994, No. 46, item 187. Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Haszymidzkiego Królestwa Jordanii w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu z 1997 r. [agreement between the Government of the Republic of Poland and the Government of the Hashemite Kingdom of Jordan, for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income of 1997], J. of L. of 1999, No. 61, item 654. Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Malty w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu z 1994 r. [agreement between the Government of the Republic of Poland and the Government of Malta for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 1994], J. of L. of 1995, no 49, item. 256, as amended. Konwencja między Rządem Rzeczypospolitej Polskiej a Rządem Meksykańskich Stanów Zjednoczonych w sprawie unikania podwójnego opodatkowania i zapobiegania uchylaniu się od opodatkowania w zakresie podatków od dochodu z 1998 r. [convention between the Government of the Republic of Poland and the Government of the United Mexican States for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income of 1998], J. of L. of 2003, no 13, item. 131, as amended. Umowa między Rządem Rzeczypospolitej Polskiej a Rządem Federacji Rosyjskiej w sprawie unikania podwójnego opodatkowania w zakresie podatków od dochodu i majątku z 1992 r. [agreement between the Government of the Republic of Poland and the Government of the Russian Federation for the avoidance of double taxation with respect to taxes on income and capital], J. of L. of 1993, no 125, item. 569, as amended. Konwencja między Rzecząpospolitą Polską a Konfederacją Szwajcarską w sprawie unikania podwójnego opodatkowania w zakresie podatków od dochodu i majątku z 1991 r. [Convention between the Republic of Poland and the Swiss Confederation for the Avoidance of

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Double Taxation with respect to taxes on income and capital of 1991], J. of L. of 1993, no 22, item 92, as amended. Ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych [the Act of 15 February 1992 on corporate income tax, the CIT Act], J. of L. 2020, item 1406, as amended. Ustawa z dnia 16 listopada 2016 r. o Krajowej Administracji Skarbowej [the Act of 16 November 2016 on the National Revenue Administration, J. of L. of 2018, item 508, as amended.

Jurisdiction Judgement of the Supreme Administrative Court of 20 June 2018, II FSK 1165/15.

Literature Higinbotham H.N., Asper D.W., Stofregen P.A., Wexler R.P., Effective Application of Section 482 Transfer Pricing Regulations, Tax Law Review 1987, No. 2. Lasiński-Sulecki K., Ceny transferowe w prawie podatkowym i celnym [Transfer Pricing under Tax and Customs Law], LEX a Wolters Kluwer business, Warszawa 2014. Lasiński-Sulecki K., Czy zmiany Wytycznych OECD uzasadniają nowy sposób pojmowania przepisów o cenach transferowych w podatkach dochodowych? [Do the changes to the OECD Guidelines justify a new understanding of transfer pricing regulations in income taxes?], in: Ceny transferowe. Wybrane zagadnienia [Transfer Pricing. Selected Issues], D. Gajewski (ed.), Wolters Kluwer, Warszawa 2019. Lasiński-Sulecki K., Status prawny Wytycznych OECD w sprawie cen transferowych dla międzynarodowych przedsiębiorstw oraz administracji podatkowych i ich znaczenie w orzecznictwie polskich sądów na tle praktyki wybranych innych państw [Legal status of the OECD Transfer Pricing Guidelines for international enterprises and tax administrations and their significance in the jurisprudence of Polish courts compared to the practice of selected other countries], in: Prawo finansowe po transformacji ustrojowej. Międzynarodowe i europejskie prawo podatkowe [Financial law after the political transformation. International and European tax law], I. Mirek, T. Nowak (ed.), Łódź 2013. Lasiński-Sulecki K., Morawski W., Raporty BEPS i zmiany Wytycznych OECD a obowiązki podatników w sferze cen transferowych [BEPS reports and changes to the OECD Guidelines and the obligations of taxpayers in the area of transfer pricing], Przegląd Podatkowy 2018, No. 11. Przysuski M., What do Canada’s Transfer Pricing Recommendations Mean for Taxpayers, BNAI Tax Planning International Transfer Pricing, September 2005. Schindler G., Henderson D., IRS White Paper revisits Section 482, 2/3 Intertax 1989, No. 2/3. Storck A., OECD Transfer Pricing Guidelines – A Business Perspective, in: Practical Experience with the OECD Transfer Pricing Guidelines. Proceedings of a Seminar held in London in 1998 during the 52nd Congress of the International Fiscal Association, vol. 23b, The Hague–London–Boston 1999.

Transfer pricing

Uss M., Poland, in: M. Lang, P. Pistone, J. Schuch and C. Staringer (ed.), The Impact of the OECD and UN Model Conventions on Bilateral Tax Treaties, Cambridge 2012. Variychuk E., The New Russian Transfer Pricing Law, Bulletin for International Taxation 2014, No. 11.

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Polish CFC rules – transition from local solution to harmonized regulations

1.

Background

1.1

General remarks

The purpose of this article is to compare the key features of the Polish regulations with the standards imposed on EU Member States by the Anti-Tax Avoidance Directive (ATAD), both of which are designed to counter tax erosion and profitshifting related to so-called controlled foreign companies (CFC). While we do not attempt to present a detailed and complete description of the Polish implementation, we identify the main differences between the ATAD and Polish provisions, describe the key specifics of the Polish CFC regime, and present the background to its implementation. Further to the OECD BEPS Report 3 on Designing Effective Controlled Foreign Company Rules1 , the ‘CFC rules respond to the risk that taxpayers with a controlling interest in a foreign subsidiary can strip the base of their country of residence and, in some cases other countries, by shifting income into a CFC. Without such rules, CFCs provide opportunities for profit shifting and long-term deferral of taxation.’ The general mechanics of CFC regulations were also presented in the preamble to the ATAD2 , ‘CFC rules have the effect of re-attributing the income of a low-taxed controlled subsidiary to its parent company. Then, the parent company becomes taxable on this attributed income in the State where it is resident for tax purposes.’ As explained by an EU legislator, ‘Depending on the policy priorities of that State, CFC rules may target an entire low-taxed subsidiary, specific categories of income or be limited to income which has artificially been diverted to the subsidiary. In particular, in order to ensure that CFC rules are a proportionate response to BEPS concerns, it is critical that Member States that limit their CFC rules to income which has been artificially diverted to the subsidiary, precisely target situations

1 OECD (2015), Designing Effective Controlled Foreign Company Rules, Action 3 – 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. http://dx.doi.org/10. 1787/9789264241152-en. 2 Council Directive(EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, O.J. of the European Union L 193/1.

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where most of the decision-making functions which generated diverted income at the level of the controlled subsidiary are carried out in the Member State of the taxpayer.’ Developing from publication of the OECD Report 3 and expression of the principles outlined above, the EU stipulated in its ATAD provisions the framework of a CFC mechanism which has been imposed on all EU Member States, including Poland. It was, therefore, expected that by 1 January 2019 all Member States should implement the required CFC regime into their tax systems. Poland’s introduction of CFC rules preceded the EU’s call for action. It will be interesting, therefore, to see how these rules evolve or how they are interpreted after a degree of harmonisation enforced by the ATAD. 1.2

Introduction of Polish CFC regulations

Polish CFC rules were first implemented as of 1 January 2015.3 However, the debate on the necessity of introducing such regulations began a long time before this. A first draft of the regulations had already been filed in the Polish parliament in 2012, as part of a minority initiative.4 It was then presented as an effective alternative to the introduction of additional or increased taxation of local businesses. While the Polish government supported introducing CFC rules in principle, it indicated then that the complexity of legislation and its innovative character required more in-depth analysis and detailed codification. In particular, the government’s intention was to understand and reduce the potential negative effects of introducing CFC rules into the Polish tax system.5 It was not until after the publication of the 2013 BEPS Action Plan that the Polish CFC regulations entered the legislative process and were officially announced in the Journals of Laws introducing new provisions. Importantly, Poland opted to apply CFC rules within both the Polish corporate income tax (CIT) and personal income tax (PIT) acts.

3 Ustawa z dnia 29 sierpnia 2014 r. o zmianie ustawy o podatku dochodowym od osób prawnych, ustawy o podatku dochodowym od osób fizycznych oraz niektórych innych ustaw [Act on amendment of Polish CIT Act, Polish PIT Act and other acts of 29 August 2014] J. of L. of 2014, item 1328. 4 Druk nr 879 polskiego Sejmu VII kadencji z 7 września 2012 r. rozpatrzony przez Komisję Finansów Publicznych 5 czerwca 2014 r. [Motion number 879 of the Polish Sejm VII cadence, from 7 September 2012 considered by the Polish Parliamentary Commission on Public Finances on 5 June 2014]. 5 Stanowisko polskiego rządu dotyczące poselskiego projektu ustawy o zmianie ustawy o podatku dochodowym od osób fizycznych oraz ustawy o podatku dochodowym od osób prawnych (pismo 879-s) z 25 lutego 2013 r. [The standpoint of the Polish government to the draft Act on CFC regulations (letter 879-s) from 25 February 2013].

Polish CFC rules – transition from local solution to harmonized regulations

Passage of the legislation began in April 2014, with the aim of implementing CFC rules from 1 January 2015. Originally, the importance of the CFC regulation was reflected in a three-month vacatio legis (compared to a standard one month for CIT rules as set by the Polish Constitutional Court). However, amendments introduced by the upper chamber of parliament extended the process and resulted in this period being shortened,6 so that the rules were made effective as of 1 January 2015 as originally planned. Based on the wording of the justification accompanying the government’s proposals, it appears that their main objective was not to generate additional direct CFC taxation, but rather to reduce the use of low tax jurisdictions by Polish tax residents. 1.3

Impact of the ATAD

On 8 August 2016, the ATAD came into force, obliging each EU Member State to introduce certain measures aimed, inter alia, at strengthening the average level of protection against aggressive tax planning in the internal market. It presented exemplary CFC regulations and template mechanisms to be introduced by all Member States as a uniformed basis for re-attribution of the income of a low-taxed controlled subsidiary to its parent company. The ATAD provided some flexibility for Member States in finalising the detailed wording of their CFC regulations, based on the proposed general principles. In this sense ATAD provisions represent guidance for construction of uniform EU CFC systems rather than a set of rules to be implemented. The transposition of ATAD provisions with respect to CFC should have been made by all Member States by 31 December 2018. However, Poland’s early adoption of the ATAD CFC requirements7 saw changes to the local legislation come into effect on 1 January 2018. Using the ATAD CFC framework both as a de minimis requirement and the maximum scope of permissible exemptions and exclusions from its CFC regime, the Polish government aligned the regulations by: − Adopting the ATAD thresholds and qualifying list of activities as a CFC test

6 Ustawa z dnia 21 października 2014 r. zmieniająca ustawę o zmianie ustawy o podatku dochodowym od osób prawnych, ustawy o podatku dochodowym od osób fizycznych oraz niektórych innych ustaw [Act changing the act on amendment of Polish CIT Act, Polish PIT Act and other acts of 21 October 2014] J. of L. of 2014 item 1478. 7 Ustawa z dnia 27 października 2017 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych oraz ustawy o zryczałtowanym podatku dochodowym od niektórych przychodów osiąganych przez osoby fizyczne [Change of Polish PIT Act, Polish CIT Act and Act on lump-up taxation of specific revenues of individuals of 27 October 2017] J. of L. 2017, item 2175.

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− Eliminating the real business activity test exemption for non-EU controlled subsidiaries so that only EU-based entities could be exempt from Polish CFC taxation based on a real business activity test − Supplementing the definition of CFC to cover also entities ‘indirectly’ linked to their Polish parents (an element missing in the original provisions, leading to uncertainty). 1.4

Further amendments

Augmenting the changes introduced in 2018, Polish CFC provisions have been subject to recent further amendments.8 Their scope is no longer limited to companies or permanent establishments (PE), but covers ‘entities’ in general, which include: − Trusts, foundations, and other fiduciary arrangements, − Capital groups or companies forming capital groups, which conduct CFCqualified business activity, − Organisationally or legally-separated parts of foreign companies or other entities, with or without legal personality. Furthermore, a PE of a foreign entity could also be treated as a separate CFC. In effect, therefore, the term ‘controlled foreign company’ should perhaps be replaced by a broader term e.g. ‘controlled foreign entity’. However, for the sake of simplicity, the abbreviation CFC will continue to apply in this article to any foreign entity subject to the Polish CFC provisions. The 2018 amendments also extended the list of qualified links between a taxpayer and foreign entity to include: − Expected and future rights to profits − Exercising actual control – which is described as control resulting, inter alia, from legal arrangements, proxies, and actual relations which allow for dominant control over a foreign legal entity The amendments involved also the introduction of anti-abuse provisions that allow for disregarding artificial relationships which distort the relations or status of a foreign entity for CFC purposes.

8 Ustawa z dnia 23 października 2018 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych, ustawy – Ordynacja podatkowa oraz niektórych innych ustaw [Change of Polish PIT Act, Polish CIT Act, Tax Law and other acts of 23 October 2018] J. of L. 2018 item 2193.

Polish CFC rules – transition from local solution to harmonized regulations

2.

Outline of current Polish CFC regulations

2.1

General remarks

The Polish CFC regulations provide for mechanisms involving the identification of a potential CFC including application of an anti-abuse mechanism, verification of CFC status and potential exemptions, calculation of the taxable base, application of deductions, and the taxpayer’s final payment. The current wording of the Polish CFC regulations is the result of the original Polish CFC rules, modified by the ATAD and subsequent amendments. Therefore, in examining the harmonisation of the Polish CFC law with ATAD requirements one should consider the current (here: September 2021) mechanics of the Polish CFC regime. 2.2

Definition of CFC

Polish provisions determine CFC status in two layers, the first of which involves identification of a ‘foreign entity’. This applies to entities which are not seated or managed in the territory of Poland, in which a taxpayer with a seat or place of management located in the territory of Poland independently or jointly with related entities, has, directly or indirectly, a share in capital, voting rights in management or supervisory bodies, or the right to shares in profits including the expectation of a share in profits or in which it will be entitled to acquire such shares, also as benefactor or beneficiary of a foundation, trust, or other fiduciary legal arrangement or over which the taxpayer exercises actual control. In practice, the closed list of entities is as follows: − Legal person − Capital company in the process of incorporation − Unincorporated organisational unit, apart from an unincorporated partnership − partnerships, if under local tax regulations they are treated equally with legal persons and are taxed on their total income and − Trusts, foundations and other fiduciary arrangements − Capital groups or companies forming capital groups which conduct CFCqualified business activity9 − Organisationally or legally separated parts of foreign companies or other entities with or without legal personality. 9 Please note the administrative court view on the CFC status of capital groups in the context of double tax treaties concluded by Poland, prior to amendments introduced to the CFC provisions on 1 January 2019 – judgment of the Provincial Administrative Court in Wrocław from 5 April 2016, I SA/Wr 1987/15.

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Based on specific reference, a PE could be also treated as a separate foreign entity for CFC purposes. Secondly, as prescribed by the ATAD template, to be treated as a CFC, a foreign entity should be tested. The Polish CFC regime provides that in meeting the CFC test the entity should fulfil at least one of the following conditions: 1. It is registered, situated, or has its seat, registered office, or management board in a territory or country applying harmful tax competition (so-called tax haven). 2. It is registered, located, or has its registered office or management board in a country with which Poland or the EU has not ratified an international agreement allowing the gathering of tax information from its tax authorities. 3. It fulfils all of the following criteria: a. A Polish tax resident holds in this entity, alone or jointly with related entities, directly or indirectly, more than 50% of shares in the capital, or more than 50% of the voting rights in the controlling, decision-making, or managing bodies or more than 50% of shares related to the right to participate in profits, or exercises actual control over this foreign entity. b. At least 33% of this entity’s total revenues in a tax year is derived from the following qualified revenues: – Dividends and other revenues from shares in profits of legal persons – Transfer of shares – Receivable debts – Interest and benefits from all types of loans – Interests in a financial lease – Suretyships and guarantees – Copyrights and industrial property rights, including transfer of these rights – Disposal and realisation of rights under financial instruments – Insurance, banking, or other financial activity – Transactions with related entities, where the entity generates no, or minimal, added economic value from them. c. Income tax paid by the entity is lower than the difference between the hypothetical CIT due from a Polish tax resident and the entity’s tax liability in the state of its registered office, management board, registration or location. The tax paid is non-refundable or non-deductible in any form, also in connection with another entity. Each revenue included in the catalogue of qualified revenues should be interpreted (calculated) under Polish tax law provisions. Hence, to assess how revenues earned by a foreign entity should be classified for CFC purposes, their recognition under Polish tax provisions needs to be considered. In particular, even if a transaction does not fall under the catalogue of qualified revenues according to local civil or tax

Polish CFC rules – transition from local solution to harmonized regulations

law in the CFC country, it may still be recognised as generating qualified revenues according to Polish law. In practice, examination of the third criterion requires that the books and records kept by the foreign entity for local compliance purposes be re-examined in the light of Polish provisions for calculating hypothetical Polish tax. 2.3

Taxpayers

In principle, CFC taxpayers are entities who are Polish resident taxpayers including individuals or legal entities (companies, foundations, or associations). Moreover, the taxpayer can be a Polish PE of a foreign taxpayer. As a rule, the taxpayer is obliged to maintain a list of its foreign entity subsidiaries and if any of them is a CFC, to prepare a register of its transactions performed during the tax year. If the foreign entity is held by several Polish taxpayers, each of them is required to examine its own CFC taxpayer’s duties and fulfil obligations – in practice based on the respective percentage of participation in the foreign entity. If a foreign entity is owned by a Polish intermediary which has an ultimate Polish parent, technically both Polish entities may be obliged to fulfil CFC obligations. However, if the intermediary fulfils its CFC obligations and pays CFC tax, its Polish parent should be released from CFC duties. 2.4

Calculation of tax

Based on the wording of the CFC provisions, the income of the CFC should be calculated, broadly speaking, as the difference between revenues and costs, which should be determined separately in line with the applicable Polish tax legislation. Therefore, the income of a CFC should be calculated based on the Polish CIT Act provisions, regarding revenues and tax-deductible costs (indicated in the applicable Polish legislation). If a loss is determined for one CFC it cannot be used to offset the income of another CFC. The CFC taxpayer is required to reconcile its foreign books and records in the light of Polish tax requirements. In general, this requires application of all the Polish tax rules also involving recognition of tax revenues and tax costs e.g., interest upon payment not upon accrual, as well as recognition of costs in time (including for tax depreciation/amortisation purposes). The CFC taxpayer may decrease its tax base by deduction of taxable dividends received directly from its CFC or by taxable income derived by the Polish taxpayer from the sale of shares in the CFC. It is also entitled to decrease the CFC tax due by the amount of tax paid by the CFC in its own jurisdiction.

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2.5

Tax settlement, documentation and reporting

The CFC taxpayer is obliged to keep evidence of foreign entities and a register of transactions performed during the tax year in each of the foreign entities which is a CFC (the tax year refers to that of the CFC). In general, the evidence should be regularly updated, while the register should be completed after the end of a tax year, but not later than by the end of the ninth month following the end of CFC’s tax year. Within this term the CFC taxpayer should prepare a CFC tax return and pay CFC tax separately for each CFC. 2.6

Anti-avoidance measures

According to the Polish CFC regulations, relationships between entities which are not established or maintained due to justified economic reasons, including entities used to manipulate the ownership structure or create circular ownership structures, should not be taken into account when determining the status of a foreign entity for CFC purposes or compliance with the condition of control over the foreign entity.

3.

 Polish regulations from the ATAD perspective

3.1

General remarks

After implementation of the ATAD, the key mechanisms of the Polish CFC rules should comply with the directive’s provisions ensuring harmonisation of the Polish regime with similar regulations in other Member States. Given that Polish CFC regulations were originally based on the draft OECD and EU publications and subsequently amended following ATAD introduction, it could be expected that they are aligned with the EU directive. However, because the ATAD provided Member States with some flexibility in designing local CFC regulations, combined with the relatively quick Polish implementation process and other local specifics, the alignment of some of the regulations with the ATAD deserves a closer consideration. One could even claim that, in some aspects, the Polish regime appears too punitive.

Polish CFC rules – transition from local solution to harmonized regulations

3.2

Implementation of ATAD mechanisms – similarities and differences between two regimes

3.2.1

CFC test

The construction of the CFC test was based on the examination of the taxpayer’s relation to a foreign entity and the difference between effective and hypothetical tax paid by the foreign entity. Poland has implemented the concept of qualified revenues into its domestic CFC test rather than as a method of taxable base calculation. In this context, Poland applied the principle that if only one third or less of the income accruing to the foreign entity is derived from qualifying revenues, such an entity should not qualify as a CFC. 3.2.2

Real business activity exemption

Polish CFC rules also follow the ATAD in providing exemption from CFC taxation in cases where the CFC carries on a substantive economic activity supported by staff, equipment, assets, and premises, as evidenced by relevant facts and circumstances. At the same time Poland refrains from applying the exemption if the CFC is resident or situated in a third country that is not a party to the EEA. The difference occurs in transposition of the real business activity test into the Polish CFC provisions, which uses a more detailed open list of features that should be examined to determine whether an entity conducts real business activity. The items listed may potentially limit the applicability of exemption, causing ambiguities as to what is the minimum substance requirement to be met. For example, the ATAD requirement of ‘staff ’ is understood under the Polish regulations as staff hired based on an employment contract, which casts doubt on whether another basis for engagement of personnel would qualify for real business activity test purposes. Also, while determining whether the activity is substantial, CFC Polish provisions provide a specific test beyond the ATAD – comparing revenues derived from a CFC’s real business activity to its total revenues. 3.2.3

Tax base

With respect to the computation of the CFC taxable base, Polish CFC provisions, as a rule, transpose ATAD requirements to provide for calculation of the taxable base according to Polish tax provisions. Polish regulations disallow recognition of tax losses of a CFC and provide that the income of the CFC should be included in the taxpayer’s tax base in proportion to the taxpayer’s participation in the CFC (both in terms of share and time).

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The differences between ATAD rules and Polish CFC provisions refer to application of the taxable base calculation mechanism. The ATAD provides for two options10 from which Member States could select one, and the Polish mechanism is most similar to the first option (Article 7 clause 2 a.). However, the Polish CFC taxable base is calculated, and tax paid, on the total activity of the CFC and not only on its passive income. While such an approach is in line with general CFC principles indicated in the ATAD, it was not envisaged in the directive’s provisions. 3.2.4

Deductions

Decreases in the CFC taxpayer’s taxable base indicated in ATAD provisions allowed for the deduction of profits distributed by the CFC to a taxpayer (if such profits are included in taxpayer’s taxable base)11 and deduction of tax paid by the CFC in its jurisdiction. While the ATAD tax base calculation accounts only for income which was not distributed, the Polish CFC tax base calculation does not include directly the fact that CFC has paid out its profit. The decrease can be made only with respect to income paid out directly by the CFC to the Polish CFC taxpayer. It may not directly eliminate double taxation of CFC profits if they are not directly held by the Polish entity. If an intermediary receives CFC profits the Polish CFC taxpayer will not be entitled to deduct his/her/its amount from the CFC tax base (it may also not be able to deduct them later upon receipt as they will not be paid out directly by CFC). Moreover, as profit (e.g., dividend) is qualified income it may affect the intermediary, leading to cascade CFC taxation at all levels of the structure up to the Polish owner. The Polish regulations also allow, in general, for the deduction of income from the disposal of participation in a CFC from the CFC tax base (assuming the proceeds are included in the tax base in Poland). ATAD provides that any part of the proceeds from the disposal which has previously been included in the tax base for CFC purposes can be deducted from the tax base when calculating the amount of tax due on those proceeds.

10 ATAD provides for two methods of calculation of taxable base (i) in reference to qualified revenues only (following article 7 clause 2 point (a)) or (ii) in reference to income of the entity or PE arising from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage (following article 7 clause 2 point (b)). 11 Please note judgment of the Polish District Administrative Court in Łódź from 11 June 2019 (I SA/Łd 155/19).

Polish CFC rules – transition from local solution to harmonized regulations

3.3

Additional features

Polish CFC rules provide a few specific features which were not envisaged by the ATAD. First of all, further to specific Polish rules, the Polish CFC test is automatically passed by any entity treated as a tax haven, regardless of links (even minimum shareholding is sufficient) or whether the Polish taxpayer holds an interest directly or indirectly.12 A similar automatic mechanism applies in the case of foreign entities located in countries and jurisdictions which have not concluded an agreement for the avoidance of double taxation or other agreement allowing for the exchange of tax information with Poland or the EU. However, in the case of such an entity, a Polish taxpayer may prove that it should not be treated as a CFC, based on evidence that it does not meet the third condition of the CFC test. The presumption that a foreign entity is a CFC applies also to trusts, foundations, and other fiduciary arrangements in cases where both the benefactor and beneficiary are Polish taxpayers. This can be removed if the benefactor proves that it does not participate in the profit of such an entity, which is wholly attributed to a beneficiary. Among other links that may determine the connection between a Polish and a foreign entity qualifying for CFC purposes, Polish CFC regulations provide for the criterion of ‘actual control’, which should be understood as any kind of arrangement (legal, fiduciary, actual) causing the Polish taxpayer to effect decision-making in the foreign entity. The definition is open and may apply to very different and ambiguous situations. Polish CFC rules provide an internal anti-abuse regulation which was not included in the ATAD. This provision is also an addition to the Polish general antiavoidance clause. There is no actual practice or guidance for examining international structures in the light of Polish CFC anti-abuse rules. Therefore, as in the case of other undefined, open regulations it may cause uncertainty as to the features and criteria for assessment of abusiveness.

12 Initially, a standpoint that only direct holding of shares in entities located in tax havens could trigger automatic CFC status was presented in the practice of the Polish administrative courts (e.g. judgment of the Provincial Administrative Court in Wroclaw from 20 December 2016, I SA/Wr 481/16). However, this changed after amendments of the Polish CFC provisions that were introduced on 1 January 2018, as was also confirmed in the judgment of the Supreme Administrative Court from 26 March 2019, II FSK 1176/17.

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4.

 Interaction with GAAR

When the CFC rules were introduced in Poland, no general anti-abuse rule had been enacted. The latter became effective only as of 15 July 2016. In its version applicable from mid-2016 until the end of 2018, GAAR explicitly mentioned that it shall not be applicable, where specific anti-abuse rules can be applied to limit the abuse. This referred also to situations where CFC rules can be applied. This limitation was removed in 2019, but even under the current wording, it may be difficult to imagine a situation where both CFC regulations and GAAR are applied simultaneously to determine CFC taxation. Since both the Polish CFC regulations and GAAR are in the early stages of their application, one will need to monitor case law and interpretations to better understand the interaction between these two regimes.

5.

 CFC in the light of Double Taxation Treaties (DTTs)

As a rule, the CFC rules do not refer to specific DTTs. It is, however, commonly accepted under Polish constitutional law that a DTT should prevail over local regulation in the case of conflict. An analysis of the Polish treaties negotiated and agreed after the introduction of the CFC rules shows that Poland does not intend to introduce reference to its CFC rules into the treaties. Nevertheless, lack of reference to CFC rules does not by itself mean that they should be limited by application of DTTs. The concept of double taxation was, for example, examined in the case I SA/Wr 176/17,13 where the court stated that EU law did not (prior to introduction of ATAD) provide for a specific standard of single taxation and stated that there was no need to apply a specific DTT as the CFC consists of taxation on the level of a tax resident. As explained in the Commentary to the OECD Model Tax Convention, CFC rules are not per se seen as contradicting the purpose of DTTs. 14 In particular, it is underlined in the Commentary that the right to implement CFC rules is embedded in Article 1 Paragraph 3 of the OECD Model Tax Convention, i.e., the right to tax residents of Poland. In that context, it is, however, worth noting that Polish CFC rules have been extended to PEs of non-residents. Therefore, consideration should be given to what extent observations included in the Commentary may apply.

13 Judgment of Provincial Administrative Court in Wrocław of 2 June 2017, I SA/Wr 176/17. 14 See item 81 of the 2017 Commentary to Article 1 of the OECD Model Tax Convention

Polish CFC rules – transition from local solution to harmonized regulations

6.

 Conclusions

Implementing CFC rules is an important step in preventing erosion of the tax base. The Polish CFC appears rather strict, imposing certain presumptions (with respect to tax havens and non-treaty countries) and broadly targeting all CFC revenues (total CFC income is included in the Polish CFC tax base and not only derived from qualified income or artificial arrangements). CFC regulations have complicated the analysis of the tax effects of foreign operations where they seem to fall outside the intended purpose of CFC. Polish regulations go beyond the OECD or EU minimum requirements and may sometimes result in unexpected counterintuitive effects. At the same time, the CFC regime is still relatively new with a limited number of tax authority or tax court views on the topic.

7.

 Addendum – changes to the Polish CFC regime from 2022

Following recent parliamentary works which concluded in passing package of tax reforms that will come into force 1 January 2022, further changes to the Polish CFC rules were adopted. The changes are aimed at further strengthening Polish CFC regime by introduction of: 1. Changes to the existing Polish CFC tests criteria: a. the shareholding test will now be extended onto common holding of shares by Polish unrelated taxpayers; only taxpayers holding share of 25% or more of capital or controlling 25% or more votes are taken into account; b. qualified revenue test has been supplemented with the new categories of revenues derived from: i. services (advisory, accounting, market research, legal, marketing, management and control, data processing, recruitment and similar); ii. leasehold, leasing, subleasing or similar; iii. disposal of participation rights in a partnership, participations in investment funds or collective investment funds, or in other legal persons or similar rights; iv. copyrights and IP rights included in the value of products sold; c. the effective income tax test relates to the situation where the tax actually paid by the foreign entity is lower by at least 25% from the corporate income tax, which would be due applying Polish 19% rate, deemed that such a foreign entity would be Polish taxpayer – the actually paid tax is understood as amount of tax which is not subject to refunds or deductions (including to the benefit of other entity).

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2. Adding two new CFC tests: a. concerning foreign entity which (which along with shareholding and effective income tax criteria) fulfils criterium envisaging that: i. qualified revenues are lower that 30% of the sum of specific assets owned by that foreign entity (e.g. shares (stocks), assets owned by the taxpayer or used based on leasing arrangement, IP rights, qualified revenues from related parties) and ii. such assets constitute more than 50% of total assets of such entity. b. concerning foreign entity which (which along with shareholding and effective income tax criteria) fulfils criterium envisaging that i. income of such an entity is higher than income calculated based on formulae: (b+c+d) x 20% where b – book value of foreign entity’s assets, c – annual costs of employment in the foreign entity, d – aggregated value of depreciation wire-offs made following accounting principles, and ii. less than 75% of revenues of such foreign entity is derived from transactions with unrelated parties having seat, place of management, registration or be placed in the same country as this foreign entity. 3. Specifically addressing calculation of the CFC tax base for entities that meet the new CFC test described in point 2.a. above only. In such a case the taxable income should be computed as 8% of the value of assets used for computation of the 30% qualified revenues to qualified assets ratio for this test purposes. The above changes are made independently or even beyond the framework set by the provisions of the ATAD. In effect the Polish CFC regulations are drifting farther from the OECD or EU minimum requirements. While the underlying principal for strengthening the CFC rules as a prevention against erosion of tax base is understandable, the changes make the regulation even more complex and will require more effort from the taxpayers to ensure compliance. In the future, it may also be interesting to assess the actual effects of tightening the rules against plans of the regulator.

Polish CFC rules – transition from local solution to harmonized regulations

References Legal Acts Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, O.J.O.J.O.J.of the European Union L 193/1. Ustawa z dnia 29 sierpnia 2014 r. o zmianie ustawy o podatku dochodowym od osób prawnych, ustawy o podatku dochodowym od osób fizycznych oraz niektórych innych ustaw [Act on amendment of Polish CIT Act, Polish PIT Act and other acts of 29 August 2014] J. of L. of 2014, item 1328. Ustawa z dnia 21 października 2014 r. zmieniająca ustawę o zmianie ustawy o podatku dochodowym od osób prawnych, ustawy o podatku dochodowym od osób fizycznych oraz niektórych innych ustaw [Act changing the act on amendment of Polish CIT Act, Polish PIT Act and other acts of 21 October 2014] J. of L. of 2014 item 1478. Ustawa z dnia 27 października 2017 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych oraz ustawy o zryczałtowanym podatku dochodowym od niektórych przychodów osiąganych przez osoby fizyczne [Act of amendment of Polish PIT Act, Polish CIT Act and Act on lump-up taxation of specific revenues of individuals of 27 October 2017] J. of L. 2017, item 2175. Ustawa z dnia 23 października 2018 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych, ustawy – Ordynacja podatkowa oraz niektórych innych ustaw [Change of Polish PIT Act, Polish CIT Act, Tax Law and other acts of 23 October 2018] J. of L. 2018 item 2193.

Jurisdiction Judgment of Provincial Administrative Court in Wrocław from 5 April 2016, I SA/Wr 1987/ 15. Judgment of Provincial Administrative Court in Wroclaw from 20 December 2016, I SA/Wr 481/16. Judgment of Provincial Administrative Court in Wrocław of 2 June 2017, I SA/Wr 176/17. Judgment of al Supreme Administrative Court from 26 March 2019, II FSK 1176/17. Judgment of Provincial Administrative Court in Łódź from 11 June 2019 (I SA/Łd 155/19).

Literature Druk nr 879 polskiego Sejmu VII kadencji z 7 września 2012 r. rozpatrzony przez Komisję Finansów Publicznych 5 czerwca 2014 r. [Motion number 879 of the Polish Sejm VII cadence, from 7 September 2012 considered by the Polish Parliamentary Commission on Public Finances on 5 June 2014].

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Stanowisko polskiego rządu dotyczące poselskiego projektu ustawy o zmianie ustawy o podatku dochodowym od osób fizycznych oraz ustawy o podatku dochodowym od osób prawnych (pismo 879-s) z 25 lutego 2013 r. [The standpoint of the Polish government to the draft Act on CFC regulations (letter 879-s) from 25 February 2013].

Netography OECD (2015), Designing Effective Controlled Foreign Company Rules, Action 3 – 2015 Final Report. OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. http://dx.doi. org/10.1787/9789264241152-en. OECD Commentary, Article 1 Item 81; Model Tax Convention on Income and on Capital: Condensed Version 2017, DOI: https://doi.org/10.1787/mtc_cond-2017-en (downloaded on: 29.12.2020).

Izabela Rymanowska, Paula Przybielska

Fiscal administration is watching you: Poland-wide perspective on Mandatory Disclosure Rules

1.

Introduction – EU MDR Directive

With effect from 1 January 2019, the Polish Tax Ordinance Act1 was supplemented with Chapter 11a – Mandatory Disclosure Regime (MDR).2 This represents transposition to the Polish tax system of the Council of the European Union Directive 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (‘the Directive’ or ‘DAC6’), which entered into force on 25 June 2018. Also, additional reporting requirements were introduced to the Polish system. The aim of the Directive is to increase transparency and to improve the functioning of the internal markets by reporting and discouraging the use of aggressive cross-border tax-planning arrangements. It broadly reflects the objectives of Action 12 (Mandatory Disclosure Rules) of the Organisation for Economic Cooperation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) Project, as well as introducing automatic exchanges of the disclosures across the EU Member States. The Directive is the sixth update of the Directive 2011/16/EU which has been amended in order to enhance the means tax authorities can use to react to aggressive tax planning. The Directive requires intermediaries (including EU-based tax consultants, banks and lawyers) and, in some situations, taxpayers to report certain cross-border arrangements (reportable arrangements) to the relevant tax authority in the EU. These disclosure obligations resulting from the Directive apply to all taxes except value added tax (VAT), customs duties, excise duties and compulsory social security contributions. Cross-border arrangements are reportable if they contain certain fea-

1 Ustawa z dnia 29 sierpnia 1997 r. Ordynacja podatkowa [Tax Ordinance Act of 29 August 1997] J. of L. 2021 item 1540 as amended. 2 Ustawa z dnia 23 października 2018 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych oraz niektórych innych ustaw [Act of 23 October 2018 on the amendment on the amendment of the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Ordinance Act and some other acts], J. of. L of 2018, item 2193.

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tures (hallmarks). The hallmarks cover a broad range of structures and transactions, in practice not only limited to aggressive tax planning. When transposing the Directive into their domestic law, Member States could align their domestic rules with the scope of the Directive or they could adopt a broader scope. The disclosure is required to be made to the relevant national tax authority and then will be automatically shared with all other member state tax authorities by way of a central directory. However, the information collected under the broadened scope adopted by some Member States as a rule will not be subject to the automatic sharing across the Member States. EU Member States were to adopt and publish national laws required to comply with the Directive by 31 December 2019. Originally, the cross-border reportable arrangements, where the first step of implementation was taken after the Directive’s entry into force (i.e. 25 June 2018) but before its application (1 July 2020), were supposed to be reported by 31 August 2020 and exchanged between EU Member States by 31 October 2020. On 24 June 2020, the Council of the European Union announced that it adopted amendments to the Directive 2011/16 allowing Member States an option to defer by up to 6 months the time limits for the filing and exchange of information on cross-border arrangements under DAC6 due to the COVID-19 pandemic. The amendments also provided the possibility of one further extension for a maximum additional 3 months by means of a unanimous decision of the Council depending on the evolution of the pandemic. Each Member State was given the option to defer the reporting dates to file: − change the date from 31 August 2020 to 28 February 2021 for the reporting of the ‘historical’ cross-border arrangements (i.e. arrangements for which the first step of implementation occurred in the transitional period of 25 June 2018 to 30 June 2020); − with respect to arrangements targeted by DAC6 when MDR triggering event occurred in the deferred period, i.e. where a reportable cross-border arrangement was made available for implementation, or was ready for implementation, or where the first step in its implementation was made between 1 July 2020 and 31 December 2020, the deadline of 30 days for filing information to the tax authorities began on 1 January 2021. In the Member States where the option was exercised, the amendment changed the date for the first exchange of information on reportable cross-border arrangements to occur by 30 April 2021. Poland was the first EU Member State (without any previous regulation regarding reporting of tax arrangements) to implement the reporting obligation under DAC6 as of 1 January 2019, which was significantly broader in scope, with immediate reporting deadlines as opposed to those delayed into 2020 within the Directive. On 31 January 2019, the Polish Ministry of Finance (‘MoF’) published official tax

Fiscal administration is watching you: Poland-wide perspective on Mandatory Disclosure Rules

guidelines on MDR3 (also applicable to non-Polish entities), which is expected to be subject to further updates. In 2020, new MDR legislative developments in Poland introduced inter alia a deferral of MDR deadlines for cross-border and other tax arrangements and obligations to re-submit certain MDR reports. The key differences between Polish MDR legislation and the Directive, in addition to practical considerations and challenges, are outlined below.

2.

Earlier, more and wider in scope – what makes Polish MDR legislation so complex and difficult

2.1

General

While other EU countries have followed DAC6 in setting July 2020 as their initial start date for live reporting (further deferred in most of EU countries till 1 January 2021 due to the COVID-19 pandemic except for Germany, Finland and Austria), the Polish regime came into force from 1 January 2019, and Polish reporting obligations were already being triggered for some transactions. Once triggered, reporting is generally due within 30 days, and there are significant penalties for non-compliance. Also, cross-border tax arrangements4 implemented between 25 June 2018 and 1 January 2019 and other than cross-border tax arrangements implemented between 1 November 2018 and 1 January 2019 became reportable till 30 June 2019 and till 30 September 2019 by intermediaries and relevant taxpayers, respectively. This was significantly earlier than the deadline of 31 August 2020 required by the Directive.

3 MDR Guidance regarding application of provisions related to the obligation to provide information on tax schemes to the Head of the National Revenue Administration in Poland; Available in Polish at: https://www.podatki.gov.pl/mdr/objasnienia-podatkowe-mdr/ (further cited as ‘the Guidelines’). 4 Article 86a par. 1 item 12 of Tax Ordinance Act – a cross-border arrangement, it is understood as an arrangement which meets the cross-border test and: a) meets the main benefit criterion and has any of the generic hallmarks referred to in item 6 letters a-h; or b) has a specific hallmark. Based on article 86a par 3 the cross-border arrangement test is deemed to have been satisfied if an arrangement concerns more than one EU Member State or an EU Member State and a third state and meets at least one of the following conditions: 1) not all of the participants in the arrangement have their residence, registered office or management in the same state; 2) at least one participant in the arrangement has his residence, registered office or management in more than one state; 3) at least one participant in the arrangement carries on a business activity in the territory of a given state through a foreign permanent establishment situated in that state and the arrangement forms part or the whole of the business activity of that foreign permanent establishment;

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In another departure from the Directive, which does not impose an MDR filing obligation on intermediaries and relevant taxpayers with no EU nexus (e.g., USbased), the Polish law seeks to extend the reporting obligation to entities in any location, even beyond the EU. As explained by MoF, reporting responsibility is imposed not only on the intermediary organisation, but also on the individual(s) leading a project within the organisation. Thus, in the example of an intermediary lead firm on a project involving Poland, both the lead firm and the individual, such as a partner or director, leading and managing the project, could have reporting obligations under Polish law. The same rule applies to the relevant taxpayers (named in Polish regulations as ‘beneficiaries’), so that the person leading the project may have reporting obligations under the provisions of Polish Law. Polish legislation extends the definition of reportable tax arrangements to comprise domestic as well as cross-border activities. The Polish government has also legislated for reporting requirements extended to other taxes e.g., VAT and excise duty. Intermediaries are divided into the two categories of promoters and service providers, with different deadlines and obligations. In certain situations, beneficiaries can also be considered as intermediaries. The Polish legislation also includes hallmarks not included in DAC6; hence, further categories of arrangements are subject to reporting in Poland. 2.2

More reportable tax arrangements – additional hallmarks

2.2.1

Tax arrangement

An arrangement is understood as an action or set of interrelated actions, including a planned action or series of planned actions to which at least one party is a taxpayer or which may have an impact on whether a liability to tax arises.

4) at least one participant in the arrangement carries on an activity in another state without having his residence, registered office or management and without having a foreign permanent establishment situated in that state; 5) the arrangement may have a possible impact on the automatic exchange of information referred to in Title III of the Act of 9 March 2017 on the Exchange of Tax Information with Other States or the identification of the beneficial owner within the meaning of the Act of 1 March 2018 on Combatting Money Laundering and Financing of Terrorism; – except for the situations where the arrangement affects solely value added tax, including tax on goods and services, excise duty or customs duty imposed in the territory of an EU Member State.

Fiscal administration is watching you: Poland-wide perspective on Mandatory Disclosure Rules

Polish provisions define a tax arrangement as one which: 1. meets the main benefit test and has a generic hallmark; 2. has a specific hallmark; or 3. has another specific hallmark. As far as the main benefit test (MBT) is concerned, it is deemed to have been satisfied if, having regard to all relevant facts and circumstances, the conclusion should be that a person acting reasonably and guided by lawful objectives other than a tax advantage could justifiably choose another mode of conduct that would not involve a tax advantage reasonably expected or arising from the implementation of an arrangement, and the tax advantage is the main or one of the main benefits that the person expects to derive from the arrangement. Given the above, the MBT consists of three elements which need to be jointly met: − Tax benefit actually occurs. − A reasonably acting party with legitimate objectives other than a tax advantage could reasonably choose a different course of action. − Tax advantage is one of the main benefits that is expected as a result of entering into the arrangement. The broad definition of a tax advantage is that: a. A tax liability does not arise, is deferred or its amount is reduced. b. A tax loss arises or is overestimated. c. An overpayment or the right to a tax refund arises, or they are both overestimated. d. There is no obligation to collect any tax by a tax remitter, if this results from the circumstances indicated in point a. e. An increase in the excess of input over output VAT within the meaning of the Value Added Tax Act of 11 March 2004 is to be carried forward to the following reporting period. f. The duty to prepare and submit tax information, including that about tax arrangements, does not arise or is deferred. Some guidance on a practical approach to MBT can be found in the official MDR Guidelines, which states that ‘the tax advantage is the main or one of the main benefits if it constitutes a substantial or determining rationale behind the decision to implement the arrangement and it is not merely a secondary or unexpected consequence of the arrangement. Thus, the main benefit criterion shall, in principle, be fulfilled if the arrangement would not have been implemented had it not been for the expected tax benefit.’5

5 Ref. MDR Guidelines dated 31 January 2019, pages 19–21.

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In the case of tax arrangements which have a specific hallmark or another specific hallmark there is no requirement to meet MBT for the tax arrangement to be reportable (in practice, such analysis is not performed for MDR purposes). The MDR legislation recognizes two kinds of tax arrangement – marketable and bespoke. The marketable arrangement means an arrangement that is designed, marketed, ready for implementation or made available for implementation without a need to be substantially customized, while bespoke one should be understood as an arrangement as any arrangement that is not a marketable arrangement. Under Polish law, the exact reporting obligations may differ depending on the kind of tax arrangement. 2.2.2

Additional hallmarks

All DAC6 hallmarks have been implemented within Polish MDR legislation (some minor changes in wording can however be found) and may apply both to crossborder and other than cross-border tax arrangements. It should be noted that the DAC6 hallmarks may have broader local interpretation. However, in comparison to the Directive, Poland has implemented additional hallmarks which apply to both cross-border and other tax arrangements. The main additional Polish hallmarks involve the following: − There is an impact on the deferred portion of income tax or assets or a deferred tax accrual which arises from, or is expected from, the beneficiary’s implementation of an arrangement which is significant for a given unit within the meaning of accounting law and exceeds PLN5,000,000 in a calendar year. − A tax remitter would be liable to withhold tax in excess of PLN5,000,000 during a calendar year if relevant double tax treaties or tax exemptions did not apply to the payment of the sums arising from or expected from the implementation of an arrangement. − The incomes (revenues) of the taxpayer referred to in Article 3 Clause 2a of the Personal Income Tax Act of 26 July 1991 or Article 3 Clause 2 of the Corporate Income Tax Act of 15 February 1992 [i.e., non-Polish tax resident], arising from or expected in connection with the implementation of an arrangement, exceed in total PLN25,000,000 during a calendar year. − The difference between the Polish income tax which would be due from implementation of an arrangement from a beneficiary with no registered office, management or residence in the territory of the Republic of Poland, if they were the taxpayer referred to in Article 3 Clause 1 of the Personal Income Tax Act of 26 July 1991 or Article 3 Clause 1 of the Corporate Income Tax Act of 15 February 1992 [i.e., Polish tax resident] and the income tax to be paid in the state of the beneficiary’s registered office, management or residence in connection

Fiscal administration is watching you: Poland-wide perspective on Mandatory Disclosure Rules

with the implementation of the arrangement exceeds in total PLN5,000,000 during a calendar year. − The beneficiary has committed itself to cooperate with the promoter who made the arrangement available or to pay the promoter a fee or compensation in the event of implementation of the arrangement. Despite the application of additional hallmarks to other than cross-border tax arrangements, they concern primarily material payments out of Poland, which means that the beneficiaries can be non-Polish or non-EU entities having MDR reporting obligations in Poland due to the fact that the tax arrangement meets other specific hallmarks. 2.2.3

Polish nexus

The question arises of whether an arrangement should have a Polish and/or EU nexus to be subject to Polish MDR regulations. Due to the fact that the above definition of an arrangement refers to a ‘taxpayer’ and ‘a tax liability’ which are defined in the Polish Tax Ordinance Act and refer to a payer of Polish taxes, it could be argued that only arrangements which have a Polish nexus are relevant (or in so far as they have a Polish nexus). Thus it can be stated that arrangements that may affect the Polish tax liability should be analysed in the context of the Polish MDR (narrow interpretation). However, taking into account the intention of the Directive, it is rather more likely that at least all arrangements with an EU nexus (‘reportable cross-border tax arrangements’ in the meaning of the Directive) should be within scope of the Polish MDR regulations, unless the tax arrangement has additional Polish hallmark(s) which may also involve Poland and non-EU parties. It should be noted that once the Directive is fully implemented in all Member States, EU intermediaries (other than Polish-based) are unlikely to have to report any cross-border tax arrangements (in the meaning of the Directive) in Poland, as in accordance with both Polish MDR regulations and the Directive, they are obliged to firstly report such arrangements in their country of residence. However, other tax arrangements – those that meet the hallmarks which are specific for Poland and are not covered by DAC6, would still have to be reported in Poland. With regards to non-EU intermediaries, (unlike the Directive) the Polish MDR regulations would require the intermediaries to report in Poland all arrangements (with EU or Polish nexus) that meet the relevant hallmarks (and other criteria where applicable) unless a narrow interpretation is applied.

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2.3

Obliged entities – intermediaries (promoters or service providers)

When comparing the Polish legislation with the Directive, one may notice that the intermediary – to which as a rule the prime reporting obligation applies – is defined in Poland as either a promoter (pl. promotor) or a service provider (pl. wspomagający). The definition of the promoter6 generally corresponds to the first part of the definition of ‘intermediary’ included in the Directive,7 referring to the entity which designs, offers, makes available or implements the arrangement or manages the arrangement’s implementation. These can be in particular tax advisors, lawyers, legal advisors, bank employees but also related companies or even their employees involved in designing some solutions for the benefit of other group companies from the given group.8 At the same time, it does not necessarily need to be an aggressive marketing of tax optimization – the understanding of the promotor’s role seems to be much wider. The second part of the Directive’s definition of an intermediary meets the Polish definition of a ‘service provider’,9 who provides, directly or by means of other persons, aid, assistance or advice with respect to designing, marketing, organising, making available for implementation or managing the implementation of a reportable arrangement. These are e.g. notary public, bookkeeper, CFO, auditor.10 Reporting deadlines based on the Polish legislation are: − The obligation for the promoter is to report the tax arrangement within 30 days: (i) of the date following the date on which the tax arrangement is made available, (ii) of the date following the date of the preparation for the implementation of a

6 According to Article 86a par. 1 point 8 of the Tax Ordinance Act a promoter is a natural person, legal person or non-organizational unit of legal personality, in particular a tax advisor, lawyer, legal advisor, employee of a bank or other financial institution advising clients; or if not has a place of residence, registered office or management in the territory of the country, which designs, offers, makes available or implements the arrangement or manages the arrangement’s implementation. 7 Point 21 of Article 3 of the Directive 2011/16/EU added by DAC6. 8 Ref. MDR Guidelines dated 31 January 2019, page 30. 9 According to Article 86a par. 1 point 18 of the Tax Ordinance Act a service provider is defined as a natural person, legal person or organisational unit without legal personality, in particular a statutory auditor, notary public, person providing bookkeeping services, accountant or financial director, bank or other financial institution, as well as their employee, who, with expected due care taking into account the professional nature of the business, the area of specialisation and the subject of the activities performed, provide, directly or by means of other persons, aid, assistance or advice with respect to designing, marketing, organising, making available for implementation or managing the implementation of a reportable arrangement. 10 As a rule, a statutory auditor performing statutory audit of the financial statement should not be considered a service provider (ref. MDR Guidelines dated 31 January 2019, page 42).

Fiscal administration is watching you: Poland-wide perspective on Mandatory Disclosure Rules

tax arrangement and (iii) of the date of making the first step connected with the implementation of the tax arrangement (whichever event occurs first). − If not reported by a promoter, for the beneficiary, the obligation is to report the tax arrangement to the Chief of the National Revenue Administration within 30 days beginning on the day after the arrangement is made available, the preparation for the implementation of a tax arrangement or since the first action in its implementation has been made (whichever event occurs first). − In certain cases a service provider shall be required to file information about a tax arrangement within 30 days from the day following the day when aid, assistance or advice with respect to designing, marketing, organizing, making available for implementation or managing the implementation of a tax arrangement was provided directly or by means of other persons. − Apart from above, promoters and service providers have additional obligations regarding marketable arrangements (periodic report every 3 months of tax arrangements made available). The Polish regulations provide for a new specific obligation for service providers who got (or should have got) doubts that an arrangement should be reported (with the due diligence generally required of him in respect of his operations, considering the professional nature of his activity, the area of specialization and the subject of his operations) and the service provider was not provided with relevant confirmation of the reporting.11 If such doubts arise (or should have arisen), a service provider should require the promoter or a relevant taxpayer to be provided with a written statement that a tax arrangement is not reportable. A service provider should do it within five working days of the date on which they suspected, or should have suspected, that the arrangement for which they are a service provider may constitute a reportable tax arrangement. Within the same deadline (five working days), the service provider notifies the Chief of a National Revenue Administration of this situation, indicating the triggering date (when doubts appeared) and number of entities that were requested for a written statement. In addition to the full report regarding a tax arrangement, Polish MDR legislation requires additional notifications, information and forms to be sent / submitted to the tax authorities and other entities/ persons involved. In 2020, new MDR legislative developments in Poland introduced a deferral of MDR deadlines for cross-border and other tax arrangements as well as obligations of

11 In particular: TAN, i.e. tax arrangement number issued by the Chief of the National Revenue Administration or confirmation that the tax arrangement has not been issued TAN yet along with so called information package about tax arrangement.

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re-submission of certain MDR reports. Due to the COVID situation, for particular tax arrangements, reporting deadlines remained suspended. For other than cross-border tax arrangements, reporting deadlines do not commence and those commenced are subject to suspension from 31 March 2020 until the 30th day following the date of revocation of the state of epidemic hazard and state of epidemy declared in relation to COVID-19. Among other changes which entered into force as of 1 July 2020 (‘New law’), new law introduced an additional obligation to report all cross-border tax arrangements – even if already reported under the existing MDR regime – where the first implementation step regarding the arrangement took place between 26 June 2018 and 30 June 2020. The obligation to ‘re-submit’ the report applied only to crossborder tax arrangements; other tax arrangements were excluded. The original deferred deadlines for ‘re-submission’ of MDR reports for crossborder tax arrangements12 (including those already reported under the existing MDR regime) were extended13 as follows: − for the promoter – 31 December 2020; − for the relevant taxpayer (beneficiary) – 31 January 2021; − for the service provider – 28 February 2021. In practice, for cross-border tax arrangements, reporting deadlines did not commence and those commenced were effectively subject to suspension from 31 March 2020 till 31 December 2020. The standard deadlines as set in the Polish MDR law applies again as of 1 January 2021. 2.4

Legal professional privilege (LPP)

The Polish legislation includes reference to legal professional privilege (LPP) – applicable to tax or legal certified advisors and attorneys. The regulations state that in case of bespoke arrangement, where MDR reporting could violate LPP and the promoter was not released from LPP, the promoter should inform the beneficiary that there is a reportable arrangement (and report to the tax authority that the client was informed). In such a case the main obligations shift to the beneficiary. In case of marketable arrangement, the MDR report is filed by

12 Introduced based on the Article 13 of Act of 28 May 2020 r. on the amendment of the Personal Income Tax Act, the Corporate Income Tax Act, Value Added Tax, Exchange of Information with Other Countries Act some other acts (J. of L. of 2020, pos. 1106), where the relevant deadlines for “re-submission” of MDR reports are: 1. for the promoter – 31 July 2020, 2. for the relevant taxpayer (beneficiary) – 16 August 2020 and 3. for the service provider – 31 August 2020. 13 Based on the Regulation dated 30 June 2020 (J. of L. of 2020, pos. 1162)

Fiscal administration is watching you: Poland-wide perspective on Mandatory Disclosure Rules

a promoter directly to the tax authorities, but due to LPP it does not include the beneficiary’s and other entities/ persons data. The controversial idea of releasing the promoter from LPP was subject to a wide dispute in Poland (including resolutions of professional associations of tax advisors, advocates etc.). Legal experts and professional associations claim that the MDR regulations cannot be the basis for releasing advisors and attorneys from LPP. There are also serious doubts regarding the scope of potential release of advisors from LPP, e.g., it is not clear at all whether such a release for the purposes of MDR reporting would not lead to a situation where professional advisors could not use LPP in cases of potential tax audits or tax proceedings against a taxpayer, or even penal fiscal proceedings. It is worth mentioning that the Polish Supreme Court has recently issued an important judgment stating that a legal counsel cannot be released from LPP by the client.14 In the court’s view, keeping LPP is of a public and legal nature. The legal counsel is a guard of LPP and the client cannot decide on it. Although the background of the case resolved by the court was different, it may be an important indication as to the LPP in the MDR context as well. 2.5

Filing information about use of an arrangement in Poland

According to the Directive, each Member State may take necessary measures requiring each beneficiary to file information to the tax administration on their use of an arrangement in each of the years during which they use it.15 Poland introduced strict regulations in this respect,16 requiring the beneficiary to file a report if, in a given settlement period, it performed any activities which were an element of the tax arrangement or from which it obtained a tax benefit. Such information must be filed within the deadline of filing a tax declaration (return), i.e., whereas for CIT this is annual, in the case of VAT – as long as there are monthly declaration forms – monthly reporting is required. MDR information on implemented reportable tax arrangements or tax benefits arising from them – in case of legal persons – was particularly burdensome as during the first year and a half after introducing these regulations, it needed to be signed every time, by each member of the Management Board of the reporting entity. Starting from July 2020, this regulation has been slightly relaxed by the New law and such information may be signed according to regular rules of representation by persons entitled to act on behalf of the company. Still, it is not possible to appoint

14 Judgment of the Supreme Court of 22 October 2019, II DSI 51/19. 15 Clause 11 of article 8ab of the Directive 2011/16/EU added by DAC6. 16 Article 86j of the Tax Ordinance Act.

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a proxy. Natural persons are obliged to file this declaration themselves. In every case, such information is treated as a statement made under penalty of perjury.

3.

Official Guidelines on the Tax Arrangements issued by the Polish Ministry of Finance

Bearing in mind the Polish regulations’ level of complexity and the volume of doubts they generated within different sources (business, advisors etc.), the Ministry of Finance published formal guidelines regarding MDR regulations. The implementation pace influenced the process of preparation of the guidelines. Their final version with 102 pages was published on 31 January 2019 – one month after the regulations had been introduced (the first draft was published on 21 December 2018). The form chosen by the Ministry is worthy of support – the Guidelines constitute so-called general explanations of tax law regulations pursuant to the Polish Tax Ordinance Act (Article 14n § 4 Point 1). The taxpayer’s compliance with the Guidelines should therefore, as a rule, result in special protection (reserved for example, for individual or general interpretations of tax law17 ) and should not cause harm to the entity; thus, no penal fiscal proceedings should commence and no interest should be assessed. Also they provided for a safe harbour, stipulating that possible delays in the proper implementation of information obligations under MDR provisions should not have negative consequences for obliged entities (if made until February 28, 2019) or should be treated as minor cases (if made between March 1 and April 30, 2019). Although from the taxpayers’ viewpoint such statements are favourable, from a purely legal perspective they may seem ineffective, as they do not result from the act and acts should not be undermined by a lower-ranked text. Notwithstanding the scope of the Guidelines, significant doubts remained unresolved. The Guidelines referred to many examples but a number of them were striking and not very controversial (e.g., when referring to financial instruments, the guidelines stated that an institution offering bank guarantee or transfer order should not be treated as a promoter and on the contrary, one offering a sophisticated debt instrument used in tax planning of a nature similar to QDS, i.e. Qualifying Debt Securities could be considered a promoter; the guidelines do not explain the treatment of all the instruments in between, e.g., derivatives commonly proposed by financial institutions). A great many real-life cases remained without any clear resolution. The Polish Ministry of Finance has not published a list of reported tax arrangements (there is a database of marketable arrangements however the content of a

17 Articles 14k-14m of the Tax Ordinance Act.

Fiscal administration is watching you: Poland-wide perspective on Mandatory Disclosure Rules

single arrangement is visible only after indicating TAN so in practice it is not easily accessible). Equally, it is worth noting that taxpayers have been denied individual tax rulings of MDR reporting obligations on the grounds that MDR obligations do not concern material tax law. In recent judgments however (issued in individual cases but giving important legal instructions to other taxpayers and tax administration), the administrative courts rejected such an approach and confirmed that MDR obligations could be covered by individual tax rulings.18 It is expected that the official Guidelines will be further amended, giving more clarity regarding doubts and issues with which tjuhe market is struggling. In the meantime, the Polish tax authorities are publishing Frequently Asked Questions on the official webpage.19

4.

Polish sanctions – preventative function

Pursuant to the Directive, Member States should lay down penalties against the violation of national rules that implement this Directive that are ‘effective, proportionate and dissuasive’. Poland went for a model of mixed administrative sanctions and criminal sanctions which seem not to be proportionate. The maximum penalties are generally much higher in comparison to other legislations’. The sanctions may be imposed on different entities. Personal sanctions (that may be imposed on management board members) may be higher than those imposed on companies. Promoters, those employing promoters or paying remuneration, whose revenues or costs exceed the equivalent of PLN8m [approx. EUR1.8m] are obliged to introduce and use an ‘internal procedure’ for MDR. In the case of non-compliance with this obligation, a fine up to PLN2m [approx. EUR450k] may be imposed.20 Additionally, where a promoter did not fulfill the obligation related to introduction of ‘the internal procedure’ monetary penalties can amount up to PLN10m [approx. EUR2.3m], such as if a final court judgment confirms a promoter is guilty of a crime related to MDR reporting.

18 E.g. judgment of Supreme Administrative Court I FSK 1703/20 of January 28, 2021. 19 Available in Polish at: https://www.podatki.gov.pl/mdr/kontakt/. 20 Article 86m Par. 1 of the Tax Ordinance Act.

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The fines that may be imposed on natural persons (particularly management board members) individually may be even more severe. They result directly from the Penal Fiscal Code21 and: − May amount to a fiscal fine up to so-called 720 daily rates (i.e., in 2021 up to PLN26.9m [approx. EUR6m])22 − May even mean prohibition from conducting a specific business activity including deprivation of professional qualifications (option in the event of conviction for the above-mentioned tax offenses). Since MDR non-filing or late filing should be treated as a tax offence, the penal fiscal risks should be accounted for. As a rule, such risks may be reduced by filing a voluntary disclosure (pl. czynny żal) showing relevant circumstances related to committing the offence, in particular the persons involved. The severity of fines in Poland is much higher in comparison to sanctions applied in other EU countries. The table below presents exemplary comparison data between countries which, at the time of writing, already had MDR regulations in force:

Table 1 Monetary penalty

Hungary27 Lithuania28

Maximum monetary penalty – Intermediary PLN10m [approx. EUR2.2m] EUR100k per calendar year EUR30k (can be imposed more than once for repeated failures) EUR50k (one-off fine per violation) HUF5m [approx. EUR 15k] EUR6k

Slovenia29

EUR150k

Poland France24 Slovakia25 Austria26

Maximum monetary penalty – Relevant taxpayer PLN26.9m23 [approx. EUR6m] EUR100k per calendar year EUR30k (can be imposed more than once for repeated failures) EUR50k (one-off fine per violation) HUF5m [approx. EUR15k] EUR6k (and status of non-reliable taxpayer) EUR150k

21 Ustawa z dnia 10 września 1999 r. Kodeks karny skarbowy [Penal Fiscal Code], ] J.L.2021, item 408 as amended. 22 Article 80f of the Penal Fiscal Code. Please note that penalties imposed based on the Penal Fiscal Code are variable. Each year the so-called daily rates are updated. The values at hand are relevant for 2019. 23 Values relevant for 2021. 24 https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000039248686&categorieLien=id. 25 https://www.nrsr.sk/web/Dynamic/DocumentPreview.aspx?DocID=471188. 26 https://www.ris.bka.gv.at/Dokumente/BgblAuth/BGBLA_2019_I_91/BGBLA_2019_I_91.pdfsig. 27 https://www.parlament.hu/irom41/06349/06349-0007.pdf

Fiscal administration is watching you: Poland-wide perspective on Mandatory Disclosure Rules

5.

Technical obstacles

Within the first months of the MDR rules applying in Poland, taxpayers faced not only difficulties in verifying whether an arrangement was reportable but also the risk of significant sanctions for non-compliance. Polish MDR filing remains challenging also for the following reasons: − All MDR forms need to be signed either with a certified electronic signature or with a special electronic Polish account (ePUAP). − In both cases Polish non-citizens are required to obtain a PESEL number (which is time-consuming process). Moreover, the MDR gateway accepts only signatures from the EU (eIDAS certificates) and according to the Ministry of Finance, entities from third countries should establish such a signature in the EU (in such cases PESEL is not needed). − All the communication regarding the MDR reporting must be made in electronic form with the use of ePUAP (regular email address is insufficient). − MDR data needs to be collected in the form of compatible XML files with the XSD scheme published by the Ministry of Finance. The files need to be signed electronically and sent via the gateway on the Ministry of Finance’s website. If forms need to be signed by more than one person, a document signed by all the required persons is transferred electronically to the Head of the National Revenue Administrations by one of the persons who signed these documents. − All the forms are only in Polish. − Each tax arrangement should be reported in a separate XML file. − It is impossible to enclose attachments to the submitted reports such as a power of attorney or a confirmation of stamp fee – such documents must be sent separately (in paper form or via ePUAP). − Many technical obstacles apply to changing versions of the XSD scheme. − The intermediaries/ taxpayers who reported cross-border arrangements with the so-called first activity taking place between June 26, 2018 and June 30, 2020 were obliged to report the arrangements once again (in particular, due to the fact the that the Polish scheme made available to the taxpayers while introducing the regulations was not compatible to the EU scheme).

28 https://www.teisesakturegistras.lt/portal/lt/legalAct/ef7cb510b1c211e98451fa7b5933515d 29 http://www.pisrs.si/Pis.web/pregledPredpisa?id=ZAKO4703

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6.

Conclusions

The purpose of the Directive was to improve transparency and address aggressive cross-border tax planning. It broadly reflects the objectives of Action 12 (Mandatory Disclosure Rules) of the (OECD’s Base Erosion and Profit Shifting (BEPS) Project, as well as introducing automatic exchanges of disclosures across the EU Member States. The broad implementation of MDR in Poland seems to exceed the aim of the Directive, imposing the significant administrative burden on beneficiaries and intermediaries of reporting day-to-day transactions or operations which tax authorities are already aware of (e.g., through submitted tax statements). Thus, MDR in Poland has changed the reality of not only advisors but also regular companies and natural persons operating in Poland or having even limited or sporadic presence in Poland. Due to the scale, extra-territorial nature and significance of the regulations adopted in Poland, taxpayers and intermediaries should review their policies and strategies for identifying and reporting arrangements so that they are compliant with the regulations. MDR now needs to become part of a daily mindset and business as usual worldwide.

References Legal acts Council of the European Union Directive 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. Ustawa z dnia 29 sierpnia 1997 r. Ordynacja podatkowa [Tax Ordinance Act of 29 August 1997], unified text J. of L. of 2021, item 1540 as amended. Ustawa z dnia 23 października 2018 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych oraz niektórych innych ustaw [Act of 23 October 2018 on the amendment on the amendment of the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Ordinance Act and some other acts], J. of L. of 2018, item 2193. Ustawa z dnia 28 maja 2020 r. o zmianie ustawy o podatku dochodowym od osób prawnych, ustawy o podatku od towarów i usług, ustawy o wymianie informacji podatkowych z innymi państwami oraz niektórych innych ustaw [Act of 28 May 2020 r. on the amendment of the Personal Income Tax Act, the Corporate Income Tax Act, Value Added Tax, Exchange of Information with Other Countries Act some other acts], J. of L. of 2020, item 1106. Ustawa z dnia 10 września 1999 r. Kodeks karny skarbowy [Penal Fiscal Code], unified text J. of L. of 2021, item 408 as amended.

Fiscal administration is watching you: Poland-wide perspective on Mandatory Disclosure Rules

Jurisdiction Judgment of the Supreme Court of 22 October 2019, II DSI 51/19. Judgment of the Supreme Administrative Court of 28 January 2021, I FSK 1703/20.

Netography https://www.podatki.gov.pl/mdr/objasnienia-podatkowe-mdr. https://www.podatki.gov.pl/mdr/kontakt/. https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000039248686 &categorieLien=id. https://www.nrsr.sk/web/Dynamic/DocumentPreview.aspx?DocID=471188. https://www.ris.bka.gv.at/Dokumente/BgblAuth/BGBLA_2019_I_91/BGBLA_2019_I_91. pdfsig. https://www.parlament.hu/irom41/06349/06349-0007.pdf https://www.teisesakturegistras.lt/portal/lt/legalAct/ef7cb510b1c211e98451fa7b5933515d. http://www.pisrs.si/Pis.web/pregledPredpisa?id=ZAKO4703.

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Tax on revenues from buildings

1.

Introduction

The solutions used in the course of combating various forms of tax avoidance in Poland are quite rare when compared to other countries. They are a unique income tax construct, which was originally referred to as the ‘minimum income tax’, and is now called ‘tax on revenues from buildings’ in the regulations. Despite its short history, its legal regulation has undergone significant changes, but the idea itself has remained unchanged. The creators of this legal construct assumed that if an entrepreneur has an asset of a certain value, it should bring them some minimal income, which in turn should result in some moderate income tax. According to the Polish authorities, it is not normal for a large asset, even though it is the subject of intense economic activity, not to generate income. The Polish authorities did not hide the obvious goal of introducing the analysed legal regulation. The explanatory memorandum to the draft law prepared by the government clearly states that one of the measures to combat aggressive tax optimisation is ‘the introduction of the so-called minimum income tax for taxpayers who own commercial real estate of significant value’.1 However, the implementation of a simple idea is not always simple.

2.

Evolution of the concept of tax on revenues from buildings

The concept of introducing an ‘additional’ or ‘minimum’ tax burden in income taxes appeared in Poland as a response to the authorities’ conviction that taxpayers widely used tax avoidance mechanisms. From this perspective, it should be recognized that the legislative actions taken by the Polish authorities in this respect are in line with a broad trend aimed at reducing tax avoidance, which is reflected in the OECD Action

1 The explanatory memorandum to the governmental draft law as of Sejm paper no. 1878 – http:// www.sejm.gov.pl/Sejm8.nsf/druk.xsp?nr=1878

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Plan on Base Erosion and Profit Shifting2 or the ATAD3 and ATAD-24 Directives of the Council of the European Union. Obviously, this tax was not intended under the above-mentioned projects. Initially, the ‘target’ of the Polish authorities was particularly those taxpayers who, on the basis of the mechanisms of tax optimisation permitted by law, do not show taxable income in Poland despite conducting business activity in the territory of Poland. In the opinion of the tax authorities, the beneficiaries of tax optimisation in Poland are in particular the entrepreneurs who operate in the trade and rental of office sector, who often do not show taxable income despite generating significant revenues. Therefore, the first version of the minimum tax regulations5 which entered into force in January 2018 treated only selected categories of fixed assets as the subject of taxation, i.e.: commercial buildings classified in the Classification of Fixed Assets (CFA)6 as: a shopping centre, a department store, an independent shop, a boutique, other commercial and service buildings and office buildings classified in the CFA as an office building (which also meet additional requirements, in particular the criterion of initial value exceeding PLN 10,000,000). The tax constructed in this way has been criticised by the European Commission, which has found elements in the Polish regulations that potentially violate the general ban on the use of public aid by European Union Member States. In particular, the communication of the European Commission7 indicated that the provisions on the minimum tax can be considered as discriminating against entrepreneurs who own offices and commercial and service buildings of significant value and, as a consequence, violating the Community rules on granting public aid. Therefore, it can be deduced from the position of the European Commission that 2 OECD (2013), Action Plan on Base Erosion and Profit Shifting, OECD Publishing. http://dx.doi. org/10.1787/9789264202719-en. 3 Council Directive (EU) 2016/1164 of 12 July 2016 Laying Down Rules Against Tax Avoidance Practices That Directly Affect the Functioning of the Internal Market, Official Journal L 193, 19.7.2016, p. 1–14.. 4 Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as Regards Hybrid Mismatches with Third Countries, Official Journal L 144, 7.6.2017, p. 1–11. 5 Ustawa z dnia 27 października 2017 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych oraz ustawy o zryczałtowanym podatku dochodowym od niektórych przychodów osiąganych przez osoby fizyczne [The Act of 27 October 2017 amending the Personal Income Tax Act, the Corporate Income Tax Act, and the Act on Lump-sum Income Tax on Certain Incomes Earned by Natural Persons] (J. of L. 2017 item 2175). 6 The CFA is a list of items (with their assigned numerical codes) that may be subject to depreciation for the purposes of income taxes. It takes the form of the Regulation of the Council of Ministers of 3 October 2016 on the Classification of Fixed Assets (CFA). 7 The authors have not managed to obtain more detailed information. According to the reply received from the European Commission, the discussions between the Commission and Poland were confidential and are not subject to disclosure. As a result, the position of the Commission is known only to the extent that it has been invoked by the Polish government during the legislative process.

Tax on revenues from buildings

the introduction of the minimum tax may be in accordance with the rules on state aid, provided that it does not discriminate against a specific category of taxpayers. The Polish authorities have decided to introduce changes to avoid the accusation of a breach of state aid rules. By means of amendments to the income tax laws,8 the minimum tax has been replaced by a new tax on revenues from buildings. In particular, as indicated in the explanatory memorandum to the amendment,9 the provisions of the amendment meet the expectations of the European Commission, according to which, inter alia, the minimum tax should cover all buildings (and not only office and commercial and service buildings), regardless of their unit value and only to the extent they are actually leased. Additionally, a tax refund mechanism has been introduced for taxpayers whose tax return on the basis of income tax is correct (i.e. its failure to show taxable income is not a result of tax optimisation). As a result, the tax has partially lost its ‘minimum’ tax quality. Before the amendment, the taxpayer had to pay the minimum tax whose amount was related to the value of buildings. After the amendment, this can be avoided if it turns out that, despite not paying the minimum tax, the taxpayer’s tax settlements are legal. Thus, the tax on income from buildings has become a kind of sanction which affects taxpayers who violate the rules of taxation. It can also be treated as a kind of tax security. The tax is collected monthly, and after the end of the tax year and the settlement of the tax year, it is decided whether the tax is returned or credited towards the ‘normal’ income tax. The tax refund mechanism is intended to ensure that the tax on income from buildings is a method of preventing tax avoidance (i.e. a permitted mechanism that can be used by the State when shaping national tax legislation) and not a discriminatory tool against certain categories of taxpayers (which would be contrary to the ban on State aid in force in the European Union).

8 Ustawa z dnia 15 czerwca 2018 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych oraz ustawy o zryczałtowanym podatku dochodowym od niektórych przychodów osiąganych przez osoby fizyczne [The Act of 15 June 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, and the Act on Lump-Sum Income Tax Act on Certain Incomes Earned by Natural Persons] (J. of L. 2018 item 1291). 9 Explanatory memorandum to the governmental draft law amending the Personal Income Tax Act, the Corporate Income Tax Act, and the Act on Lump-Sum Income Tax on Certain Incomes Earned by Natural Persons, Sejm of the VIIIth term, Sejm Print No. 2291-A. https://www.sejm.gov.pl/Sejm8. nsf/druk.xsp?nr=2291-A

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3.

The subject matter of taxation

The income from fixed assets that meet the cumulative conditions set out below is formally subject to tax on revenues from buildings10 if they are: 1) buildings; 2) owned or co-owned by the taxpayer; 3) given in whole or in part for use on the basis of a lease, rental agreement, or other agreement of a similar nature; 4) located in the territory of the Republic of Poland. However, as this revenue is calculated as the equivalent of the value of the building, this tax is more associated with the taxation of the property. In the case of partially commissioned buildings, the revenue is determined in proportion to the share of the usable area commissioned to use in the total usable area of this building.11 However, buildings in which the total share of the usable area of a building put into use does not exceed 5% of the total usable area of that building are not subject to the tax.12 The provisions governing income taxes do not contain a legal definition of the concept of ‘building’, which is of key importance from the perspective of this tax. Therefore, it is unclear whether ‘building’ should be defined on the basis of the rules of common language, a definition contained in the provisions of another legal act or a definition contained in the CFA.13 Given the fact that the regulation of tax on revenue from buildings is somewhat similar to that of property tax, it is not surprising that some lawyers believe that it would be appropriate to consider using the definition of a building as featured in the law governing this tax.14 However, the tax authorities take a different approach, referring to the definition of a building contained in the CFA.15 This position raises a number of doubts. First

10 11 12 13

Article 24b (1) of the CIT Act and Article 30g (1) of the PIT Act. Article 24b (6) of the CIT Act and Article 30g (6) of the PIT Act. Article 24b (7) of the CIT Act and Article 30g (7) of the PIT Act. More on this subject in A. Kałążny, Problemy z definicjami na gruncie podatku od przychodu z budynków, Kazus Podatkowy, no. 3 (08) 2019, p. 57–59 14 Pursuant to Article 1a (1)(1) of the LFT Act, a building is understood as a built structure within the meaning of the construction law, which is permanently connected with the ground, separated by means of building partitions and has foundations and a roof. This provision refers to Article 3(1) of the Act of 7 July 1994 on Construction Law, according to which a building is understood as a building with installations ensuring the possibility of using the facility in accordance with its intended purpose, erected with the use of building materials. 15 Individual interpretation of the Director of the National Tax Information of 21 December 2018 (no. 0111-KDIB1-2.4010.414.2018.1.DP).

Tax on revenues from buildings

of all, in the current version of the provisions (i.e. governing the tax on revenue from buildings, and not the minimum tax on buildings), the reference to the CFA has disappeared from the provision defining the subject of taxation. Therefore, the approach according to which the definitions contained in the CFA should be applied in the context of the current provisions seems to contradict the principle of the legislator’s presumption of rationality. Moreover, defining the subject matter of taxation by referring to the CFA may potentially violate the constitutional standards of tax lawmaking, which require the subject matter of taxation to be defined in the Act, whereas the CFA is established by a regulation.16 Moreover, reference to the CFA may lead to surprising results which consist in the exclusion of those revenues from facilities from the scope of taxation, which, both from the perspective of the common understanding of the notion of ‘building’ and the function they perform, are buildings, but are not classified as such in the CFA, for example modern sport stadiums. The case of sports stadiums may also raise doubts as to the non-discriminatory nature of the tax on revenues from buildings. As mentioned above, the European Commission has accused the minimum tax regulations of potential discrimination against selected categories of entrepreneurs owing to the fact that only buildings classified in the CFA as commercial and service and office buildings were subject to the tax. The remedy that the Polish legislator applied was to abandon the reference to the CFA and to tax all leased buildings. Meanwhile, the above-described interpretation of the building tax regulations applied by the Polish tax authorities leads to a situation in which selected categories of facilities, which both on the ground of common language and from the perspective of their construction and function are constituted by buildings, are excluded from taxation because of their classification in the CFA. Such an approach may result in discrimination against entrepreneurs who conduct identical business activities, but use facilities which are classified as buildings under the CFA. As indicated above, the rationale for including a building in the tax on revenue from buildings is that the building has been fully or partially let for use under a lease or tenancy agreement, or other agreement of a similar nature. It seems that this rationale also may raise significant doubts in practice. An example of such doubts may be the surprising decisions of tax authorities concerning the taxation of hotels on the same basis as the tax on revenues from buildings. According to the position of the tax authorities,17 the essence of a hotel contract is to lease buildings for short-

16 P. Banasik, A. Kałążny, W. Morawski, Minimalny podatek dochodowy od wartości obiektów komercyjnych – wybrane problemy, Przegląd Podatkowy 2/2018, p. 37. 17 Individual interpretation by the Director of National Tax Information of 1 April 2019 ref. 0114KDIP2-1.4010.15.2019.1JC and the response of the Minister of Finance to the parliamentary interpretation no. 8582 (https://sejm.pl/Sejm8.nsf/interpelacja.xsp?typ=ZAP&nr=8582).

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term, and thus the hotel buildings where such services are provided qualify for being included in the tax on revenue from buildings. This position was strongly criticized by representatives of entrepreneurs who pointed out significant differences between the lease agreement and the agreement for a hotel stay (in particular, the agreement for a hotel stay covers a wide range of services, apart from the mere provision of accommodation, and the hotel guest’s obligations are different from those of the tenant).18 It needs to be emphasized that the interpretation adopted by the tax authorities once again calls into question the non-discriminatory nature of the tax. In particular, the interpretation that requires hotels to be subject to the tax on revenue from buildings puts their owners in a worse situation than entrepreneurs providing similar services in facilities with a different business profile, e.g. wellness centres, where customers can spend the whole day using the same services as hotel guests, except for the use of accommodation. What is more, the question arises about the limits that the tax authorities will set when classifying a given type of activity as a tenancy-like agreement. Since a hotel service which involves a stay of a hotel guest in a building for several hours is equated by the authorities with a tenancy, should a stay in a cinema building for screening or a dinner in a restaurant building not also be considered a lease of building space?19 Although such an interpretation may seem absurd, it is a simple consequence of the tax authorities’ reasoning presented in the case of hotel services.

4.

Tax base and the amount of tax

Tax is applied to the income defined as the initial value of the taxable fixed asset resulting from business records, as at the first day of each month, and in the month in which the fixed asset was entered into the business records – the initial value determined on the day the fixed asset was entered into the records,20 on which the tax amounting to 0.035% of the tax base for each month is charged. At the same time, the tax base, being the sum of the initial value of all leased buildings belonging to the taxpayer, is reduced by PLN 10,000,000.21 In the current tax regulation a solution was adopted – under the influence of the European Commission – which consists in granting the taxpayer one tax-free amount. In the original version of the regulations, only buildings with a value exceeding PLN 10,000,000 were subject to taxation. 18 19 20 21

https://www.rp.pl/Komercyjne/310109965-Podatek-minimalny-uderza-w-hotele.html Especially if we are dealing with a very long film or a particularly lavish dinner ... Article 24b (3) of the CIT Act and Article 30g (3) of the PIT Act. Article 24b (9) of the CIT Act and Article 30g (9) of the PIT Act.

Tax on revenues from buildings

The provisions on tax on revenues from buildings22 provide for a mechanism of deducting the amount of PLN 10,000,000 from the value of revenue (initial value of a fixed asset), which is deducted from the initial value of all fixed assets eligible for tax (i.e. buildings put into use) belonging to the taxpayer. On the grounds of the minimum tax, the amount of deduction was available for each fixed asset separately, which meant that only buildings of a sufficiently high value were subject to the tax (it seems to be in line with the intentions of the authors of the regulations, who planned to cover with additional tax large-area shopping malls and the largest office buildings in particular). At the same time, this mechanism meant that owners of a very large number of commercial buildings of low unit value could be exempted from the tax. Therefore, the tax on revenues from buildings should be considered as tighter in this respect than its predecessor – the minimum tax.

5.

Taxpayer

It follows from the wording of the provisions on tax on revenues from buildings that it is paid on revenue from ownership or co-ownership of a specific fixed asset.23 Therefore, the taxpayers of the tax in question are income tax payers who are also owners or co-owners of a fixed asset eligible for tax. As indicated in the doctrine in relation to minimum tax regulations, a more thoughtful solution would be to apply tax, not only to the owners, but also holders of self-contained buildings (as is the case in Polish property tax regulations).24 It is worth noting that, in the wording binding until the end of 2018, the regulations contained an exception to the rule that the tax payer is the owner of the building.25 According to this provision, in a case where the building was put into use, the tax obligation rested with the entity that made depreciation write-offs. On the basis of the provisions on tax on revenue from buildings in force since 1 January 2019, this rule applies only to buildings put into use under a lease agreement.26

22 Article 30g (7) of the PIT Act and Article 24b (7) of the CIT Act. 23 Article 30g (1) of the PIT Act and Article 24b (1) of the CIT Act. 24 W. Morawski, P. Banasik, A. Kałążny: Minimalny podatek dochodowy od wartości budynków komercyjnych [Minimum income tax on value of commercial objects – selected problems], in: B. Brzeziński, K. Lasiński-Sulecki, W. Morawski (ed.), Nowe narzędzia prawne w podatkach dochodowych i majątkowych: poprawa efektywności systemu podatkowego [New legal tools in income and wealth taxes: improving the efficiency of the tax system], Warsaw: Wolters Kluwer, 2018, p. 411. 25 Article 30g (12) of the PIT Act and Article 24b (12) of the CIT Act. 26 Article 30g (17) of the PIT Act and Article 24b (17) of the CIT Act.

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6.

Amount and payment of the tax

The tax rate on revenue from buildings is 0.035% of the tax base (i.e. the initial value of the leased building less the amount of deduction) for each month. Taxpayers are obliged to calculate the tax for each month and pay it by the 20th day of the following month,27 and the amount of tax has to be deducted from the advance income tax payment for a given month.28 Taxpayers may, also, not pay tax if it is lower than the advance income tax for a given month.29 In such a construction of the tax calculation, the nature of the so-called minimum tax is expressed, i.e. it is supposed to guarantee the minimum required income tax burden for taxpayers who lease buildings. If a taxpayer shows income to be taxed under the general rules resulting in a higher amount of the advance payment of income tax than the amount of potential tax on revenues from buildings, the latter remains only a potential burden. This does not change the fact that it is the taxpayer’s responsibility to calculate the tax and check whether the minimum tax obligation occurred. At the same time, the regulations stipulate that the amount of tax on revenues from buildings paid and not deducted in a tax year is deducted from the amount of the liability for the entire tax year, and this deduction is made in the annual tax return.30 It follows from the wording of this provision that the amount of the tax paid on the revenues from buildings, which is not deductible from the advance payment for a given month (surplus over the advance payment) is the amount of the tax on revenues from buildings that has been paid and not deducted in the tax year and cannot be deducted from the advance payments for subsequent months (the deduction can only be made in the annual tax return). This position is confirmed by the interpretation of tax authorities.31

7.

Tax refund mechanism

The provisions on tax on income from buildings provide for a tax refund mechanism which should be available to those taxpayers whose loss or low income tax does not result from the applied tax optimisations. According to the explanatory memorandum to the draft law introducing the tax: ‘Such a solution is part of the minimum tax objective, which is to prevent taxpayers from applying tax optimization.

27 28 29 30 31

Article 30g (11) of the PIT Act, Article 24b (11) of the CIT Act. Article 30g (12) of the PIT Act, Article 24b (12) of the CIT Act. Article 30g (13) of the PIT Act, Article 24b (13) of the CIT Act. Article 30g (14) of the PIT Act, Article 24b (14) of the CIT Act. This is the case, e.g., in the individual interpretation of the Director of the National Tax Information of 11 September 2019. (No. 0111-KDIB2-3.4010.184.2019.2.KK).

Tax on revenues from buildings

However, it is not the purpose of this tax to ‘punish’ taxpayers who, for objective, economically justified reasons, pay low income tax or show a loss.’ In particular, the amount of tax on revenues from buildings not deducted from the advance payment of income tax is refundable at the taxpayer’s request, if the tax authority does not find irregularities in the amount of the tax liability or loss calculated in accordance with relevant regulations in the submitted tax return and the tax on income from buildings, and in particular if the costs of debt financing incurred in connection with the purchase or construction of the building as well as other income and costs have been established at market conditions.32 If the tax authority determines the amount of tax liability in a higher amount than declared by the taxpayer, the taxpayer is entitled to a refund in the amount: 1. of the difference between the amount of tax on revenues from buildings paid and not deducted, and the amount of tax determined by the tax authority – in case the tax authority determines the tax liability, or 2. of the tax on revenues from buildings paid and not deducted – in case the tax authority determines a loss.33 The tax refund mechanism should be assessed positively as it generally confirms that a tax is an instrument to combat tax avoidance and not an additional tax burden imposed on a particular category of taxpayers. However, this positive assessment does not exclude the negative consequences that the tax on revenues from buildings has on the financial settlements of entrepreneurs who do not apply tax optimization. The very fact that a tax refund is due after the end of the tax year results is a negative impact on the financial liquidity of taxpayers who are obliged to credit the state budget despite the fact that they should not be subjected to tax (if their loss or small profit is not a result of tax optimization). Moreover, this negative impact on cash flows is all the more acute because the tax refund can only be made after the tax authorities have carried out a detailed tax settlement audit of a taxpayer applying for the refund, which significantly extends the time of waiting for the tax refund. Therefore, it is no wonder that in practice, taxpayers try to look for gaps in the regulations in question which allow minimization of the amount of monthly tax payments instead of waiting for the tax refund. It is also difficult to assess how expensive this tax collection mechanism is for the tax authorities.

32 Article 24b (15) of the CIT Act and Article 30g (15) of the PIT Act. 33 Article 24b (16) of the CIT Act and Article 30g (16) of the PIT Act.

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8.

Tax relief introduced for the period of COVID-19 pandemic

Economic slowdown triggered by the COVID-19 pandemic strongly affected the branches of economy connected with commercial buildings. Anti-pandemic measures forced operators of shops and restaurants (which are often run in rented buildings) to close down their business for the customers which decreased their ability to pay the rent. Similar problems arose in the hotel business (both in the case of hotels operating in rented buildings and in the case of hotel owners). The situation for owners of rented office space was slightly different. Despite the fact that in the long term the ‘home office culture’ significantly decreased the growth prospects of the office business, in the short term pandemic measures generally did not affect owners’ liquidity. The rental agreements are most often signed for a long period of time and the tenants who moved their business to home office generally are still able to pay the rent (even if the office is empty). The Polish legislator identified this issue and introduced regulations dedicated to the tax on revenues from buildings. According to this regulation,34 the tax payment deadline was extended until July 20 2020 with regard to the tax due for the months March-May 2020 for the taxpayers who met all of the following conditions: 1. the taxpayer has suffered negative economic consequences in a given month due to COVID-19; 2. the taxpayers’ revenues in a given month are at least 50% lower than revenues gained in the same month of the previous tax year, or 50% lower than average revenues that year for taxpayers whose business began in 2019. This fast introduced relief-mechanism for the taxpayers impacted economically by COVID-19 should be assessed generally positively, having in mind that the tax on revenues from buildings were introduced as a special taxation regime for an industry which (according to the legislator) was generating very high income before the COVID-19 started. However it is doubtful if the construction of the above provision is the most appropriate wording, in particular the first condition (‘negative economic consequences due to COVID-19’ which are not defined in the Act) seems to be unnecessary having in mind that the conditions are cumulative, with the second one referring to decrease of revenues. As the pandemic continued the legislator extended the scope of the tax relief connected with the tax on revenues from buildings. According to the ‘Anti-Crisis Shield 4.0’ the revenues which are subject to tax on revenues from buildings became exempted from that tax for the period from 1 March 2020 until 31 December

34 Article Art. 38h (1) of the Anti-Crisis Shield 1.0 with regard to the taxpayers of CIT and Art. 52p (1) of the Anti-Crisis Shield 1.0 with regard to the taxpayers of PIT.

Tax on revenues from buildings

2020.35 This exemption was subsequently prolonged until the end of COVID-19 pandemic.36 It should be noticed that the tax exemption was introduced (in opposition to the previous tax payment extension) unconditionally. Accordingly the tax on revenues on buildings has ceased to apply (until the end of COVID-19 pandemic) to all rented buildings, even in case of taxpayers whose actual revenues from rental were not affected due to the COVID-19.

9.

Polish tax on revenues from buildings compared to solutions in force in other countries

The Polish tax regulations presented above are not standard in other countries. In fact, they may be considered quite unusual. However, similar tax ideas can be observed also in other countries. One of the countries that has a history of applying minimum income tax is Mexico. Before 2008, the Mexican tax system had the so-called tax on assets (IMPAC), paid on the value of financial assets, fixed assets, and stocks at a rate of 1.25%. Significantly, only taxpayers for whom the IMPAC calculated in this way was higher than the income tax calculated with the general rules were liable to pay the tax (and the amount of IMPAC paid could reduce the income tax liability in subsequent tax years). It was treated as an instrument to combat tax fraud.37 In 2008, in the wake of wide-ranging reforms aimed at increasing tax collection, this tax was abolished and replaced by the so-called flat rate business tax (IETU), which is a flat rate tax paid on income less expenses incurred in a given year (calculated on the basis of the company’s cash flow).38 A taxpayer was obliged to pay the IETU only if it was higher than the income tax calculated on the general principles. The simple structure of the tax was to make it difficult to avoid taxation for taxpayers who used an extensive system of exemptions and loopholes in Mexican corporate income tax

35 Article Art. 32 (4) of the Anti-Crisis Shield 4.0 with regard to the taxpayers of CIT and Art. 30 (3) of the Anti-Crisis Shield 4.0 with regard to the taxpayers of PIT. 36 Art 1 (25) and 2 (26) Act of November 28 2020 amending the act on personal income tax, the act on corporate income tax, the act on flat-rate income tax on certain revenues generated by natural persons and certain other acts J. of L. of 2020, item 2123. 37 E. Ahmad, Multilevel fiscal institution and mechanisms for reducing tax cheating. The case of Mexico, in: J. Kim, J. Blochlinger (ed.), Institution of Intergovernmental Fiscal Relations, OECD 2015, p. 243. 38 https://www.natera.com.mx/euromoney/Euromoney_2011.pdf

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regulations for this purpose. Ultimately, the IETU did not bring any increase in tax revenue to the Mexican budget and was repealed at the end of 2013.39 A different minimum tax mechanism is in place in Hungary,40 where a mechanism that can be described as minimum income has been introduced into the legislation governing corporate income tax. The minimum income is 2% of the company’s income – taxpayers whose tax base (income) calculated according to the general rules is lower than the minimum income have the possibility to apply two solutions: 1. Treating the minimum income as the income tax base (at the linear rate of 9%), or 2. submitting an income tax return together with a statement that the tax base (income) determined according to the general rules has been calculated in accordance with the law, and the taxpayer is able to present the documentation required by law to prove the amount of income and costs incurred. In such a case, the taxpayer pays income tax in accordance with the general rules (at the flat rate of 9%). In practice, most taxpayers in Hungary decide to submit a statement that the tax base has been reliably calculated and settle income tax in accordance with the general rules rather than the minimum income. The basic difference between the Polish tax on revenues from buildings and the minimum taxes introduced in Mexico and Hungary is the relatively narrow circle of taxpayers to whom it is addressed. While in these countries the minimum tax regulations are (in the case of Mexico – were) applicable to all corporate income tax payers regardless of the type of their business activity, in Poland only entrepreneurs conducting activity in the field of building rental are eligible for taxation. What is more, the scope of taxation with the tax on revenues from buildings was, as indicated above, extended in comparison with the minimum tax previously in force in Poland, in response to the reservations of the European Commission. However, one may have doubts as to whether the provisions in their current form fully exclude the risk of being considered discriminatory (and consequently violating the general ban on state aid), especially in view of their interpretation by the Polish tax authorities. It cannot be ruled out that e.g. representatives of the hotel industry will try to use this argument in disputes concerning the inclusion of their activities in the tax on revenues from buildings.

39 M.F. Valdes Valencia: Reducing inequality in Latin America – the role of tax policy, Routledge 2013, p. 116. 40 https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-hungaryguide2017.pdf

Tax on revenues from buildings

Compared to the Mexican or Hungarian regulations, the solution adopted in Poland also seems extremely complicated. The advantage of the minimum taxes applied in both countries was their simple design, consisting essentially in applying a flat interest rate to the total income of the company. Meanwhile, the correct calculation of the Polish tax on revenues from buildings requires a number of complex actions, in particular verification of the initial value of a building, calculation of the rented area in a given month, and, in the case of capital groups, additional calculation of the proportion of the deduction amount for individual taxpayers. Therefore, the obligation to calculate the minimum tax and compare it with the amount of the advance income tax is, in the case of Polish regulations, a significantly greater burden for the taxpayer than it is the case, for example, in Hungary. One may have doubts as to whether these burdens which the Polish legislator imposes on the taxpayers will bring the expected effects. The experience of other countries shows that the minimum tax is rarely a mechanism that increases budget revenues. The chances for this are even smaller if one considers the quality of regulations governing the tax on revenues from buildings, which should be assessed with a strong criticism. This strict assessment is confirmed by the considerable number of disputes that have already arisen in the first year of the legislation, including disputes on fundamental issues such as the rules related to the determination of the tax base, or to the taxpayer of the tax on revenues from buildings.

10.

Conclusions

The tax on revenues from buildings introduced in Poland is formally an income tax. In the economic sense, it comes close to a property tax, but only when the taxpayer underestimates his/her tax liability. This tax is still – after changes enforced by the European Commission – a minimum tax. It is a complicated structure which generates many interpretation disputes. It is not an effective instrument from the budgetary point of view. It probably imposes a relatively high workload not only on taxpayers, but also on tax authorities. It can certainly be described as ‘interesting’, but it is not a remedy for the problem of tax avoidance.

References Legal acts Council Directive (EU) 2016/1164 of 12 July 2016 Laying Down Rules Against Tax Avoidance Practices That Directly Affect the Functioning of the Internal Market, Official Journal L 193, 19.7.2016.

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Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as Regards Hybrid Mismatches with Third Countries, Official Journal L 144, 7.6.2017. Ustawa z dnia 27 października 2017 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych oraz ustawy o zryczałtowanym podatku dochodowym od niektórych przychodów osiąganych przez osoby fizyczne [The Act of 27 October 2017 amending the Personal Income Tax Act, the Corporate Income Tax Act, and the Act on Lump-sum Income Tax on Certain Incomes Earned by Natural Persons], J. of L. of 2017 item 2175. Ustawa z dnia 15 czerwca 2018 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych oraz ustawy o zryczałtowanym podatku dochodowym od niektórych przychodów osiąganych przez osoby fizyczne [The Act of 15 June 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, and the Act on Lump-Sum Income Tax Act on Certain Incomes Earned by Natural Persons], J. of L. of 2018 item 1291. Ustawa z dnia 26 lipca 1991 r.o podatku dochodowym od osób fizycznych [The Act of 26 July 1991 on Personal Income Tax], J. of L. 1991, No 80, item 350. Ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych [The Act of 15 February 1992 on Corporate Income Tax], J. of L. of 2020, item 1406 as amended. Ustawa z dnia 12 stycznia 1991 r. o podatkach I opłatach lokalnych [The Act of 12 January 1991 r. on Local Taxes and Fees] J. of L. of 2019, item 1170. Ustawa z dnia 31 marca 2020 r. o zmianie ustawy o szczególnych rozwiązaniach związanych z zapobieganiem, przeciwdziałaniem i zwalczaniem COVID-19, innych chorób zakaźnych oraz wywołanych nimi sytuacji kryzysowych oraz niektórych innych ustaw [The Act of 31 March 2020 Amending the Act on Special Solutions Related to Preventing, Counter-Acting and Combating COVID-19, other Contagious Diseases and Crises Involved Thereby and Certain Other Acts], J. of L. of 2020, item 568. Ustawa z dnia 19 czerwca 2020 r. o dopłatach do oprocentowania kredytów bankowych udzielanych przedsiębiorcom dotkniętym skutkami COVID-19 oraz o uproszczonym postępowaniu o zatwierdzenie układu w związku z wystąpieniem COVID-19 [The Act of 19 June 2020 on Subsidising the Interest on Bank Credit to Guarantee the Liquidity of Businesses Affected by COVID-19 and Simplified Procedure to Approve Arrangements in Connection with COVID-19], J. of L. of 2020, item 1086. Ustawa z dnia 28 listopada 2020 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych, ustawy o zryczałtowanym podatku dochodowym od niektórych przychodów osiąganych przez osoby fizyczne oraz niektórych innych ustaw [The act of November 28 2020 amending the act on personal income tax, the act on corporate income tax, the act on flat-rate income tax on certain revenues generated by natural persons and certain other acts], J. of L. of 2020, item 2123.

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Jurisdiction Interpretation of the Director of the National Tax Information of 21 December 2018 (No. 0111-KDIB1-2.4010.414.2018.1.DP). Interpretation of the Director of National Tax Information of 1 April 2019 (No. 0114-KDIP21.4010.15.2019.1JC). Judgment of the Provincial Administrative Court in Warsaw of 17 April 2019. (ref. III SA/Wa 1905/18). Interpretation of the Director of the National Tax Information of 11 September 2019. (No. 0111-KDIB2-3.4010.184.2019.2.KK).

Literature Ahmad E., Multilevel fiscal institution and mechanisms for reducing tax cheating. The case of Mexico, in: J. Kim, J. Blochlinger (ed.), Institution of Intergovernmental Fiscal Relations, OECD 2015. Banasik P., Kałążny A., Morawski W., Minimalny podatek dochodowy od wartości obiektów komercyjnych – wybrane problemy [Minimum income tax on value of commercial objects – selected problems], Przegląd Podatkowy 2018, No 2. Kałążny A., Problemy z definicjami na gruncie podatku od przychodu z budynków [Problems with definitions in case of tax on revenues on buildings] – Kazus Podatkowy, 2019, no. 3 (08). Morawski W., Banasik P., Kałążny A., Minimalny podatek dochodowy od wartości budynków komercyjnych. [Minimum income tax on value of commercial objects – selected problems], in: B. Brzeziński, K. Lasiński-Sulecki, W. Morawski (ed.), Nowe narzędzia prawne w podatkach dochodowych i majątkowych: poprawa efektywności systemu podatkowego [New legal tools in income and wealth taxes: improving the efficiency of the tax system], Warsaw: Wolters Kluwer, 2018. Valdés Valencia M.F., Reducing inequality in Latin America – the role of tax policy, Routledge 2013.

Netography Explanatory memorandum to the governmental draft law as of Sejm paper no. 1878 – http:// www.sejm.gov.pl/Sejm8.nsf/druk.xsp?nr=1878 OECD (2013), Action Plan on Base Erosion and Profit Shifting, OECD Publishing. http://dx. doi.org/10.1787/9789264202719-en Explanatory memorandum to the governmental draft law amending the Personal Income Tax Act, the Corporate Income Tax Act, and the Act on Lump-Sum Income Tax on Certain Incomes Earned by Natural Persons, Sejm of the VIIIth term, Sejm Print No. 2291-A. https://www.sejm.gov.pl/Sejm8.nsf/druk.xsp?nr=2291-A

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Response of the Minister of Finance to the parliamentary interpretation no. 8582. https:// sejm.pl/Sejm8.nsf/interpelacja.xsp?typ=ZAP&nr=8582 R. Krupa-Dąbrowska, Podatek minimalny uderza w hotele [Minimal tax is impacting the hotels], https://www.rp.pl/Komercyjne/310109965-Podatek-minimalny-uderza-whotele.html C. R. Natera, J.I. Pizarro, Is Mexican IETU creditable abroad as foreign income tax? https:// www.natera.com.mx/euromoney/Euromoney_2011.pdf Taxation and Investment in Hungary 2017 https://www2.deloitte.com/content/dam/Deloitte/ global/Documents/Tax/dttl-tax-hungaryguide-2017.pdf

Agnieszka Franczak

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective1

1.

Introduction

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI Convention)2 was signed on 7 June 2017 in Paris by 68 signatories, including Poland. The Polish act on the ratification of the Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting was enacted by the Sejm of the Republic of Poland on 29 September 2017.3 The MLI Convention, as a multilateral international treaty, enables the Convention signatories to amend tax treaties between the signatories without having to carry out bilateral negotiations on a single tax treaty.4 Insofar as tax law is concerned, the effects of the MLI Convention that relate to bilateral tax treaties arise both from the very wording of the Convention and its legal nature, as well as the extent to which it ‘interacts’ with treaties. This chapter shows the very essence and assumptions of the MLI Convention; it assesses the impact the

1 In the Polish literature, the topic of MLI Convention appears the earliest in studies by M. Czerwiński, A. Wieśniak-Wiśniewska, Świat podatków po projekcie BEPS i jego wpływ na polskich podatników [The world of taxes after the BEPS project and its impact on Polish taxpayers], Przegląd Podatkowy, 2016/6; M. Leconte, M. Raińczuk, Konwencja Wielostronna (BEPS działanie nr 15) – omówienie najistotniejszych zagadnień [Multilateral Convention (BEPS action No. 15) – a discussion of the most relevant issues], Monitor Podatkowy 2017/5 and A. Franczak, Konwencja Wielostronna (MLI) – podatkowa ewolucja czy rewolucja? [Multilateral Convention (MLI) – tax evolution or revolution?] Studia Iuridica Lublinensia 2018/2. This study is a continuation of the arguments and an in-depth analysis of the issues discussed in the latter study. The publication was co-financed by the subsidy awarded to the Cracow University of Economics. 2 Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, done at Paris on 24 November 2016, J. of L. 2018, item 1369; hereinafter: the MLI Convention. 3 Ustawa z dnia 29 września 2017 r. o ratyfikacji Konwencji wielostronnej implementującej środki traktatowego prawa podatkowego mające na celu zapobieganie erozji podstawy opodatkowania i przenoszeniu zysku, sporządzonej w Paryżu dnia 24 listopada 2016 r. [Act of 29 September 2017 on the Ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, done at Paris on 24 November 2016 ] J. of L. 2017, item 2104. 4 See D. Kleist, The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS – Some Thoughts on Complexity and Uncertainty, Nordic Tax Journal 2018/1, pp. 31–48.

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Convention has on the extent to which bilateral tax treaties are applied – from the perspective of the Republic of Poland, more than three years after the Convention has become legally effective.

2.

The background of the MLI Convention and its essence

The MLI Convention is the result of action taken by the OECD and G20 as part of the BEPS project.5 It was in the BEPS final report where Action 15 would include a recommendation to create an instrument that would modify bilateral tax treaties, that would enable all tax treaties to be unified in such a way that it would eliminate the risk of double non-taxation of income, treaty abuse, or the creation of multitier corporate structures to evade taxation. To this end, in 2015 a working group was established which included representatives of 99 countries, including Poland, and its members were mandated to formulate the provisions of the multilateral convention. The effect of the appointed group’s work was the publication of the wording of the MLI Convention on 24 November 2016. The Convention aims to introduce integrated solutions into tax treaties – designed as part of the BEPS project (Actions 2, 6, 7 and 14) – by amending bilateral tax treaties entered into by a contracting party to the Convention without having to conclude a new international tax treaty. In effect, the MLI Convention implements a mechanism of a single multilateral legal instrument which allows significant modifications to be made to bilateral tax treaties that have applied so far, by changing the extent to which those treaties apply, and without having to renegotiate the treaties and sign new tax treaties by the contracting states6 . Thus, the effect of the MLI Convention is not an amendment of tax treaties and it is not a protocol that amends those treaties.7 In addition, pursuant to the rule of international law of Article 30(3)

5 http://www.oecd.org/tax/beps/background-brief-inclusive-framework-for-beps-implementation.pdf (downloaded on 17.10.2021). 6 Opinia do ustawy o ratyfikacji Konwencji wielostronnej implementującej środki traktatowego prawa podatkowego mające na celu zapobieganie erozji podstawy opodatkowania i przenoszeniu zysku, sporządzonej w Paryżu dnia 24 listopada 2016 r. [Opinion to the Act on the Ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, done at Paris on 24 November 2016], Legislative Office of the Senate Chancellery, print 606. 7 J. M. Jamroży, C. Krysiak, Zmiany umów o unikaniu podwójnego opodatkowania związane z wielostronną Konwencją implementującą środki traktatowego prawa podatkowego (MLI) [Amendments to treaties on avoidance of double taxation related to the multilateral Convention implementing measures of the treaty tax law (MLI], in: Nowe narzędzia prawne w podatkach dochodowych i majątkowych. Poprawa efektywności systemu podatkowego [New legal tools in income and property taxes.

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

of the Vienna Convention on the Law of Treaties,8 when all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended in operation under article 59, the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty. This means that without any formal amendment of bilateral tax treaties, the MLI Convention can modify those treaties where there is a conflict between a tax treaty and the MLI Convention. The moment as of which the MLI Convention has become effective and the moment as of which it has started to be applied to a given tax treaty are two different moments and should not be considered the same. According to Article 34 of the MLI Convention, the Convention has become effective on the first day of the month following the expiration of a period of three calendar months beginning on the date of deposit of the fifth instrument of ratification, acceptance, or approval, i.e. 1 July 2018. The first jurisdictions to complete the MLI Convention ratification procedure were Austria, the Isle of Man, Jersey, and Poland, whereas Slovenia deposited its instrument of ratification on 22 March 2018, hence becoming the fifth country to complete the procedures required for the Convention to become effective. For each signatory that ratifies, accepts, or approves the Convention after the fifth instrument of ratification has been deposited, the MLI Convention becomes effective on the first day of the month following the expiry of a period of three calendar months beginning on the date of the deposit by such signatory of its instrument of ratification, acceptance, or approval. As of 30 September 2021, 96 jurisdictions are9 signatories and parties to the MLI Convention.

3.

Structure and objectives of the MLI Convention

The MLI Convention consists of a preamble and 39 articles in seven parts – two general (introduction part and final provisions) and five specific parts (hybrid entities and instruments, including methods to prevent double taxation, abuse of double taxation treaties, avoidance of permanent establishment statues, improved dispute resolution, arbitration). The preamble recalls the mission of the BEPS project, defines the purpose and mission of the MLI Convention, points to the need for quick and, above all, effective implementation of the recommendations developed under the BEPS project. Improving the efficiency of the tax system] (eds.): B. Brzeziński, K. Lasiński-Sulecki, W. Morawski, Warszawa, 2018. 8 Vienna Convention on the Law of Treaties, done at Vienna on 23 May 1969, J. of L. 1990, No. 74, item. 439. 9 https://www.oecd.org/tax/treaties/beps-mli-signatories-and-parties.pdf (downloaded on 17.10.2021).

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According to Article 1 of the MLI Convention, it modifies all notified double taxation conventions. For a given tax treaty to be covered by the provisions of the Convention in accordance with Article 2(1), both states that are parties to the treaty must notify it. Treaties that are not notified or notified by only one of the parties will not be covered by the provisions of the Convention. In addition, another rule that results from the MLI Convention is that an amendment of a particular provision of a double taxation treaty or addition of a new provision to a given convention must be consented to by both contracting states.10 It is also important that parties may choose the scope of MLI Convention provisions that they wish to apply to tax treaties they have notified. At the same time, some of the MLI Convention mechanisms are mandatory and constitute the socalled minimum standard of its application.11 In this respect, accession by a given tax jurisdiction to the MLA Convention gives rise to an obligation to implement it to each tax treaty covered by the Convention. Provisions to prevent the abuse of treaties are the minimum standard: Article 6 of the MLI Convention – preamble to a bilateral tax treaty, Article 7 of the MLI Convention – prevention of treaty abuse, and Article 16 of the MLI Convention – mutual agreement procedure. Optional provisions include Articles 3–5 of the MLI Convention – hybrid mismatch provisions, Articles 7–11 of the MLI Convention – treaty abuse provisions (except for those that are the minimum standard), Articles 12–15 of the MLI Convention – avoidance of permanent establishment status provisions, Articles 16–17 of the MLI Convention – provisions that improve tax dispute resolution, and Articles 18–26 of the MLI Convention – tax arbitration provisions. As regards provisions that are not included in the minimum standard, parties to the MLI Convention are free to adopt the solutions set out in the Convention under the system of reservations and notifications. 3.1

Transparent Entities

The second part of the MLI Convention governs – among other things – the solutions provided for in Action 2 of the BEPS Final Report (neutralizing the effects of hybrid mismatch arrangements). These solutions address situations where the same entity or transaction is treated differently in two or more territories, therefore resulting in taxation disparities. The MLI Convention stipulates that – with respect

10 See A. Franczak, Konwencja Wielostronna (MLI) (above n. 1), pp. 9–22. 11 Oświadczenie rządowe z 6.06.2018 r. w sprawie mocy obowiązującej MLI implementującej środki traktatowego prawa podatkowego mające na celu zapobieganie erozji podstawy opodatkowania i przenoszeniu zysku, sporządzonej w Paryżu 24.11.2016 r. [Government Statement of 6.06.2018 on the validity of the MLI implementing measures of the treaty tax law to prevent erosion of the tax base and profit shifting, effected in Paris on 24.11.2016 ], J. of L. 2018, item 1370.

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

to transparent entities – income derived by or through an entity or arrangement that is treated as wholly or partly fiscally transparent under the tax law of either contracting party will be considered to be income of a resident of a contracting party but only to the extent that the income is treated, for tax purposes by that contracting party, as the income of its resident.12 In addition, provisions of a tax treaty that require a contracting party to exempt from income tax or provide a deduction or credit equal to the income tax paid with respect to income derived by a resident of that party which may be taxed in the other contracting party according to the provisions of the treaty will not apply to the extent that such provisions allow taxation by that other contracting party solely because the income is also income derived by a resident of that other contracting party.13 In fact, Article 3(1) of the MLI Convention is a copy of Article 1(2) of the OECD Model Tax Convention on Income and on Capital14 as amended by BEPS Action 2 Report. It is not mandatorily required to apply Article 3 of the MLI Convention, and it will only apply under reservations15 made by the contracting state. So, it is possible that a contracting state will not apply Article 3 of the MLI Convention to any of the treaties it covers.16 3.2

Rules of Determining Tax Residence in case of Dual Resident Entities

The MLI Convention also applies to dual resident entities. Up until now, whenever an entity other than an individual was a resident according to both contracting states, the actual residence of such an entity was determined automatically by applying mechanisms provided for, among others, by the OECD17 Model Convention. However now, according to Article 4 of the MLI Convention, if, by reason of the provisions of a treaty covered by the Convention, a given entity (except for individuals) is a resident of more than one contracting jurisdiction, then the contracting parties must reach a mutual agreement as to which of the states the given entity will be a resident of (having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors). In the absence of such agreement, such person is not entitled to any relief or exemption from tax.

12 13 14 15 16

See Article 3(1) MLI. See Article 3(2) MLI. OECD Model Convention on Income and on Capital, abridged version of 21 November 2017. See Article 3(5) MLI. M. Kudlecki, Geneza i główne założenia Konwencji Wielostronnej OECD z 2016 roku implementującej środki traktatowego prawa podatkowego [Genesis and main assumptions of the 2016 OECD Multilateral Convention implementing treaty tax law measures], Młody Jurysta 2019/1. 17 M. Leconte, M. Raińczuk, Konwencja Wielostronna (above n. 1), p. 3; M. Kudlecki, Geneza i główne (above n. 16).

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3.3

Application of Methods to Avoid Double Taxation

The primary purpose of international income tax treaties is to promote the exchange of goods and services and the mobility of capital and individuals by avoiding double taxation.18 In principle, there are two solutions that are applied in treaties to counteract double taxation. The first solution is provisions and norms that give the right of taxation only to one of the contracting states, and under the second this right is granted to both contracting states. In the latter case, to avoid double taxation, an appropriate method to avoid double taxation should be applied (exemption with progression or credit – tax credit).19 In the BEPS project it was emphasized that the exemption with progression method where income earned in the state of residence is exempt from tax, if at the same time this income is exempt from tax in the other state under the domestic laws of that state, may result in double non-taxation of income.20 This should be prevented by proportional credit method, i.e. income that may be taxed in the second state should also be taxed in the state of residence, but the tax paid in the first state is proportionally deducted from tax paid in the state of residence.21 Under the MLI Convention it is possible to switch from the exemption with progression method to the proportional credit method (tax credit).22 According to BEPS Action 2 Report, Article 5 of the MLI Convention provides for three options (A, B and C) to resolve issues associated with the application of the exemption method. Under option A, where a given double taxation treaty requires the taxpayer’s state of residence to exempt from taxation income earned in the source state, and if the source state decides not to tax or significantly reduces taxation of such income, then the taxpayer’s state of residence has the right to apply proportional credit that could be applied to such income in the taxpayer’s state of residence (the so-called switch-over clause).23 If option B is selected, the state of residence has the right to apply the credit method instead of the exemption method to capital gains such as dividends that can be deducted from the

18 J. M. Jamroży, C. Krysiak, Zmiany umów (above n. 7). 19 Ibid. 20 Uzasadnienie do projektu ustawy o ratyfikacji Konwencji wielostronnej implementującej środki traktatowego prawa podatkowego mające na celu zapobieganie erozji podstawy opodatkowania i przenoszeniu zysku, sporządzonej w Paryżu dnia 24 listopada 2016 r. [Explanatory Memorandum to the Bill on the Ratification of the Multilateral Convention Implementing Measures of Treaty Tax Law to Prevent Tax Base Erosion and Profit Shifting, done in Paris on 24 November 2016], Parliamentary Print No. 1776; hereinafter, Parliamentary print 1776. 21 Ibid. 22 See A. Franczak, Konwencja Wielostronna (MLI) (above n. 1), pp. 9–22. 23 B. Bacia, P. Toporowski, Instrument wielostronny MLI – nowa era w międzynarodowym prawie podatkowym [MLI multilateral instrument – a new era in international tax law], Przegląd PrawnoEkonomiczny, no. 42 (2018/1), p. 166.

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

tax base in the source state. Option B focuses only on income considered dividends. Option C, based on Article 23B of the OECD Model Convention, provides for the exemption method under given double taxation treaties to be replaced with the proportional credit method. Thus, if, according to a double taxation treaty, a taxpayer’s income earned in one of the contracting states is exempt from taxation in that state, then the other state may, when assessing the amount of tax on the remaining income or property of such a person, include the exempted income or property in the tax base.24 In this regard the MLI Convention provisions may significantly limit the application of the exemption method, especially in cases where it could lead to double non-taxation of income. 3.4

Amendments to Tax Treaties’ Preambles

One of the key problems of international tax law is the international corporations’ abuse of particular double taxation treaties. Hence, the third part of the MLI Convention is devoted to preventing and countering treaty abuse. The solutions provided for in this part were proposed in the BEPS Action 6 Report – Preventing the Granting of Treaty Benefits in Inappropriate Circumstances.25 The MLI Convention, under Article 6(1), which is the minimum standard, provides that the preambles of tax treaties covered by the convention should be replaced by the following, or the following should be included in the preambles: Intending to conclude a Convention for the elimination of double taxation with respect to taxes on income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Convention for the indirect benefit of residents of third States). Furthermore, Article 6(3) of the MLI Convention provides the states with the option to include in the preambles a statement of their intention to develop bilateral economic relations or to enhance cooperation in tax matters. It is only to this extent the contracting states may declare that Article 6(3) of the MLI Convention does not apply to notified tax treaties.

24 Ibid. 25 OECD (2015), Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 – 2015. Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264241695-en (downloaded on 15.10.2021).

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3.5

Principal Purpose Test (PPT) Clause and Limitation on Benefits (LOB) Provision

The MLI Convention points out that it is necessary to limit the possibility of using tax treaty benefits and to this end it introduces the principal purpose test (clause) or the Limitation on Benefits Provision.26 The PPT clause is to ensure that the provisions of double taxation treaties are applied in accordance with objects and purposes of those treaties. According to Article 7 of the MLI Convention, notwithstanding any provisions of a tax treaty, a benefit under the treaty will not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of a tax treaty. The PPT clause explicitly provides for not granting treaty benefits. However, the clause fails to specify whether this means that the contracting state that grants the benefit should reconstruct a structure or a transaction in accordance with its actual course and ultimately apply a relevant distributive provision of the tax treaty.27 Practically speaking, there are doubts as to whether in this respect the PPT clause is of a strictly penalizing nature, or whether it should be construed precisely as a corrective rule, which requires the contracting state to apply the correct provision under the treaty.28 This is also widely criticized in the subject literature.29 In addition, among practitioners and scholars alike the following passage from the PPT clause raises serious doubts: ‘obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit’. This is the so-called subjective criterion for the application of the PPT30 clause. The assumption here should be that, in accordance with the OECD commentary to the PPT clause included in the BEPS Action 6 Report and the OECD commentary

26 See A. Franczak, Konwencja Wielostronna (MLI) (above n. 1), pp. 9–22. 27 C. Taboada, OECD Base Erosion and Profit Shifting Action 6: The General Anti-Abuse Rule, Bulletin for International Taxation, 10/2015, p. 606. 28 F. Majdowski, Principle Purpose Test – nowa klauzula antyabuzywna do zwalczania nadużycia umów o unikaniu podwójnego opodatkowania. Niewygodne (i zapomniane) pytania [Principle Purpose Test – a new anti-abuse clause for double tax treaties. Uncomfortable (and forgotten) questions], Monitor Podatkowy 2017/11, pp. 25 et seq. 29 M. Lang, BEPS Action 6: introducing an antiabuse rule in tax treaties, Tax Notes International, 74/2014, p. 661; L. De Broe, J. Luts, BEPS Action 6: tax treaty abuse, Intertax, 2/2015, p. 133; C. Taboada, OECD Base Erosion (above n. 27). 30 M. Boniecka, P. Sołtysiak, Wybrane aspekty prawne i podatkowe dotyczące klauzuli PPT [Selected legal and tax aspects concerning the PPT clause], Przegląd Podatkowy, 2018/10, pp. 41–51.

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

to Article 29(9) of the OECD Model Convention, that obtaining benefits under a given tax treaty does not necessarily have to be the sole or predominant purpose of a particular structure or transaction.31 To apply this instrument, it is enough for at least one of the main purposes to be to obtain a benefit. Another aspect of the application of the PPT clause that requires addressing is the correlation between the application of the clause by one state, for example the source state, and the possible reaction of the other state – in this case the state of residence – as a response to such increased double taxation.32 If the latter state disagrees with the application of the PPT clause by the former, or considers itself entitled to apply it, then it would seem that the possible dispute should be resolved through the mutual agreement procedure.33 The parties to the Convention also have the possibility to condition the granting of tax benefits (e.g. application of a reduced withholding tax rate) upon the fulfilment of additional conditions relating to the organizational form, the ownership structure, or the manner of conducting business. The LOB clause is the so-called extended, optional variant of protection against aggressive tax planning provided for in Article 7 of the MLI Convention. The requirement for a given entity to comply with the conditions under the LOB clause (Articles 7(8–12) of the MLI) is intended to ensure that tax benefit is granted to an entity that can actually be considered a resident of a contracting state. 3.6

Withholding Tax on Dividend Payments

The MLI Convention provides for the criterion of a minimum period of holding shares, voting rights or similar ownership interests of the company paying dividends. This provision makes the application of an exemption (or a reduced tax rate) in the dividend source state by the entity that receives the dividend conditional upon a minimum period (365 days) of holding shares, voting rights or similar ownership interests in the company that pays the dividend.34 Pursuant to Article 8(1) of the MLI Convention, if the provisions of treaties covered by the Convention exempt dividends paid by a company which is a resident of one of the party to the MLI Convention from tax, or if those provisions allow taxation of such dividends at a reduced rate, and the condition for that exemption (relief) is that the beneficial

31 OECD/G20, Base Erosion and Profit Shifting Project, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances. Action 6: 2015 Final Report, 5.10.2015, commentary on the PPT Clause, paragraph 12, p. 58; paragraph 180 of the commentary on Article 29(9) of the OECD ICC, OECD, November 2017, p. 591. 32 F. Majdowski, Principle Purpose Test (above n. 28). 33 Ibid. 34 See A. Franczak, Konwencja Wielostronna (MLI) (above n. 1), pp. 9–22.

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owner or the recipient is a company which is a resident of the other MLI Convention party and which owns, holds or controls more than a certain amount of the capital, shares, stock, voting power, voting rights or similar ownership interests of the company paying the dividends, in an amount exceeding the minimum limit specified in the treaty covered by the MLI Convention, those provisions will apply only if the ownership conditions specified in those provisions are complied with for a period of 365 days.35 3.7

Real Property Clause

Article 9 of the MLI Convention changes the rules of taxation of the so-called real estate companies. The intention is to ultimately amend tax treaties that correspond to Article 13 of the OECD36 Model Convention, and extend the application of those treaties to, among others, partnerships. According to art. 9 of the MLI Convention, provisions of tax treaties that stipulate that gains derived by a resident of a contracting state from the alienation of shares or other rights of participation in an entity may be taxed in the other contracting state provided that these shares or rights derived more than a certain part of their value from immovable property (real property) situated in that other contracting state (or provided that more than a certain part of the property of the entity consists of such immovable property (real property), will apply if: − the value threshold is met at any time during the 365 days preceding the alienation; and − will apply to shares or comparable interests, such as interests in a partnership or trust (to the extent that such shares or interests are not already covered) in addition to any shares or rights already covered by the provisions.37 3.8

Anti-abuse Rule for Permanent Establishments Situated in Third Jurisdictions

Article 10 of the MLI Convention provides for a rule that where an enterprise of one of the contracting states derives income from the other contracting state and the first-mentioned contracting state treats such income as attributable to a permanent establishment of the enterprise situated in a third jurisdiction, and where the profits attributable to that permanent establishment are exempt from tax in the firstmentioned contracting state, treaty benefits will not apply to any item of income

35 M. Jamroży, C. Krysiak, Zmiany umów (above n. 7). 36 M. Leconte, M. Raińczuk, Konwencja Wielostronna (above n. 1), p. 5. 37 B. Bacia, P. Toporowski, Instrument wielostronny (above n. 23).

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

on which the tax in the third jurisdiction is less than 60 per cent of the tax that would be imposed in the first-mentioned contracting state on that item of income if that permanent establishment was situated in the first-mentioned contracting state. In such a case, any income will remain taxable according to the domestic law of the other contracting state, notwithstanding any other provisions of the treaty.38 However, according to Article 10(2) of the MLI Convention, the above will not apply if the income derived from the other contracting state is derived in connection with or is incidental to the active conduct of a business carried on through the permanent establishment (other than the business of making, managing or simply holding investments for the enterprise’s own account, unless these activities are banking, insurance or securities activities carried on by a bank, insurance enterprise or registered securities dealer, respectively). On the other hand, according to Article 10(3) of the MLI Convention, if benefits under a covered tax treaty are denied pursuant to Article 10(1) with respect to an item of income derived by a resident of a contracting state, the competent authority of the other contracting state may, nevertheless, grant these benefits with respect to that item of income if, in response to a request by such resident, such competent authority determines that granting such benefits is justified in light of the reasons why such resident did not satisfy the requirements of Article 10(1 and 2) of the MLI Convention. 3.9

The Right to Tax One's Own Residents (savings clause)

Article 11 of the MLI Convention provides for a safeguard that comes in the form of the so-called savings clause to secure the right of a given contracting state to tax its own tax residents. According to Article 11(1) of the MLI Convention, a tax treaty covered by the MLI Convention will not affect the taxation by a Contracting Jurisdiction of its residents, except for with respect to the benefits granted under provisions of the tax treaty. The purpose of the savings clause introduced by the MLI Convention is, on the one hand, to emphasize that by rule a contracting state has the right to tax its residents in accordance with its domestic law (most provisions of tax treaties provide for limitation of taxation of residents of other states), but also to specify what are the exceptions to this rule that arise directly from the treaty (e.g. as regards corresponding adjustments or persons who receive pensions from the other state).

38 Ibid.

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3.10

Avoidance of Permanent Establishment Status

The MLI Convention introduces important, comprehensive provisions that address a frequent problem in international tax law – artificial avoidance of permanent establishment status by taxpayers to avoid territorial attribution of income generated by the permanent establishment to the jurisdiction where the permanent establishment is located39 . Agency agreements are essential elements of strategies to artificially avoid permanent establishment status, as highlighted in the BEPS Final Report. Agency agreements were particularly important given the narrow definition of a tied agent specified in the OECD Model Convention. In this regard, Article 12 of the MLI Convention stipulates that where a person is acting in a contracting state on behalf of an enterprise and, in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, and these contracts are: − in the name of the enterprise; or − for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use; or − for the provision of services by that enterprise, that enterprise will be deemed to have a permanent establishment in that contracting state in respect of any activities which that person undertakes for the enterprise unless these activities, if they were exercised by the enterprise through a fixed place of business of that enterprise situated in that contracting state, would not cause that fixed place of business to be deemed to constitute a permanent establishment under the definition of permanent establishment included in the covered tax treaty. Hence, to determine whether the entity’s action created a permanent establishment it will be crucial for the entity to negotiate essential elements and details of the contract that will be binding on the foreign principal. Furthermore, to determine whether the entity’s action may be considered action of a non-tied agent it will be crucial to determine whether or not the entity remains closely related to the enterprise.40 According to Article 15 of the MLI Convention, a person is presumed to be closely related to an enterprise if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same persons or enterprises. In any case, a person is considered to be closely related to an enterprise if one possesses directly or indirectly more than 50 per cent of the beneficial interest 39 See OECD, Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7-2015 Final Report 9-13 (2015), http://oecd-library.org/docserver/download/2315341e.pdf (downloaded on 15.10.2021). 40 See A. Franczak, Konwencja Wielostronna (MLI) (above n. 1), pp. 9–22.

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

in the other (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) or if another person possesses directly or indirectly more than 50 per cent of the beneficial interest (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) in the person and the enterprise. Therefore, cases where it is considered that a permanent establishment has not been created will be very rare. 3.11. Improving Dispute Resolution Part five of the MLI Convention introduces provisions implementing the recommendations of the BEPS Report Action 14, based on Articles 9 and 25 of the OECD Model Convention. The purpose of those provisions is to introduce mutual agreement (Article 16 of the MLI Convention as a minimum standard) and corresponding adjustments (Article 17 of the MLI Convention) procedures.41 The Mutual Agreement Procedure (MAP) is an indispensable element of bilateral tax treaties that enables effective resolution of disputes on the interpretation of tax treaties between contracting states. Based on Article 25 of the OECD Model Convention, the MAP procedure provides for two types of proceedings – at the individual request of the person concerned, and ex officio in general matters of interpretation of tax treaty provisions or double taxation.42 However, whether the application of those provisions will be effective depends on a number of factors, as their weakness is that there is no contracting states’ legal obligation to resolve the matter under the MAP (formally, the contracting states must ‘endeavor’ to settle the case by mutual agreement).43 According to Article 16(1) of the MLI Convention, where a person considers that the actions of one or both of the contracting states result or will result for that person in taxation not in accordance with the provisions of the treaty covered by the Convention, that person may, irrespective of the remedies provided by the domestic law of those contracting states, present the case to the competent authority of either contracting state. The MLI Convention also stipulates, in Article 16(2) and (3), that: − under the mutual agreement procedure, the case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the treaty covered by the Convention; 41 OECD (2015), Making Dispute Resolution Mechanisms More Effective, Action 14 – 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, http://dx.doi. org/10.1787/9789264241633-en (downloaded on 15.10.2021). 42 M. Jamroży, C. Krysiak, Zmiany umów (above n. 7). 43 Ibid.

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− the competent authority will endeavor, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other contracting state, with a view to the avoidance of taxation which is not in accordance with the treaty covered by Convention; − an agreement reached this way must be implemented notwithstanding any time limits in the domestic law of the contracting states; − competent authorities of the contracting states must endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the treaty covered by the Convention; − the competent authorities of the contracting states may also consult together for the elimination of double taxation in cases not provided for in the treaty covered by the Convention.44 What is important, Article 16 of the MLI Convention gives certain flexibility to the parties to the Convention as regard some of the solutions under the international standard by providing for a number of reservations that allow not to adopt certain solutions, provided that the BEPS international standard for improving the efficiency of tax dispute resolution is nevertheless met by different means.45 The corresponding adjustments mechanism is implemented under Article 17 of the MLI Convention. According to this mechanism, if a contracting state includes in the profits of an enterprise of that contracting state – and taxes accordingly – profits on which an enterprise of the other contracting state has been charged to tax in that other contracting state and the profits so included are profits which would have accrued to the enterprise of the first-mentioned contracting state if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other contracting state must make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard must be had to the other provisions of the treaty covered by the Convention and the competent authorities of the contracting states must – if necessary – consult each other.

44 See A. Franczak, Konwencja Wielostronna (MLI) (above n. 1), pp. 9–22. 45 C. Krysiak, Rozstrzyganie międzynarodowych sporów podatkowych dotyczących interpretacji umów o unikaniu podwójnego opodatkowania [Settlement of international disputes concerning courts interprets agreements on the avoidance of double law], in: Regulacje w zakresie unikania opodatkowania. Komentarz praktyczny [Regulations on the avoidance of exclusion. Practical Commentary], (ed.) A. Mariański, Warsaw 2020.

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

3.12

Arbitration

States that ratify the MLI Convention may also adopt arbitration solutions the Convention provides for. Arbitration is a procedure that is intended to be a complementary solution to the MAP. According to Article 19 of the MLI Convention, which lays down the basic provisions on the arbitration procedure, an entity whose case has not been resolved within two years as of the date on which the case was presented before the competent authority under the MAP procedure will have the right to bring the case for arbitration. Article 23 of the MLI Convention specifies what the possible types of arbitration proceedings are. First, there is the possibility to conduct the ‘best offer arbitration’46 procedure. This means that the competent authorities of the contracting states will submit to the arbitration panel a proposed resolution which addresses all unresolved issues in the case.47 According to Article 23(1)(c) of the MLI Convention, the arbitration panel selects as its decision one of the proposed resolutions for the case submitted by the competent authorities with respect to each issue and any threshold questions and does not include a rationale or any other explanation of the decision. The arbitration decision is adopted by a simple majority of the panel members. The arbitration panel delivers its decision in writing to the competent authorities of the contracting states. The arbitration decision has no precedential value. The second possibility is an independent decision by the arbitrators. Under this type of procedure, the arbitrators’ final decision is based on an independent analysis of available evidence. The arbitration panel may make its own decision based on the information presented to it and based on the provisions of relevant treaties and relevant domestic laws.48 The arbitration panel’s decision is legally binding and final unless the competent authority resolves the dispute by other means within three months as of the moment on which the arbitration decision is served. Considering the growing number of double taxation disputes, MLI Convention provisions to improve the efficiency of the mechanisms for resolving such disputes should be considered an important and necessary initiative. Unfortunately, more than three years since the MLI Convention has become effective, it seems that the parties to the Convention have little interest in the arbitration solutions.

46 M. Laskowska, Rozstrzyganie sporów dotyczących podwójnego opodatkowania [Settlement of double taxation disputes], Przegląd Podatkowy, 2020/2, p. 18. 47 Ibid. 48 M. Laskowska, Rozstrzyganie sporów (above n. 46), p. 18.

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4.

Amendments to Bilateral Tax Treaties made by the MLI Convention

Considering past experience, adoption of the MLI Convention by the vast majority of OECD members is a breakthrough both politically and legally. The political dimension touches upon the fiscal interests of each of the members. In terms of legal matters, the revolutionary nature of the MLI Convention is even more evident. The concept that an act of international law automatically changes ultimately thousands of double taxation treaties is precedent-setting. The ultimate impact of the MLI Convention on specific tax treaties is different and depends on each of the signatories’ approach. This is because the main feature of the MLI Convention is its flexibility which is due to the possibility of applying a system for shaping the version and the extent to which MLI Convention contracting states can adopt it. In order to tell whether the MLI Convention affects a given tax treaty and – if it does – to what extent, one may use the matching database published on the OECD website.49 Consequently, in order to determine to what extent a given tax treaty notified to the MLI Convention will be amended, it is necessary to analyze the forms submitted by the Convention parties. Tax treaties can be amended in many ways: direct application, replacement of existing provisions, addition of new provisions, or replacement of existing provisions, insofar as incompatible with the MLI Convention.50 Undoubtedly, the nature of the MLI Convention and its impact on bilateral tax treaties is a source of many interpretation problems for taxpayers. Additionally, as the MLI Convention has entered into force, the process of tax law construction and application has become more difficult due to preambles introduced into those treaties, which specify the objectives of the treaties, and a possible outcome of this may be that taxpayers who abuse the treaties are refused treaty benefits. Since the MLI Convention has entered into force, the tax situation of a given entity must be assessed based not only on tax laws or bilateral tax treaties, but also with the provisions of the Convention considered, which, to a degree decided by the contracting states, modify bilateral tax treaties.51 Importantly, MLI Convention regulations – in terms of application – supersede domestic laws and tax treaties between the parties.

49 https://www.oecd.org/tax/treaties/mli-matching-database.htm (downloaded on 17.10.2021). 50 N. Bravo, The Mauritius Convention on Transparency and the Multilateral Tax Instrument: models for the modification of treaties?, Transnational Corporations 2018, no. 3, p. 92 et seq., https://unctad. org/en/PublicationChapters/diaeia2018d5a5_en.pdf, 27.07.2021. 51 See A. Franczak, Konwencja Wielostronna (MLI) (above n. 1), pp. 9–22.

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

5.

Poland's Position on the Application of the MLI Convention to Bilateral Tax Treaties

Poland is a party to tax treaties with all jurisdictions that have deposited the instrument of ratification, except for the Principality of Monaco. Poland did not notify tax treaties with Jersey and the Isle of Man as treaties covered by the MLI Convention, which means that those treaties will remain unchanged52 . As far as the regulations that provide for the minimum standard of the MLA Convention are concerned, first of all most tax treaties entered into by Poland do not contain preambles; this is because until recently there have been no recommendations concerning this in documents such as the OECD Model Convention.53 Considering the forms submitted by other MLI Convention signatories and Poland’s position, preambles that refer to the intention of eliminating double taxation included in the tax treaties were replaced or supplemented by the wording specified in Article 6(1) of the MLI Convention. As regards Article 7 of the MLI Convention, Poland has opted to apply the PPT clause. However, Poland did not exclude a possibility to adopt the LOB clause through bilateral negotiations. Clauses that limit treaty benefits are rare in Polish treaty practice. Exceptions are double taxation treaties between Poland and Saudi Arabia, Belgium, Bosnia and Herzegovina, Ethiopia, India, Israel, South Korea, Malta, Malaysia, Singapore, Slovakia, Sweden, the United States, Great Britain, and United Arab Emirates.54 In addition, regulations that concern this area are normatively non-uniform.55 Most of them, like Article 7 of the MLI Convention,

52 See in more detail: Z. Kukulski, Umowy o unikaniu podwójnego opodatkowania niektórych kategorii dochodów osób fizycznych [Agreements on avoiding double taxation of certain categories of income of natural persons], Kwartalnik Prawa Podatkowego 2014/1, pp. 17–43; Z. Kukulski, Umowy o unikaniu podwójnego opodatkowania w odniesieniu do przedsiębiorstw eksploatujących statki morskie lub statki powietrzne w transporcie międzynarodowym w polskiej praktyce traktatowe [Agreements on avoidance of double taxation with respect to enterprises operating sea vessels or aircraft in international transport in Polish treaty practice], Kwartalnik Prawa Podatkowego 2014/ 3, pp. 7–22; Z. Kukulski, Antyabuzywne klauzule konwencji wielostronnej – nowa rzeczywistość bilateralnych umów podatkowych zawartych przez Polskę [Antiabusive clauses of a multilateral convention – new reality of bilateral tax treaties concluded by Poland], in: Współczesne problemy prawa podatkowego – teoria i praktyka. Księga jubileuszowa dedykowana Profesorowi Bogumiłowi Brzezińskiemu [Contemporary problems of tax law – theory and practice.Jubilee book dedicated to Professor Bogumił Brzeziński] (volume I), (ed.) J. Głuchowski, Warsaw 2019. 53 Ibid. 54 Ibid. 55 Z. Kukulski, Klauzule ograniczające korzyści wynikające z bilateralnych umów podatkowych w polskiej praktyce traktatowej [Clauses limiting the benefits of bilateral tax agreements in Polish treaty practice], Kwartalnik Prawa Podatkowego 2016/1, p. 47 et seq.

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refer to the basic (essential/main) purpose of establishing a given structure or consummating a transaction. Exceptions are double taxation treaties between Poland and the USA (a full clause limiting treaty benefits for non-entitled entities), Israel (a simplified clause limiting treaty benefits for non-entitled entities) and Sweden (a homogenous solution).56 As far as the mutual agreement procedure is concerned, Poland only reserves the right not to apply the first sentence of Article 16(1) of the MLI Convention. The argument behind this is that Poland will comply with the minimum standard concerning the improvement of dispute resolution as regards the equivalent of the first sentence of Article 16(1) of the MLI Convention in a given tax treaty by introducing a system of bilateral notifications or by developing another system of consultations with the competent authority of the other contracting state. The system will be used in cases where the taxpayer’s objection is unfounded, according to the opinion of one of the competent authorities. This means that in treaties Poland is a party to this provision will remain unchanged, i.e. it will correspond to the wording of Article 25(1) of the OECD Model Convention. As far as optional MLI Convention regulations are concerned, Poland decided to implement Article 3 of the Convention – which concerns tax transparent entities – into all the tax treaties covered by the Convention and Article 4 as well, which concerns double residence of entities other than individuals. As regards the double residence topic, under Article 4(4) of the MLI Convention Poland has notified the provisions of all tax treaties covered by the MLI Convention to replace the notified treaty provisions with Article 4(1). This means that any conflict of double residence of entities other than individuals will be resolved through the mutual agreement procedure.57 As regards tax treaties Poland is a party to, one of the most important effects of having acceded to the MLI Convention is that the method of exempting income from capital in the state of residence from taxation, whereas this income was taxable in the other state, was replaced with the proportional credit method, thus effectively eliminating the risk of double non-taxation of income. Poland opted for Option C, i.e. automatic implementation of the credit method in those tax treaties that provide for the use of the exemption method. However, option C will apply only to a dozen or so of the treaties notified by Poland; this is because of not only not signing the MLI Convention by the parties to some of the notified treaties or failing to notify their treaties with Poland, but also because of the reservation not to apply Article 5 to the notified agreements at all, an option quite often opted for by MLI Convention parties, or the reservation to render option C ineffective. This method

56 Ibid. 57 H. Litwińczuk, Międzynarodowe prawo podatkowe [International Tax Law], Warsaw 2020.

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

contradicts the principle of tax neutrality,58 sometimes making the countries that apply it less attractive in terms of possible investments, and so the reservations as to whether to apply Article 5 of the MLI Convention or not are not surprising. As regards Article 8 of the MLI Convention, which implements additional conditions for applying a reduced rate or exemption from withholding tax on dividend payments, Poland did adopt this Article, although under the condition that if any treaty provides for a period of holding shares, voting rights or similar rights in the company that pays the dividend longer than 365 days, this period must remain unchanged. Article 9 of the MLI Convention, which concerns the real property clause, was adopted by Poland to supplement the existing real property clauses in treaties that already contain this clause and to implement it in treaties that do not. As regards Article 10 of the MLI Convention, the treaty policy approach Poland has adopted provides that any provisions that concern taxation of a permanent establishment will be subject to bilateral negotiations. Accordingly, Poland reserved the right not to fully apply Article 10 of the MLI Convention to all tax agreements it is a party to, although this does not prevent Poland from acceding to the MLI Convention – as regards this provision – at a later date. Poland decided to adopt Article 11 of the MLI Convention fully, and with respect to all tax treaties it is a party to. To do this, Poland is not required to submit reservations/notifications. So far, Poland has not introduced this protection clause in its tax treaties. The only tax treaty signed that does contain such a provision is the treaty with the USA, although it still remains to enter into force. Articles 12–15 of the MLI Convention, which concern the avoidance of permanent establishment status, have been excluded from application to all tax treaties concluded by Poland. This reflects Poland’s position that any provisions concerning taxation of a permanent establishment will be subject to bilateral negotiations. Article 17 of the MLI Convention, which concerns corresponding adjustments, will be adopted by Poland, and implemented into treaties that currently do not contain such a provision. In treaties that will be negotiated in the future, Poland’s intention is to implement a provision equivalent to Article 9(2) of the OECD Model Convention which governs this issue.59 With regard to Articles 18–26 of the MLI Convention, which concern arbitration proceedings, Poland decided not to adopt those provisions, although a possible change of this decision in the future was not put out of the question. One of the reasons for this decision was the risk of substantial costs to be incurred by the state budget. 58 See M. J. Graetz, Taxing International Income: Inadequate Principles, Out-dated Concepts, and Unsatisfactory Policies, 54 Tax Law Review, 261–272, 2001; P. B. Richman, Taxation of Foreign Investment Income: An Economic Analysis, Baltimore 1963, pp. 37–56. 59 H. Litwińczuk, Międzynarodowe prawo (above n. 57).

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The final provisions (Articles 27–39 of the MLI Convention) were fully adopted by Poland.

6.

Summary

As opposed to prior changes of international tax law that focused on the application of ‘soft’ rules and the acceptance of those rules by individual states, the current changes (including the development of the automatic exchange of tax information standard and the BEPS project) in terms of legal construction are truly groundbreaking.60 The number of states that have acceded or intend to accede to the MLI Convention proves that the Convention is key in shaping treaty-based solutions to prevent tax base erosion and profit shifting.61 However, the approach of individual states to the MLI Convention varies considerably. In addition, as shown not only by the Polish case, the narrow definition of the minimum standard makes it possible to exclude many key solutions which could positively affect the application of international tax law.

References Legal acts Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, done at Paris on 24 November 2016, J. of L. 2018, item 1369. Ustawa z dnia 29 września 2017 r. o ratyfikacji Konwencji wielostronnej implementującej środki traktatowego prawa podatkowego mające na celu zapobieganie erozji podstawy opodatkowania i przenoszeniu zysku, sporządzonej w Paryżu dnia 24 listopada 2016 r. [Act of 29 September 2017 on the Ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, done at Paris on 24 November 2016 ] J. of L. 2017, item 2104. Vienna Convention on the Law of Treaties, done at Vienna on 23 May 1969, J. of L. 1990, No. 74, item. 439.

60 I. J. Mosquera Valderrama, BEPS principal purpose test and customary international law, Leiden Journal of International Law (2020), pp. 1–22. 61 Z. Kukulski, Antyabuzywne klauzule (above n. 52).

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

Literature Bacia B., Toporowski P., Instrument wielostronny MLI – nowa era w międzynarodowym prawie podatkowym [MLI multilateral instrument – a new era in international tax law], Przegląd Prawno-Ekonomiczny, no. 42 (2018/1). Boniecka M., Sołtysiak P., Wybrane aspekty prawne i podatkowe dotyczące klauzuli PPT [Selected legal and tax aspects concerning the PPT clause], Przegląd Podatkowy, 2018/10. Bravo N., The Mauritius Convention on Transparency and the Multilateral Tax Instrument: models for the modification of treaties?, Transnational Corporations 2018/3. Czerwiński M. , Wieśniak-Wiśniewska A. , Świat podatków po projekcie BEPS i jego wpływ na polskich podatników [The world of taxes after the BEPS project and its impact on Polish taxpayers], Przegląd Podatkowy, 2016/6. De Broe L.,Luts J., BEPS Action 6: tax treaty abuse, Intertax, 2/2015. Franczak A., Konwencja Wielostronna (MLI) – podatkowa ewolucja czy rewolucja? [Multilateral Convention (MLI) – tax evolution or revolution?] Studia Iuridica Lublinensia 2018/2. Graetz M.J., Taxing International Income: Inadequate Principles, Out-dated Concepts, and Unsatisfactory Policies, 54 Tax Law Review. Jamroży J.M., Krysiak C., Zmiany umów o unikaniu podwójnego opodatkowania związane z wielostronną Konwencją implementującą środki traktatowego prawa podatkowego (MLI) [Amendments to treaties on avoidance of double taxation related to the multilateral Convention implementing measures of the treaty tax law (MLI], in: Nowe narzędzia prawne w podatkach dochodowych i majątkowych. Poprawa efektywności systemu podatkowego [New legal tools in income and property taxes. Improving the efficiency of the tax system] (eds.): Brzeziński B., Lasiński-Sulecki K., Morawski W., Warszawa, 2018. Kleist D., The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS – Some Thoughts on Complexity and Uncertainty, Nordic Tax Journal 2018/1. Krysiak C., Rozstrzyganie międzynarodowych sporów podatkowych dotyczących interpretacji umów o unikaniu podwójnego opodatkowania [Settlement of international disputes concerning courts interprets agreements on the avoidance of double law], in: Regulacje w zakresie unikania opodatkowania. Komentarz praktyczny [ Regulations on the avoidance of exclusion. Practical Commentary], (ed.) Mariański A., Warsaw 2020. Kudlecki M., Geneza i główne założenia Konwencji Wielostronnej OECD z 2016 roku implementującej środki traktatowego prawa podatkowego [Genesis and main assumptions of the 2016 OECD Multilateral Convention implementing treaty tax law measures], Młody Jurysta 2019/1. Kukulski Z., Umowy o unikaniu podwójnego opodatkowania niektórych kategorii dochodów osób fizycznych [Agreements on avoiding double taxation of certain categories of income of natural persons], Kwartalnik Prawa Podatkowego 2014/1. Kukulski Z., Umowy o unikaniu podwójnego opodatkowania w odniesieniu do przedsiębiorstw eksploatujących statki morskie lub statki powietrzne w transporcie międzynar-

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odowym w polskiej praktyce traktatowe [Agreements on avoidance of double taxation with respect to enterprises operating sea vessels or aircraft in international transport in Polish treaty practice], Kwartalnik Prawa Podatkowego 2014/3. Kukulski Z., Antyabuzywne klauzule konwencji wielostronnej – nowa rzeczywistość bilateralnych umów podatkowych zawartych przez Polskę [Antiabusive clauses of a multilateral convention – new reality of bilateral tax treaties concluded by Poland], in: Współczesne problemy prawa podatkowego – teoria i praktyka. Księga jubileuszowa dedykowana Profesorowi Bogumiłowi Brzezińskiemu [Contemporary problems of tax law – theory and practice.Jubilee book dedicated to Professor Bogumił Brzeziński] (volume I), (ed.) Głuchowski J., Warsaw 2019. Lang M., BEPS Action 6: introducing an antiabuse rule in tax treaties, Tax Notes International, 74/2014. Laskowska M., Rozstrzyganie sporów dotyczących podwójnego opodatkowania [Settlement of double taxation disputes], Przegląd Podatkowy, 2020/2. Leconte M., Raińczuk M., Konwencja Wielostronna (BEPS działanie nr 15) – omówienie najistotniejszych zagadnień [Multilateral Convention (BEPS action No. 15) – a discussion of the most relevant issues], Monitor Podatkowy 2017/5. Litwińczuk H., Międzynarodowe prawo podatkowe [International Tax Law], Warsaw 2020. Majdowski F., Principle Purpose Test – nowa klauzula antyabuzywna do zwalczania nadużycia umów o unikaniu podwójnego opodatkowania. Niewygodne (i zapomniane) pytania [Principle Purpose Test – a new anti-abuse clause for double tax treaties. Uncomfortable (and forgotten) questions], Monitor Podatkowy 2017/11. OECD Model Convention on Income and on Capital, abridged version of 21 November 2017. OECD/G20, Base Erosion and Profit Shifting Project, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances. Action 6: 2015 Final Report, 5.10.2015, commentary on the PPT Clause, paragraph 12, p. 58; paragraph 180 of the commentary on Article 29(9) of the OECD ICC, OECD, November 2017. Opinia do ustawy o ratyfikacji Konwencji wielostronnej implementującej środki traktatowego prawa podatkowego mające na celu zapobieganie erozji podstawy opodatkowania i przenoszeniu zysku, sporządzonej w Paryżu dnia 24 listopada 2016 r. [Opinion to the Act on the Ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, done at Paris on 24 November 2016], Legislative Office of the Senate Chancellery, print 606. Oświadczenie rządowe z 6.06.2018 r. w sprawie mocy obowiązującej MLI implementującej środki traktatowego prawa podatkowego mające na celu zapobieganie erozji podstawy opodatkowania i przenoszeniu zysku, sporządzonej w Paryżu 24.11.2016 r. [Government Statement of 6.06.2018 on the validity of the MLI implementing measures of the treaty tax law to prevent erosion of the tax base and profit shifting, effected in Paris on 24.11.2016 ], J. of L. 2018, item 1370.

The impact of the MLI Convention on bilateral tax treaties – a Polish perspective

Richman P.B., Taxation of Foreign Investment Income: An Economic Analysis, Baltimore 1963. Taboada C., OECD Base Erosion and Profit Shifting Action 6: The General Anti-Abuse Rule, Bulletin for International Taxation, 10/2015. Uzasadnienie do projektu ustawy o ratyfikacji Konwencji wielostronnej implementującej środki traktatowego prawa podatkowego mające na celu zapobieganie erozji podstawy opodatkowania i przenoszeniu zysku, sporządzonej w Paryżu dnia 24 listopada 2016 r. [Explanatory Memorandum to the Bill on the Ratification of the Multilateral Convention Implementing Measures of Treaty Tax Law to Prevent Tax Base Erosion and Profit Shifting, done in Paris on 24 November 2016], Parliamentary Print No. 1776; hereinafter, Parliamentary Print No. 1776.

Netography http://www.oecd.org/tax/beps/background-brief-inclusive-framework-for-beps-implementation.pdf https://www.oecd.org/tax/treaties/beps-mli-signatories-and-parties.pdf https://doi.org/10.1787/9789264241695-en http://oecd-library.org/docserver/download/2315341e.pdf http://dx.doi.org/10.1787/9789264241633-en https://www.oecd.org/tax/treaties/mli-matching-database.htm https://unctad.org/en/PublicationChapters/diaeia2018d5a5_en.pdf

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The search for effective instruments to combat fraud in the VAT sphere

1.

Introduction

One of the main problems of the VAT system in recent years has been the so-called VAT gap, in particular in the extent to which VAT fraud has contributed to its creation. Actions aimed at reducing the size of the VAT gap were taken by both the European Union institutions and the Polish legislator. The crackdown on VAT fraud required taking various actions. Some of them were predominantly legal in nature, while others involved some technicalities. Since 2011, the following solutions have been introduced: − the reverse charge mechanism in domestic transactions (which was subsequently eliminated in connection with the introduction of an obligatory split payment at the beginning of November 2019), − joint and several liability of purchasers of certain goods, − and the split payment mechanism. The provisions concerning the following have significantly been changed: − registration for VAT purposes, − submission of VAT returns and recapitulative statements. Important changes have also been provided for in the European Union law.

2.

Registration for VAT purposes

Under the provisions of the amending act, the regulations concerning the registration of entities for VAT purposes have been significantly extended, starting from 2017. The head of the tax office effects the registration after verifying the data provided in the registration application. Article 96(4a) of ustawa z dnia 11 marca 2004 r. o podatku od towarów i usług [the VAT Act]1 provides for obligatory, negative conditions for registration. Namely,

1 J. of L. of 2021, item 685, as amended.

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the head of the tax office does not register the entity as a VAT taxpayer without the necessity to notify the entity if: 1) the data provided in the registration application are not true, or 2) the entity does not exist, or 3) despite documented attempts, it is not possible to contact the entity or its representative, or 4) the entity and its representative do not comply with the summonses of the head of the tax office (this provision and the provision in paragraph 3 contain a logical error, which was pointed out by the General Counsel to the State Treasury during the legislative process – the word ‘and’ should have been replaced by the word ‘or’), or 5) the information available shows that the taxpayer may conduct activities with the intention to use the actions of banks within the meaning of Article 119zg(1) of ustawa z dnia 29 sierpnia 1997 r. – Ordynacja podatkowa [the law of 29 August 1997 – Tax Ordinance]2 or cooperative savings and credit unions for the purposes related to tax fraud within the meaning of Article 119zg(9) of the Tax Ordinance, or 6) the court has ruled a prohibition of conducting business activity against that entity, on the basis of separate regulations. If the above-mentioned conditions are met with respect to an already registered entity, they constitute an obligatory condition for deregistering the entity from the VAT register without the need to notify it (Article 96(9) of the VAT Act). A separate basis for removing the taxpayer from the register is provided for in Article 96(9a) of the VAT Act. The taxpayers who fulfil the following criteria are removed: 1) the taxpayer has suspended its economic activity under the provisions on freedom of economic activity for a period of at least six consecutive months, or 2) while being obliged to submit VAT returns, the taxpayer has not submitted such returns for three consecutive months or for a quarter (the taxpayer shall not be removed if, as a result of being summoned by the head of the tax office competent for the taxpayer, the taxpayer proves that it runs taxed business activities and submits the missing returns with no delay), or 3) the taxpayer submitted, for six consecutive months or two consecutive quarters, VAT returns in which he did not show sales or purchases of goods or services with amounts of tax to be deducted (the taxpayer shall not be removed if the failure to show sales or purchases of goods or services with amounts of tax to

2 J. of L. of 2021, item 1540, as amended.

The search for effective instruments to combat fraud in the VAT sphere

be deducted was, according to the taxpayer’s explanations, due to the nature of its business activity), or 4) the taxpayer issued invoices or correcting invoices documenting activities which have not been carried out (the taxpayer shall not be removed where the issue of an invoice or correcting invoice was the result of an error or occurred without the knowledge of the taxpayer), or 5) the taxpayer, in the course of his business activities, knew or had reasonable grounds to suspect that suppliers or purchasers directly or indirectly involved in the supply of the same goods or services were participating in unreliable accounting for tax with a view to obtaining an economic advantage. Changes have also been made with regard to the removal of entities registered for EU VAT from the register. The reason for the removal is the submission of a return for three consecutive months or a quarter, in which no sale, purchase of goods or services or import of goods with deductible amounts of tax is shown (Article 97(15) of the VAT Act). Similarly, removal occurs if the taxpayer did not submit recapitulative statements for three consecutive months, despite the existence of such an obligation (Article 97(15a) of the VAT Act). Such removal is communicated to the taxpayer by the head of the tax office. The provisions on the registration for VAT purposes should undoubtedly be applied taking into account the case law of the Court of Justice. The refusal of registration was an issue in the judgment of 14 -March 2013 in the case C-527/ 11 Valsts ieņēmumu dienests v Ablessio SIA (EU:C:2013:168) in which the Court considered that Articles 213, 214, and 273 of the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (the VAT Directive)3 must be interpreted as precluding the tax authority of a Member State from refusing to allocate a VAT identification number to a company on the sole ground that, in the opinion of that authority, it does not have the material, technical, and financial resources to carry out the economic activity notified, and that the owner of the shares in that company has previously been allocated such a number on several occasions to other undertakings which did not carry out any real economic activity and whose shares were transferred to other persons shortly after the receipt of that number, if the tax authority concerned does not establish, in the light of objective factors, that there are serious grounds for suspecting that the tax identification number allocated for VAT purposes will be used for fraudulent purposes.4

3 OJ L 347 11.12.2006, p. 1. 4 See also P. Mikuła, Skomplikowane uszczelnianie – kilka uwag na temat nowelizacji ustawy o podatku od towarów i usług w zakresie rejestracji podatników [Complicated sealing – a few comments on the amendment to the act on tax on goods and services in the field of taxpayer registration], in: B. Brzeziński, K. Lasiński-Sulecki and W. Morawski (ed.), Poprawa efektywności system podatkowego.

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3.

Joint and several liability of the entity's proxy at registration for VAT purposes

It is worth noting that as of 1 January 2017, regulations on the tax liability of the taxpayer’s representative at registration were also introduced. As provided for in Article 96(4b) of the VAT Act, in the case of registering a taxpayer whose registration application was submitted by a representative, the representative is jointly and severally liable with the registered taxpayer for up to the amount of PLN 500,000 for the taxpayer’s tax arrears arising from activities performed within six months of the date of registering the taxpayer as an active VAT taxpayer. The above provision does not apply if the occurrence of tax arrears was not connected with the taxpayer’s participation in unreliable tax settlement for the purpose of obtaining a financial benefit. The non-application results from Article 96(4c) of the VAT Act. The above regulation raises doubts as to the compliance with the EU law, because the responsibility of the representative is completely independent of his/her awareness of any fraudulent intentions of the taxpayer or exercising due diligence in the verification of the principal.

4.

Single audit file

The introduction of the obligation upon taxpayers to submit a single audit file (JPK) of value added tax was a significant change, yet largely technical. A JPK is a set of information on purchases and sales, which results from the VAT records for a given accounting period. A JPK is submitted in electronic form by the 25th day of the month following the end of the month which is the settlement period to which the JPK relates. Even those taxpayers who may submit VAT returns on a quarterly basis submit the JPK on a monthly basis. A single audit file sent electronically allows the tax authorities to quickly identify discrepancies in transactions declared by counterparties. Its purpose is to gradually replace the obligation to submit tax returns.

5.

Returns and recapitulative statements

By the end of 2016, virtually all taxpayers could submit returns on a quarterly basis as long as they complied with certain formal requirements. After the amendment,

Nowe narzędzia prawne w VAT i akcyzie [Improving the efficiency of the tax system. New legal tools in VAT and excise duty], Warszawa 2018, p. 57 et seq.

The search for effective instruments to combat fraud in the VAT sphere

the quarterly returns can be submitted by small taxpayers – both those who settle using the cash accounting method and those who do not. Small taxpayers who have not opted for this method may submit their returns on a quarterly basis after prior written notification to the head of the tax office, at the latest by the 25th day of the second month of the quarter for which the quarterly tax return will be submitted for the first time. Quarterly settlements are not possible for new active taxpayers for a period of 12 months starting from the month in which the registration was made. Just as before the end of 2016, such a possibility is also not available to taxpayers who in a given quarter or in the preceding four quarters made supplies of the goods referred to in Annex 15 to the VAT Act (before November 2019 the list of goods was included in another Annex), unless the total value of those supplies without the amount of tax did not exceed, in any month of those periods, the amount of PLN 50,000 (Article 99(3a) of the VAT Act). Since 1 January 2017 an obligation to submit returns by electronic means of communication has been introduced (more in Article 99(11b) of the VAT Act). Pursuant to Article 100(3) of the VAT Act, recapitulative statements shall be submitted by electronic means of communication by the 25th day of the month following the month in which the tax obligation arose on account of the transactions established in Article 100(1) of the VAT Act, i.e.: 1. intra-Community supplies of goods, 2. intra-Community acquisitions of goods, 3. triangular supplies of goods, to VAT taxable persons or non-taxable legal persons identified for VAT purposes, 4. services to which Article 28b of the VAT Act applies, to VAT taxable persons or VAT non-taxable legal persons, identified for the purposes of value added tax, supplied in the territory of a Member State other than the territory of the country, other than those which are exempt from value added tax, or taxed at a rate of 0%, for which the recipient of the service is liable for payment of value added tax. The recapitulative information is corrected if any errors are also found by means of electronic communication (Article 101 of the VAT Act). The measures listed in this subchapter are intended to speed up the flow of data to the tax authorities, allowing quicker identification of entities that were created and registered exclusively or mainly for the purpose of fraudulent VAT.

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6.

Joint and several liability of purchasers of certain goods

The provisions on joint and several liability for certain goods have applied since 2013. These provisions have subsequently been amended several times. First of all, exemptions from joint and several liability have been modified. From 2020, joint and several liability may apply to purchasers of goods and recipients of services listed in Annex 15 to the VAT Act. A taxable person to whom a supply of goods referred to in Annex 15 to the VAT Act has been made shall be jointly and severally liable, together with the person making the supply for its tax arrears, in the proportion of the tax due on the supply made to it if, at the time of the supply, the taxable person knew, or had reasonable grounds to suspect, that all or part of the tax due on the supply made to it would not be paid into the account of the tax office (Article 105a(1) of the VAT Act). As provided for in Article 105a(2) of the VAT Act, the taxable person had reasonable grounds to suppose that the entire amount of tax due for the supply of goods made to it, or its part, would not be paid to the account of the tax office, if the circumstances surrounding the supply of goods or the conditions under which it was made differed from the circumstances or conditions normally governing the trade in such goods, in particular if the price for the goods supplied to the taxable person was, without economic justification, lower than their market value. Joint and several liability does not apply to engine petrol, diesel fuel, or gases intended for the propulsion of internal combustion engines, within the meaning of the legislation on excise duty, if: a) the acquisition is made at petrol stations or LPG stations for the standard tanks of vehicles used by the taxable persons purchasing these goods, for the propulsion of those vehicles, b) the supply of those goods is carried out by a taxable person supplying piped natural gas through his own transmission or distribution networks. Nor shall the joint and several liability of the purchasers apply if the tax arrears did not involve the participation of the supplier of goods, as referred to in paragraph 1, in the unreliable settlement of the tax for the purpose of a material gain. In particular, joint and several liability shall not apply to the acquisition of goods for which the taxpayer has paid by means of a split payment mechanism.

7.

The split payment mechanism

Taxable persons who have received an invoice with the amount of tax indicated may apply the split payment mechanism when paying the amount resulting from that invoice. However, if taxpayers have received an invoice in relation to the purchase of

The search for effective instruments to combat fraud in the VAT sphere

goods or services under Annex 15 to the VAT Act, and the receivables arising from that invoice exceed PLN 15,000, taxpayers are obliged to apply the split payment mechanism. If payment is made with the application of the split payment mechanism to a taxpayer other than that indicated in the invoice, the taxpayer to whom the payment is made shall be jointly and severally liable, together with the supplier of those goods or services, for the unpaid tax resulting from that supply of goods or services up to the amount received on the VAT account. Joint and several liability shall, however, be excluded if the person who received the payment reimburses it immediately after being informed of its receipt. The split payment mechanism consists in the fact that the funds paid for the acquisition of VAT goods or services go entirely or partly to a separate bank account of the supplier of goods or services. These funds may be used by the supplier of goods or services to a very limited extent – without the consent of the competent tax authority – for VAT settlements with tax authorities and counterparties.

8.

Assumptions for the definitive system

At about the same time as the legislative work was taking place in Poland, some conceptual and legislative work was taking place in the European Union. It was assumed that the VAT system would be modified. The definitive system would be adopted, under which the supply of goods and services would be taxed in the country of destination. The definitive system assumes: − liability of the supplier (supplier of services) for the payment of VAT, or liability of the purchaser (recipient of services) if it is a certified taxpayer, and − a single registration for the purposes of declaring, paying and deducting the tax.

9.

Certified taxable person

At present, taxpayers are identified for VAT purposes through their registration numbers. However, there is no distinction between fully trustworthy and less trustworthy taxpayers. Therefore the introduction of the institution of a certified taxable person has been proposed. After the entry into force of the rules on the certified taxable person, any taxpayer who is established in the Community (fixed establishment) or, in the absence of a registered office or a fixed establishment, has a fixed address (permanent place of residence) or has a habitual residence in the Community and who, in the course of its business, carries out or intends to carry out, any of the transactions listed in

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Article 17a, 20, and 21 or transactions which comply with the requirements under Article 138 of the VAT Directive, may apply to the tax authorities for the status of a certified taxable person. The tax authorities shall grant the status to the applicant if the conditions of the proposed Article 13a(2) are met, unless the applicant cannot obtain such status under Article 13a(3) of the VAT Directive. In order to obtain the status of a certified taxable person, the following conditions shall be met cumulatively in accordance with Article 13a(2): a) the absence of serious or repeated infringements of tax rules and customs legislation and recorded information on serious criminal offences linked to the applicant’s economic activity, b) the applicant’s demonstration of a high level of control over its operations and the movement of goods by means of a management system and, where appropriate, transport documents allowing proper tax control, or by reliable or certified internal audit data, c) proof of the applicant’s solvency, which shall be deemed to be proved if the applicant is financially sound enough to meet its obligations by virtue of the type of business activity concerned, or by the provision of a guarantee given by an insurance or other financial institution, or other economically reliable third parties. In the case of entities having the status of authorised economic operator (AEO) within the meaning of the customs legislation, the conditions of Article 13a(2) are deemed to be fulfilled (Article 13a(1) (3) of the VAT Directive). The customs status of an authorised economic operator is regulated in Article 38 et seq. of Regulation no. 952/2013 establishing the Union Customs Code.5 Under the proposed Article 13a(3) of the VAT Directive, the following persons cannot become certified taxable persons: a) taxable persons subject to the common flat-rate scheme for farmers, b) taxable persons covered by the exemption for small businesses, c) taxable persons making supplies of goods (supplies of services) in respect of which VAT is not deductible, d) taxable persons making occasional supplies of new means of transport. The entities listed above may obtain the status of certified taxable persons in respect of other economic activities which they carry out.

5 Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code, OJ L 269 10.10.2013, p. 1.

The search for effective instruments to combat fraud in the VAT sphere

Limiting the range of persons who may obtain the status of a certified taxable person to VAT taxpayers with some exceptions is justified by the fact that the status of a certified taxable person is connected with reporting and settlement obligations which are not imposed on other entities. The applicant is obliged to provide the tax authorities with all the information required by law in order to enable them to make a decision (the proposed Article 13a(4) of the VAT Directive). For the purposes of the provisions on the procedure for granting a special tax status, the tax authorities shall mean the authorities of a Member State in which: a) the applicant is established, b) the applicant has a fixed establishment where the principal accounts for tax purposes are held and accessible in the Community, in the case when the applicant is established outside the Community, but has established one or more fixed establishments in the Community, c) the applicant has a fixed address or habitually resides in a situation where he/she is neither established nor has a fixed establishment (proposed Article 13a(4) of the VAT Directive). A taxpayer with the granted status of the certified taxable person shall inform the tax authorities without delay of any factor arising after the decision which may affect the continuation of the status. This status shall be withdrawn if the positive conditions are no longer fulfilled, as provided for in the proposed Article 13a(6) of the VAT Directive. The rules on the certified taxable person are intended to allow the introduction of certain simplifications, precisely for those taxable persons who inspire confidence. First of all, in the case of intra-Community supplies to certified taxable persons, the reverse charge will apply and as a result, certified taxable persons will be responsible for accounting for VAT in the Member State where the intra-Community transport of goods ends. As a result, the status of a certified taxable person will facilitate the implementation of the definitive system.

10.

New prerequisites for exemption with the right to deduct in intra-Community supplies

An amendment to Article 138(1) of the VAT Directive has been provided for. It is the intention of the European Commission to supplement the current conditions with a supply to a registered taxable person and include the details of the purchaser in the recapitulative statement. It used to be sufficient to make a supply to a taxable person without mentioning his/her registration. It also followed from the judicial decisions of the Court of Justice that the registration of the purchaser of goods

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was not necessary for the application of an exemption with a right to make a deduction (see e.g. the judgment of 20.10.2016 in the case C-24/15 Josef Plöckl v Finanzamt Schrobenhausen, ECLI:EU:C:2016:791, judgment of 27 September 2012 in the case C-587/10 Vogtländische Straßen-, Tief- und Rohrleitungsbau GmbH Rodewisch (VSTR) v Finanzamt Plauen, ECLI:EU:C:2012:592).6 After the amendment, this provision is formulated as follows: Member States shall exempt the supply of goods dispatched or transported to a destination outside their territories, but within the Community, by or on behalf of the seller or the purchaser of the goods, if the following conditions are met: a) the goods are supplied to another taxable person, or to a non-taxable legal person acting as such, in a Member State other than the Member State where the dispatch or transport begins; b) the taxable person or non-taxable legal person to whom the supply is made is registered for VAT purposes in a Member State other than the Member State where the dispatch or transport of the goods begins; c) the recapitulative statement provided for in Article 262 of the Directive mentions the person purchasing the goods. The amendment was supposed to formalize conditions for the right of exemption with deduction material.7

11.

Recapitulative statements

Another change concerns the regulation of the recapitulative statements in Article 262 of the VAT Directive. According to this Article, in the new version, every taxable person registered for VAT purposes must submit recapitulative statements concerning: a) the purchasers registered for VAT to whom he/she has supplied goods in accordance with Article 138(1) and (2)(c); b) the persons registered for VAT to whom he/she has supplied goods which were supplied to him through the intra-Community acquisitions mentioned in Article 42;

6 Explanatory memorandum to the proposed directive, pp. 10–11. It is worth noting that the Polish law of 11.03.2004 on the tax on goods and services (Journal of Laws of 2017, item 1221 as amended) made the application of 0% rate in intra-Community supply of goods dependent on making a supply to a taxpayer registered for VAT purposes, which, in the opinion of the author of this study, is contrary to EU law. 7 Explanatory memorandum to the proposed directive, p. 11.

The search for effective instruments to combat fraud in the VAT sphere

c) taxable persons and non-taxable legal persons registered for VAT to whom he/she has provided services other than those exempt from VAT in the Member State where the service is taxable, in respect of which the customer is liable for payment of the tax under Article 196. In addition, each certified taxable person is required to identify the certified taxable persons for whom the goods are intended and which are dispatched or transported under the call-off stock arrangements under Article 17a of the VAT Directive.

12.

Varia

Auxiliary solutions have been introduced to eliminate fraud in the trading of certain goods. These include for example, the fuel package and the transport package, which were intended to make it easier to control the movement of certain goods and to make it more difficult to carry out trade-related fraud.

13.

Conclusions

A number of solutions have been introduced to prevent fraud of certain kinds (the reverse charge in domestic trade should be mentioned here in particular), hinder it, or accelerate the collection of information by the tax authorities. Undoubtedly, each of these solutions could have contributed, to a certain extent, to reducing the scope of fraud. However, it should be borne in mind that the provisions under which these measures were introduced raise doubts as to their compatibility with EU law.

References Legal acts The Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, OJ L 347 11.12.2006, p. 1. Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code, OJ L 269 10.10.2013, p. 1. Ustawa z dnia 29 sierpnia 1997 r. – Ordynacja podatkowa [the law of 29 August 1997 – Tax Ordinance], J. of L. of 2021, item 1540, as amended. Ustawa z dnia 11 marca 2004 r. o podatku od towarów i usług [the VAT Act], J. of L. of 2021, item 685, as amended.

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Jurisdiction Judgment of the Court of Justice of 27 September 2012 in the case C-587/10 Vogtländische Straßen-, Tief- und Rohrleitungsbau GmbH Rodewisch (VSTR) v Finanzamt Plauen, ECLI:EU:C:2012:592. Judgment of the Court of Justice of 14 March 2013 in the case C-527/11 Valsts ieņēmumu dienests v Ablessio SIA, EU:C:2013:168. Judgment of the Court of Justice of 20 October 2016 in the case C-24/15 Josef Plöckl v Finanzamt Schrobenhausen, ECLI:EU:C:2016:791.

Literature Mikuła P., Skomplikowane uszczelnianie – kilka uwag na temat nowelizacji ustawy o podatku od towarów i usług w zakresie rejestracji podatników [Complicated sealing – a few comments on the amendment to the act on tax on goods and services in the field of taxpayer registration], in: B. Brzeziński, K. Lasiński-Sulecki, W. Morawski (ed.), Poprawa efektywności system podatkowego. Nowe narzędzia prawne w VAT i akcyzie [Improving the efficiency of the tax system. New legal tools in VAT and excise duty], Warszawa 2018.

Krzysztof Lasiński-Sulecki, Teresa Sławińska-Choryło

Increasing the efficiency of excise taxation

1.

Introduction

Various changes in the regulation by law of excise taxes have been introduced in recent years. Some of them have been implemented to prevent tax evasion. The means of achieving this objective have been highly diversified. This study presents key solutions, selected from among many, and introduced in recent years in the field of excise tax in Poland. One of the characteristic features of excise duty in many countries – also outside the European Union – is that the tax burden is relatively high in relation to the value of goods before taxation. Differentiated rates of excise tax or even exemptions, depending on the intended use of goods, are often introduced. The above mentioned circumstances make excise fraud ’profitable’, hence the need to introduce solutions that limit excise duty evasion. Such solutions can be hugely varied. They may consist in the elimination of disparities in the taxation levels of substitute goods. They may also rely on monitoring measures.

2.

Fuel package

Starting from 2016, changes have been introduced to limit the irregularities in the trade of fuels – mainly based on intra-Community purchasing. A means to achieve this objective was to impose extra obligations on authorized warehousekeepers and on registered consignees.1 Thus, an authorized warehousekeeper may make intra-Community acquisitions of the excise goods in question on behalf of another operator, provided that the operator for whom the goods are acquired jointly fulfils the following conditions:

1 For more information on the initial phase of these changes see Krzysztof Rutkowski, Pakiet paliwowy [Fuel package], in: B. Brzeziński, K. Lasiński-Sulecki, W. Morawski (ed.), Poprawa efektywności systemu podatkowego. Nowe narzędzia prawne w VAT i akcyzie [Improving the efficiency of the tax system. New legal tools in VAT and excise duty], Warszawa 2018, s. 193 et seq. The last amendments in this respect were introduced at the beginning of September 2019 by ustawa z dnia 4 lipca 2019 r. o zmianie ustawy o podatku od towarów usług oraz niektórych innych ustaw [the Act of 4 July 2019 amending the Act on Value-Added Tax and certain other acts], J. of L. of 2019, item 1520.

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1) holds a licence to trade in liquid fuels with foreign countries, if such a licence is required; 2) is the owner of the acquired excise goods; 3) has: a) a registered office or a place of residence on the national territory and acquires these excise goods to run an economic activity on the national territory, or b) a subsidiary with a seat on the national territory established in accordance with the rules set out in ustawa z dnia 6 marca 2018 r. o zasadach uczestnictwa przedsiębiorców zagranicznych i innych osób zagranicznych w obrocie gospodarczym na terytorium Rzeczypospolitej Polskiej [the Act of 6 March 2018 on the rules of participation of foreign entrepreneurs and other foreign persons in business trading on the territory of the Republic of Poland]2 and purchases these excise goods for the purpose of running an economic activity on the national territory by this subsidiary; 4) provides the authorized warehousekeeper with numer identyfikacji podatkowej (the tax identification number) preceded by the PL code used for the purposes of value-added tax when shipping excise goods on the national territory (Article 48 ustawa z dnia 6 grudnia 2008 r. o podatku akcyzowym [the Excise Tax Act]).3 The above requirements do not apply – in accordance with Article 48(9a) of the Excise Tax Act – to operators consuming goods exempt from excise duty (fuels for shipping and aerial navigation). At the same time, additional disclosure requirements have been introduced, under which an operator running a tax warehouse, within 3 days after the end of the month, informs the President of the Material Reserves Agency and the minister in charge of public finance about the operators for the benefit of which it has made intra-Community excise goods acquisitions of energy products (mainly fuels) and about the acquired products. This information shall indicate the type, CN code, and quantity of excise goods acquired, and: 1) in the case where an operator for whom the excise goods are acquired has its registered office or a place of residence on the national territory, the name and surname or the name of the operator, the address of the place of residence or of the registered office, and its tax identification number preceded by the PL code;

2 J. of L. 2021, item 994, as amended. 3 J. of L. 2020, item 722, as amended.

Increasing the efficiency of excise taxation

2) in the case where an operator, for the benefit of whom the excise goods have been acquired, is a foreign entrepreneur running a business activity within a subsidiary with its registered office on the national territory, established pursuant to the principles set out in the Act of 6 March 2018 on the principles of participation of foreign entrepreneurs and other foreign persons in business trading on the territory of the Republic of Poland: the name and surname or name of the operator, address of the place of residence or the registered office of the operator, name of the subsidiary registered on the national territory, under which the foreign entrepreneur runs an economic activity on the national territory, address of the registered office of that subsidiary, tax identification number preceded by the PL code used for the purposes of value-added tax when shipping excise goods on the national territory and number in the National Court Register. Similar requirements (and exemptions) apply to registered consignees (Article 59 Excise Tax Act).

3.

Change in the taxation of lubricants and lubricating oils

As from 1 November 2019, the taxation of oils and lubricating preparations has been extended to cover preparations under CN 3403.4 The rate of excise tax that applies to them is identical to that applicable to lubricating oils, other oils under CN codes 2710 19 71 to 2710 19 99, excluding products under CN code 2710 19 85 (white oils, paraffin oil) and plastic lubricants of CN code 2710 19 99 (i.e. 1180 PLN/ 1000 litres). This amendment has limited the marketing of goods with characteristics and applications similar to those of excise goods which were not effectively subject to excise tax.

4.

Obligations relating to heating oil transactions

For many years, the differentiation of excise rates for engine and heating fuels has been a source of significant problems. This diversity has been determined by social

4 By virtue of by ustawa z dnia 4 lipca 2019 r. o zmianie ustawy o podatku od towarów usług oraz niektórych innych ustaw [the Act of 4 July 2019 amending the Act on Value-Added Tax and certain other acts], J. of L. of 2019, item 1520.

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considerations. Heating oils are often used to heat households, so taxing them with a high excise tax rate would result in a significant burden on consumers. By virtue of ustawa z dnia 19 lipca 2019 r. o zmianie ustawy o systemie monitorowania drogowego i kolejowego przewozu towarów oraz niektórych innych ustaw [the Act of 19 July 2019 amending the Act on the monitoring system for road and rail transport of goods and certain other acts]5 the legislator has changed the model of monitoring trading in heating oil. The model is based on two new operators: oil consuming operator and oil distributor. An oil consuming operator is an operator having a place of residence, a place of stay, a registered office, or a place of running an economic activity on the territory of Poland or a foreign entrepreneur running an economic activity on the national territory under the terms and conditions set out in the Act of 6 March 2018 on the principles of participation of foreign entrepreneurs and other foreign persons in business trading in the territory of the Republic of Poland, who consume for heating purposes certain excise goods not covered by excise duty exemption owing to their intended use, and who have made a simplified registration notification. The oil consuming operator is an operator having a place of residence, a place of stay, a registered office, or a place of running an economic activity on the territory of Poland or a foreign entrepreneur running an economic activity on the national territory under the terms and conditions set out in the Act of 6 March 2018 on the principles of participation of foreign entrepreneurs and other foreign persons in business trading in the territory of the Republic of Poland, who consume, for heating purposes, certain excise goods not covered by excise duty exemption due to their intended use and who have made a simplified taxpayer registration. At the same time, regulation of these simplified taxpayer registrations has been introduced. An operator intending to use excise goods for heating purposes as an operator consuming oil or running a business activity as an oil distributor shall submit, to the competent head of the tax office, before the day of performing the first operation using these excise goods not covered by excise duty exemption due to their intended use, a simplified taxpayer registration. The simplified taxpayer registration contains data about an operator, including his/her name and surname, address, a place of residence or a registered office, tax identification number (NIP) or PESEL (Polish Resident Identification Number), and if not assigned, name and the document number confirming the identity of a natural person not running an economic activity. An operator consuming oil shall also indicate in the registration the number of heating devices, places, including addresses and geo-location data, where these

5 J. of L. of 2019, item 1556.

Increasing the efficiency of excise taxation

devices are located, excluding non-stationary devices, the expected amount of excise goods consumed by each heating device in a calendar year and, for each heating device, an indication of its model, type and power. On the other hand, the registration of an oil distributor indicates the addresses of economic activity and the number of the licence required by the energy law. The excise duty rates applicable to heating fuels shall apply, provided that: 1) the buyer of these products is an oil distributor or an oil consuming operator; 2) the seller who is an oil distributor makes the registration referred to in Article 5 paragraph 1 or Article 6a section 1 of ustawa z dnia 9 marca 2017 r. o systemie monitorowania drogowego przewozu towarów [the Act of 9 March 2017 on the system for monitoring road and rail freight transport, and heating fuel trading, J. of L. of 2018, item 2332, as amended]; 3) the buyer declares that the purchased products: a) shall be used for heating purposes, entitling them to the application of these rates; b) shall be sold for heating purposes, entitling them to the application of these rates; 4) the buyer completes the registration referred to in Article 5 paragraph 1 or Article 6a section 1 of the Act of 9 March 2017 on the road and rail monitoring system for the freight of goods and heating fuel trading, in accordance with Article 5 paragraph 6 or Article 6a section 3 of this Act and supplements this registration with the declaration referred to in item 3. The legislator has set similar requirements for operators making intra-Community acquisitions. It is worth noting that the seller is obliged to refuse the sale if the address to which the seller is to deliver excise goods is different from that indicated in the confirmation of acceptance of the simplified registration application – place (address), where the heating devices are located, excluding places where non-stationary heating devices are located. Separate regulations apply to products sold in individual packages, the gross mass of which does not exceed 30 kg or their volume does not exceed 30 litres, in a total quantity not exceeding 100 kg or a volume of 100 litres, respectively.

5.

Tobacco Package

Already on January 1, 2013, dried tobacco had been added to the catalogue of products subject to excise tax. Taxation of dried tobacco is not required by the European Union law. Thanks to the solutions introduced in this way, it has been planned to regulate the tobacco trading that has not yet been processed into tobacco

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products and could easily be used for the illegal production of such products or be intended for direct consumption.6 The system of excise taxation on dried tobacco trading has been shaped in such a way that, as long as specific authorized persons and operators trade in this dried tobacco, and as long as some of them consume this dried substance for specific activities, no tax liability arises for these persons. However, if the dried tobacco is sold or given to an unauthorized person, imported, or consumed by the wrong person, or for the wrong purpose, it becomes necessary to pay excise duty on this account in an amount significantly exceeding the amount of excise duty on tobacco products.7 After the introduction of the above regulations, the need for further clarification has been recognized. The sale of dried tobacco by farmers has been considered an activity subject to excise taxation, together with the sale of intra-Community supply or export of this dried tobacco. The system of excise taxation on the dried tobacco trade has been shaped in such a way that as long as it is dried by specific, authorized persons and operators, and as long as some of them consume this dried substance for specific activities, no tax liability arises for these persons.8 The registering obligations for an authorized warehousekeeper have been extended from registering only the dried material in the warehouse to registering the dried product stored outside the warehouse.9 The scope of disclosure obligations for the tobacco distributor and foreign entrepreneurs with a subsidiary with a registered office on the national territory has also been expanded.10 Numerous non-fiscal regulations have been introduced that regulate dried tobacco production and trading by raw tobacco producers (farmers). Agricultural producers intending to grow tobacco, or produce or sell raw tobacco, must make a prior entry in the register of raw tobacco producers. New rules have also been introduced regarding the monitored disposal of raw tobacco by producers.11 It is only worth noting that the Polish legislator has also decided to expand the catalogue of products subject to excise duty by adding products competing with classic tobacco products, i.e. liquid for e-cigarettes (a solution intended for use in e-cigarettes, both with and without nicotine, including the base for this solution

6 See G. Musolf, Pakiet tytoniowy [Tobacco package], in: B. Brzeziński, K. Lasiński-Sulecki, W. Morawski (ed.), Poprawa efektywności systemu podatkowego. Nowe narzędzia prawne w VAT i akcyzie [Improving the efficiency of the tax system. New legal tools in VAT and excise duty], Warszawa 2018, p. 212. 7 G. Musolf, Pakiet tytoniowy (above n. 6), p. 214. 8 G. Musolf, Pakiet tytoniowy (above n. 6), pp. 217–218. 9 G. Musolf, Pakiet tytoniowy (above n. 6), p. 218. 10 See more information widely on this topic: G. Musolf, Pakiet tytoniowy (above n. 6), p. 218 et seq. 11 Zob. G. Musolf, Pakiet tytoniowy (above n. 6), pp. 221–223.

Increasing the efficiency of excise taxation

containing glycol or glycerine) and innovative products (including the mixture with tobacco or dried tobacco).

6.

Changes regarding the delivery document

The delivery document is one of the documents explicitly listed and defined in the Excise Tax Act. While until the end of 2015 it had been applicable only in the case of the shipment of excise goods exempt from excise duty due to their intended use, from January 2016, it also documents the shipment of excise goods to which the zero excise rate applies. The document form was specified in the secondary legislation by the Minister of Finance. It is permissible to replace this document with a commercial document containing the same data.12 Among the numerous changes introduced to the Excise Tax Act in 2018, there is also the elimination of paper delivery documents and their replacement with the electronic form of e-DD messages (electronic delivery document) created in the EMCSPL2 system. This regulation applies to all excise goods exempt from excise tax and 0% taxation, which until now have been shipped on the basis of a paper delivery document.13 This change in the excise tax will finally take place in February 2022. Currently, it is possible to use both forms of documentation. Document digitization is a beneficial move for many businesses. The use of the paper delivery document has been associated with a number of inconveniences and practical problems that could have contributed to generating tax risks for taxpayers.14

7.

SENT System

Among the regulations important for improving the efficiency of the tax system – and not only in excise tax – there is the SENT goods shipment monitoring system. The SENT system was introduced with effect from April 2017 as part of the so-called transport package. The assumption of the system is to cover monitoring of all shipment of goods to and through the national territory by means of transport on a public road, including stops required during this cargo shipment, handling and

12 T. Sławińska-Choryło, Dokument dostawy – oczekiwany kierunek zmian [Delivery document – expected direction of changes], Przegląd Orzecznictwa Podatkowego 2018, No. 5, p. 371. 13 T. Sławińska-Choryło, Dokument dostawy (above n. 12), p. 374. 14 T. Sławińska-Choryło, Dokument dostawy (above n. 12), p. 372 et seq.

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unloading.15 As part of subsequent amendments, the SENT system also covered rail transport. The system covered, among others, the following groups of goods (defined by references to Combined Nomenclature/Polish Classification of Products and Services): − Engine fuels and derivatives; − Lubricating oils; − Vegetable oils that can be used as additives to engine fuels; − Defrosting agents based on ethyl alcohol; − Diluents and solvents; − Partially and completely denatured ethyl alcohol, and − Dried tobacco.16 − The following freight of goods is not subject to the cargo freight monitoring system: − by means of transport used by the operators specified in the Act; − in unit packaging – defined separately for each product; − by postal operators in postal parcels; − covered by the customs procedure: transit, storage, temporary importation procedure, processing, exportation and re-exportation, and − moved under the excise tax suspension procedure with the use of the EMCS system.17 An exemption has also been introduced for a shipment which is not related to the performance of activities subject to value-added taxation. The condition is that the shipped goods are accompanied by a document confirming the warehouse transfer issued by the consignor of the goods.18 The essence of the system is that an operator shipping the goods is obliged to apply for registration, before commencing the shipment of goods, to obtain a reference number for this registration, and to provide this number to the carrier and the receiving entity. However, the carrier collecting such shipment from the

15 T. Sławińska-Choryło, Monitorowanie transportu drogowego – system SENT [Road transport monitoring – SENT system], in: K. Cień, P. Szczęśniak, Środki prawne ograniczające unikanie i uchylanie się od opodatkowania, wybrane problemy [Legal measures limiting tax avoidance and evasion, selected problems], Lublin 2019, p. 120. 16 T. Sławińska-Choryło, Monitorowanie transportu drogowego (above n. 15), p. 120 et seq. 17 T. Sławińska-Choryło, Ewolucja stosowania systemów elektronicznych do monitorowania obrotu wyrobami akcyzowymi [Evolution of the use of electronic systems to monitor trade in excise goods], in: J.K. Stępkowska, K.M. Stępkowska, Innowacje w nauce i społeczeństwie wczoraj i dziś [Innovations in science and society yesterday and today], Warszawa 2017, p. 162. 18 T. Sławińska-Choryło, Monitorowanie transportu drogowego (above n. 15), p. 121.

Increasing the efficiency of excise taxation

consignor is obliged to complete the registration with its data before commencing the cargo shipment. After completing the shipment, the receiving entity is obliged to complete the registration with information about the received goods. Notice of receipt should be sent to the system no later than on the next business day after the delivery date. All operators involved in the new system – i.e. consignor, receiving entity and carrier – must immediately update the data contained in the registration.19 It should be noted that the Act introducing SENT contains a precise definition of the receiving entity and the shipper. The Act defines the receiving entity as ‘a natural person, a legal person, or an organizational unit without legal personality, running a business activity, making intra-Community acquisition of goods, importing goods, or purchasing goods in the case of supply of goods within the meaning of the Act of 11 March 2004 on Value-Added Tax […]’. According to the wording of the Act (Art. 2(7)), the consignor is defined as ‘a natural person, a legal person, or an organizational unit without legal personality, running a business activity and: a) supplying goods within the meaning of the Act of 11 March 2004 on ValueAdded Tax: – the last supply before commencing the shipment of goods in the event that it is the consignor of goods, and after the goods are released, they are shipped to the receiving entity, – authorized to handle goods as the owner at the commencement of shipment in the event that it delivers the goods to the receiving entity for the purpose of delivering the goods after completing the shipment of goods, b) carrying out the intra-Community delivery of goods within the meaning of the Act referred to in letter a; c) carrying out the export of goods within the meaning of the Act referred to in letter a’. Such definition of operators with obligations to report to the SENT system means that the obligations apply to operators that are parties to the supply transaction, and not only to operators that physically receive or release goods. It should be noted here that the SENT system, as the only monitoring system on the territory of the Republic of Poland for the shipment of sensitive goods, includes a reference when defining both the type of shipments and the operator (reference to the Act on Value-Added Tax). This means that the operators obliged to perform system obligations are, as a rule when shipping sensitive products, operators between which the property stream takes place.20 Very often in the practice of trading in 19 T. Sławińska-Choryło, Monitorowanie transportu drogowego (above n. 15), pp. 121–122. 20 The regulation introducing the SENT system has also met with great criticism in the business, which is reflected in the article published in Puls Biznesu at the following link (https://www.pb.pl/sent-

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the indicated products, other operators will be the actual release operators and receiving entities, while others still will be the owners of these goods. In spite of its name (shipment monitoring), the SENT system actually used monitoring of shipment-related sales. This means that the system excludes from its scope all shipments which are not connected with supply in the meaning of the value-added tax. The ongoing legislative work21 aims to modify the scope of exclusions from the SENT system. In the current legal status, the exclusions are regulated in the Act. The amendment envisages deleting exclusions from the Act and introducing statutory authorization to specify exclusions in the secondary legislation. Such a change will make the SENT system an even more effective tool in monitoring the shipment of sensitive goods, and the authorities will be able to effectively and quickly adapt the scope of their monitoring to irregularities arising in the practice of applying these provisions. The literature also indicates the need for further modifications of the SENT system assumptions,22 so that after the expansion of the EMCSPL2 system, all these systems have similar constructive and compatible assumptions working together to eliminate any gaps – space for shipments not covered by monitoring.

8.

Extending the range of the EMCS PL2 system application

Pursuant to the regulations currently in force, the EMCS PL2 system must be applied only for shipments of excise goods under excise duty suspension procedure. Along with the elimination of the paper delivery document23 , the legislator intends to extend the use of the EMCS system to apply excise duty to goods which are exempt owing to their intended use and 0% taxation. For the aforementioned products, the application of the system is to be obligatory from 1 February 2022. Extending the scope of the system to the indicated groups of excise goods will provide the tax authorities with current information on shipments of excise goods covered by excise tax preferences, will improve the ongoing performance of tax audits and

spedza-sen-z-powiek-przedsiebiorcom-857452). The SENT system was one of the first to impose obligations not only on the shipper and importer – regardless of how they would be defined – but also on carriers. Apart from the obligations, this third operator may also face severe penalties in the new regulation. 21 The Bill of September 12, 2019, amending the act on excise tax and some other acts, is available at: https://legislacja.rcl.gov.pl/docs//2/12325050/12628602/12628603/dokument418203.pdf (as of December 19, 2019). 22 T. Sławińska-Choryło, Monitorowanie transportu drogowego (above n. 15), p. 126 et seq. 23 G. Musolf, Pakiet tytoniowy (above n. 6), p. 212.

Increasing the efficiency of excise taxation

use of deposits for excise tax and will facilitate the monitoring of shipment losses from which excise duties should be paid.24 An important substantive change that is introduced in the field of excise tax cannot be omitted when the EMCS PL2 system is extended to include excise goods exempt from excise duty due to their intended use. Specifically, the required date by which shipments should be completed based on the e-DD message has been entered in the amended Article 32 section 5 item 2 of the Excise Tax Act as one of the conditions for applying the exemption. If, within 30 days from the shipment date of the excise goods indicated in e-DD, the delivery report closing the shipment is not entered in the system, the obligation to pay excise tax arises. This new solution undoubtedly affects tax efficiency in terms of shipments of goods exempt from excise tax. So far, for shipments carried out on the basis of a paper delivery document, such rigorous excise duty has not been introduced by the legislator. However, bearing in mind that trade in goods exempt from excise duty and taxed at 0% rate applies to receiving entities with a much lower level of fiscal knowledge, it may also be expected that the implementation of the system for shipments of products exempt from excise tax and taxed at 0% rate will mean that in the initial period, the majority of receiving entities of products exempt from excise duty due to their intended use or taxed at 0% rate – due to lack of correct registration in the System or lack of appropriate IT equipment – will be forced to receive excise goods previously purchased with exemption or taxed at 0% rate as products subject to excise duty.

9.

Central Register of Excise Tax Operators

Until now, the SZPROT System maintained a register of operators registered for the purposes of, among others, excise tax, which is indirectly supplied from paper registration applications submitted to the Tax Administration Chamber in Poznań by individual heads of tax offices. Apart from the SZPROT database, there were also lists of gas distributors and coal distributors. This led to a number of difficulties, in particular in ensuring that the central database was updated, and at the same time made it difficult to verify those involved in the delivery of excise goods on the basis of e-DD, using the EMCS PL2 system. Some of the last legislative works25 assumed the introduction of central, electronic registration of operators in excise tax, including a simplified central registration 24 T. Sławińska-Choryło, Ewolucja stosowania (above n. 17), pp. 159–161. 25 The bill, amending the Excise Duty Act and certain other acts of 30 September 2019, is available on the website: https://legislacja.rcl.gov.pl/docs//2/12326301/12635595/12635596/dokument423239. pdf (as of 19 December 2019).

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of natural persons and operators consuming excise goods exempt from excise tax due to their intended use, including public benefit units, local government units, organizational units of the army, the Border Guard and the Police. Registration activities (in the SZPROT System) will be performed by the Director of the Chamber of Treasury Administration appointed by the minister in charge of public finance. The designated authority will be responsible for maintaining the Central Register of Excise Tax Operators, making an entry and amendment to the register, publishing an up-to-date list of coal distributors and a list of gas distributors, refusing entry in the register of distributors, issuing a certificate stating that an operator is entered in the register, and removing the entity from the register and notifying the deletion of relevant operators. In the current regulation, the catalogue of operators covered by the registration is extended and includes operators intending to use goods subject to excise duty, but exempt from excise tax due to their intended use, operators not running a business activity which have not been obliged to register so far, including natural persons, public benefit units, local government units, organizational units of the army, the Border Guard and the Police.26 The obligation to register the above-mentioned operators results from the fact that deliveries to these operators are covered by the EMCS PL2 System monitoring. Registering these operators in a central electronic register will enable their verification as receiving entities of products in deliveries made on the basis of e-DD, using the EMCS PL2 System. According to the previous regulations, only operators running a business activity were subject to registration. In practice, the criterion of conducting business activity raised doubts as to the interpretation of this obligation on operators, such as schools, local government units, organizational units of the army, Border Guard, Police and Tatra Volunteer Search and Rescue.

10.

Summary

As for some of the solutions presented, it can already be assumed that they have, to some extent, led to a reduction in the negative phenomena occurring in the trade of excise goods (fuel package, transport package or tobacco package), although they have certainly not led to their full elimination. All monitoring instruments contribute, at least to some extent, to the achievement of this objective.

26 Grounds for the Bill, amending the Excise Duty Act and certain other acts of 30 September 2019, is available at: https://legislacja.rcl.gov.pl/docs//2/12326301/12635595/12635596/dokument423240. pdf (as of December 19, 2019).

Increasing the efficiency of excise taxation

References Legal acts Ustawa z dnia 6 grudnia 2008 r. o podatku akcyzowym [the Excise Tax Act], J. of L. 2020, item 722, as amended. Ustawa z dnia 9 marca 2017 r. o systemie monitorowania drogowego przewozu towarów [the Act of 9 March 2017 on the system for monitoring road and rail freight transport, and heating fuel trading, J. of L. of 2018, item 2332, as amended]. Ustawa z dnia 6 marca 2018 r. o zasadach uczestnictwa przedsiębiorców zagranicznych i innych osób zagranicznych w obrocie gospodarczym na terytorium Rzeczypospolitej Polskiej [the Act of 6 March 2018 on the rules of participation of foreign entrepreneurs and other foreign persons in business trading on the territory of the Republic of Poland], J of L. 2021, item 994. Ustawa z dnia 4 lipca 2019 r. o zmianie ustawy o podatku od towarów i usług oraz niektórych innych ustaw [the Act of 4 July 2019 amending the Act on Value-Added Tax and certain other acts], J. of L. of 2019, item 1520. Ustawa z dnia 19 lipca 2019 r. o zmianie ustawy o systemie monitorowania drogowego i kolejowego przewozu towarów oraz niektórych innych ustaw [the Act of 19 July 2019 amending the Act on the monitoring system for road and rail transport of goods and certain other acts], J. of L. 2019, item 1556.

Literature Brzeziński B., Lasiński-Sulecki K., Morawski W. (ed.), Poprawa efektywności systemu podatkowego. Nowe narzędzia prawne w VAT i akcyzie [Improving the efficiency of the tax system. New legal tools in VAT and excise duty], Warszawa 2018. Sławińska-Choryło T., Dokument dostawy – oczekiwany kierunek zmian [Delivery document – expected direction of changes], Przegląd Orzecznictwa Podatkowego 2018, No. 5. Sławińska-Choryło T., Ewolucja stosowania systemów elektronicznych do monitorowania obrotu wyrobami akcyzowymi [Evolution of the use of electronic systems to monitor trade in excise goods], in: J.K. Stępkowska, K.M. Stępkowska, Innowacje w nauce i społeczeństwie wczoraj i dziś [Innovations in science and society yesterday and today], Warszawa 2017. Sławińska-Choryło T., Monitorowanie transportu drogowego – system SENT [Road transport monitoring – SENT system], in: K. Cień, P. Szczęśniak, Środki prawne ograniczające unikanie i uchylanie się od opodatkowania, wybrane problemy [Legal measures limiting tax avoidance and evasion, selected problems], Lublin 2019.

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Netography https://www.pb.pl/sent-spedza-sen-z-powiek-przedsiebiorcom-857452 https://legislacja.rcl.gov.pl/docs//2/12325050/12628602/12628603/dokument418203.pdf

Marek Słupczewski

Retail sales tax – an attempt at extraordinary taxation of trade in Poland against the European background

1.

Introduction

Taxing trade is tempting for many reasons. Of course, the fiscal objective is important, but the political objective should not be underestimated. In the popular perception, shopping centres are, after all, where our money goes. Taxation may therefore meet with the support of voters, who will not necessarily understand that any tax is in fact passed on to the customer. In Poland, and other Central European countries, trade has been dominated by large multinationals. They are not generally perceived positively, they are still associated with low wages and accusations of exploitation of workers.1 In addition, it is only since 15 July 2016 that the general clause against tax avoidance has been in force in Poland, which these international supermarket chains, as well as entities operating in other sectors, had previously used quite openly.2 It is difficult to accuse them of using solutions that were fully legal at that time, but it should be borne in mind that this circumstance also influenced the desire to impose yet another tax, from which it is not easy to escape. You can transfer income abroad, but you cannot transfer the sale of goods in a supermarket abroad. In a sense – from the point of view of seeking efficiency in the tax system – it was logical to tax sales in shops with a ‘windfall’ sales tax. In addition, this approach was consistent with the values of the governing party that won the last parliamentary elections. It sought to support domestic entrepreneurs, who obviously felt unequal to the global retail corporations. The retail sales tax3 is thus

1 We do not judge whether this is true, but only describe the attitude of society. It is based on stereotypes formed even a dozen or so years ago. Currently, salaries in large commercial corporations have increased significantly, and it is difficult to talk about exploitation when they are competing for workers. 2 It should be noted that in the justification of the bill introducing the tax, which is the subject of this chapter, published on the website of the Parliament of the Republic of Poland, this aspect of the legislator’s motivation was not mentioned at all, see: http://www.sejm.gov.pl/Sejm8.nsf/PrzebiegProc. xsp?id=BD123343F204ECE8C1257FD300361C39. Among practitioners and in the business media the fact of optimisation does not raise much doubt, see e.g.: https://podatki.gazetaprawna.pl/artykuly/ 1122305,duze-sieci-handlowe-w-polsce-a-podatek-cit.html. Another thing is that this was not an activity occurring only in the commercial sector. 3 Act of 6 July 2016 on retail sales tax (i.e. Journal of Laws 2016, item 1155), hereinafter: the Act.

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very much a symbol of the changes in Polish tax policy after the ‘Law and Justice’ party won the 2015 elections. The aim is to increase the efficiency of the tax system while supporting domestic entrepreneurs. This approach must have risked collision with the European Commission. As a result, this tax – despite the enactment of the law about 5 years ago – was not collected in Poland until 1 January 2021. The tax was originally intended to cover revenues generated as early as 1 September 2016, but the collection of the tax was systematically postponed to revenues from retail sales until 1 January 2021.4 The Polish retail sales tax is not unique in the world. The explanatory memorandum to the bill points to special taxes on trade in force in Hungary, France (TASCOM)5 and Spain (partially abolished).6 Similar taxes were already in force in the previous century, for example in the United States of America.7 In the United States, retail sales taxes first appeared during the Great Depression.8 The introduction of retail sales tax into the Chinese legal system has also been considered.9 Obviously, these taxes are different from each other, the only thing they have in common is that the purpose is to tax trade. These taxes are part of a certain tendency to tax particular sectors of the market, which is sometimes combined with the use of progressive rates, preferring smaller (usually indigenous) entities.10 To a certain

4 For example, the Act of 12 December 2019 amending the Retail Sales Tax Act – signed on 20 December 2019 (Journal of Laws 2019, item 2497) provided for the tax to be effective as of July 1, 2020. Further, by the Law on amending the Law on special solutions related to prevention, counteraction and combating COVID-19, other infectious diseases and crisis situations caused by them and some other laws of March 31, 2020. (Journal of Laws of 2020, item 568) in the Act of 6 July 2016 on retail sales tax (Journal of Laws of 2019, items 1433 and 2497) in Article 11a the words ‘from 1 July 2020’ was replaced by the words: ‘from 1 January 2021’, leading to another postponement of the introduction of the tax. 5 Loi n° 72–657 du 13 juillet 1972 instituant des mesures en faveur de certaines catégories de commerçants et artisans âgés. 6 Explanatory memorandum to the government’s retail sales tax bill: https://legislacja.rcl.gov.pl/ projekt/12281601 7 For example, in New York State or Ohio. See C.R. Johnson, The Ohio Retail Sales Tax Act, Ohio State Law Journal, vol. 11, issue 2, p. 143; M. Graves, New York’s Retail Sales Tax, Tax Magazine, 1933, vol. 11, issue 7, p. 252–253. 8 See B.M. Nelson, J.T. Collins, J.C. Healy, Sales and Use Tax Answer Book, CCH, Inc, 2008, p. 1–7. 9 Analyses related to the introduction of the so-called retail sales tax were associated with a decline in the importance of sales tax and directly pointed to the lack of equivalence of these two taxes. See L. Shiyu, L. Shuanglin, N. Suresh, The Effect of an Introduction of Retail Sales Tax in China, Asian Economic Papers 2018, Vol. 17, Issue 2, p. 1–20, p. 20. 10 This is particularly evident in the case of the Hungarian Turnover Tax See R. Szudoczky, Hungary: Progressive Turnover Taxes in the Light of the EU Fundamental Freedoms and State Aid Rules, in: M. Lang, P. Pistone, A. Rust, J. Schuch, C. Staringer, A. Storck, CJEU – Recent Developments, in: Direct Taxation 2018, Linde Verlag GmbH, 2019, p. 102, R. Szudoczky, B. Karolyi, The Trouble Story

Retail sales tax – an attempt at extraordinary taxation of trade in Poland against the European background

extent, these taxes also have in common the suspicion of the European Commission and often of the doctrine of tax law.11

2.

Polish retail sales tax – legal regulation

The regulation imposing the retail sales tax in Poland is short and appears simple, consisting of 13 articles. The subject of the tax is revenue from retail sales, i.e. sales of goods to natural persons not conducting business activity (consumers).12 The taxpayer is the retail seller.13 The scope of taxation excludes revenue from distance contracts.14 Exempt from taxation are the sales of, inter alia, electricity and natural gas supplied to consumers through distribution networks, heat supplied to consumers through a district heating network, water supplied to consumers by water supply and sewerage companies, certain solid fuels, natural gas, diesel oils intended for heating purposes and heating oils, medicines, foodstuffs for particular nutritional uses and medical devices refunded or financed in whole or in part from public funds on the basis of separate regulations.15 The tax obligation in respect of retail sales tax arises when the revenue in a given month exceeds PLN 17,000,00016 and applies to revenue above that amount earned from that moment until the end of the month.17 The tax rates are: – 0.8% of the tax base – in the part where the tax base does not exceed PLN 170,000,000;18 – 1.4% of the excess of the tax base over PLN 170,000,000 – in the part where the tax base exceeds PLN 170,000,000.19

11 12 13 14 15 16 17 18 19

of the Hungarian Advertisement Tax: How (Not) to Design a Progressive Tax, Intertax 2020, vol. 48, Issue 1, 2020, pp. 46 – 47. As a matter of fact, only the French tax, the so-called TASCOM introduced by a law of 1972, did not raise any objections of the EU institutions. Maybe because it was introduced quite a long time ago. Article 5 in conjunction with Article 3(5) of the Act. Section 4 of the Act. Article 3(5) of the Act. Section 7 of the Act. Approx. EUR 4,000,000. Section 8 of the Act. approx. EUR 40,000,000 Section 9 of the Act.

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3.

Retail sales tax – what tax?

Retail sales tax is quite commonly treated as a kind of ‘special VAT’, which is not surprising.20 It is certainly a turnover tax, like a value added tax or excise duty, but in this respect it takes on a much more simplified form21 . The starting point for discussions on value added or turnover taxes and retail sales taxes is often the assertion that the results of the introduction of one or the other tax should be identical, since in both cases we are talking about taxation of consumption in the broad sense.22 The classification of the retail sales tax is not merely an academic discussion. If the tax under consideration was equivalent to value added tax its legality would be questionable. Article 401 of23 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax24 does not prevent any Member State from levying taxes which are not in the nature of turnover taxes. It follows, however, that the Member States are prohibited from levying taxes which are of that nature. Against the background of the analogous Hungarian tax, Advocate General Julianne Kokott stated: ‘I am aware that the referring court has not asked a question regarding the interpretation of Article 401 of the Value Added Tax Directive and the interested parties have not submitted observations on that question to the Court. That is not surprising if it is borne in mind that the Court has consistently held that there is no infringement of the current Article 401 of the Value Added Tax Directive where the national tax lacks just one of the four essential characteristics

20 On similarity in scope of construction: R. Carroll, A. D. Viard, Progressive Consumption Taxation: The X Tax Revisited, Rowman & Littlefield, 2012, p. 160. 21 Foreign doctrine, for example, representatives of American academia have considered value-added and retail sales taxes in many contexts, for example: John L. Mikesell, Misconceptions about ValueAdded and Retail Sales Taxes: Are They Barriers to Sensible Tax Policy?, 2014 Public Financial Publications, Inc. The view of equivalence between sales tax and retail sales tax is also expressed, for example: Rosen, Harvey S., and Ted Gayer, Public Finance. New York: McGraw-Hill, 2010. on the common taxpayer base: Bruce M. Nelson, James T. Collins, and John C. Healy, Sales and Use Tax Answer Book, CCH, 2008, p. 1–7. 22 OECD (2018), Consumption Tax Trends 2018: VAT/GST and Excise Rates, Trends and Policy Issues, OECD Publishing, Paris, https://doi.org/10.1787/ctt-2018-en, p. 25, accessed 4 April 2021. 23 ‘Without prejudice to other provisions of Community law, this Directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties or, more generally, any taxes, duties or charges which cannot be characterised as turnover taxes, provided that the collecting of those taxes, duties or charges does not give rise, in trade between Member States, to formalities connected with the crossing of frontiers’. 24 Official Journal of the European Union L. 2006, No 347, p. 1.

Retail sales tax – an attempt at extraordinary taxation of trade in Poland against the European background

of value added tax (VAT).25 Those four essential characteristics include its general levying, its assessment on the basis of the price charged, its charging at each stage of the production and distribution process and the deduction of input tax, with the result that the tax applies, at any given stage, only to the value added and the final burden of the tax rests ultimately on the final consumer.26 However, the Hungarian special tax manifestly exhibits neither the third nor the fourth characteristic, as it is charged exclusively at the distribution stage of the retail trade’.27 As a result, taxes such as the Polish retail sales tax can function despite the existence of national (but EU-based) value-added and excise duties.

4.

Similar taxes

Taxation of trade by a special tax is not unusual. In the French Republic, a tax similar to the Polish retail sales tax, known as TASCOM, has been introduced. TASCOM comprises a tax on business premises, covering all retail premises with a surface area greater than 400 m2 and a turnover in excess of EUR 460,000 per year.28 The tax was regulated by the Law of 13 July 1972 introducing measures in favour of certain categories of traders and elderly craftsmen.29 It is possible that it is due to the fact that this tax was introduced almost 50 years ago, that it did not meet any objections from the European Commission.

25 See, inter alia, Case C437/97 EKW and Wein & Co [2000] ECR I1157-, paragraph 23, Case C101/00 Tulliasiamies and Siilin [2002] ECR I7487, -paragraph 105, Case C475/03 Banca popolare di Cremona [2006] ECR I9373-, paragraph 27 et seq, and Joined Cases C283/06 – and C312/06 KÖGÁZ and Others [2007] ECR I8463-, paragraph 36; see also Case C347/90 Bozzi [1992] ECR I2947, paragraph 10. 26 See, inter alia, Joined Cases C338/97, -C344/97 -and C390/97 Pelzl and Others [1999] ECR I3319-, paragraph 21; Banca popolare di Cremona, cited in footnote 38, paragraph 28; and KÖGÁZ and Others, cited in footnote 38, paragraph 37 27 Opinion of Advocate General Juliane Kokott delivered on 5 September 2013, Case C385/12-, Hervis Sport- és Divatkereskedelmi Kft. V Nemzeti Adó- és Vámhivatal Közép-dunántúli Regionális Adó Főigazgatósága, p.91. 28 Service-public-pro.fr – Le site officiel de l’administration francaise, legal status as of 2 January 2020. (Vérifié le 01 janvier 2020 – Direction de l’information légale et administrative (Premier ministre), Ministère chargé des finances). https://www.service-public.fr/professionnels-entreprises/vosdroits/ F22790 accessed January 5, 2021. Taxe sur les surfaces commerciales 2016 Guide Accessed: [24 March 2021]. https://www.lexisnexis.fr/pdf/L360_TAX_-_Dossiers/Guide_TASCOM.pdf 29 Loi n° 72–657 du 13 juillet 1972 instituant des mesures en faveur de certaines catégories de commerçants et artisans âgés.

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Importantly, this levy has a significant impact on the revenue of French local authorities.30 The scope of similarity between TASCOM and the Polish retail sales tax is rather limited. In the case of the French tax, business premises are taxed not only when they generate sales revenue at a certain level but also when they exceed a predefined surface area. However, as in the case of retail sales tax, the criterion qualifying taxpayers is also correlated with retail sales revenue. The revenue threshold for incurring the obligation is lower than in the case of the Polish tax and amounts to EUR 460,000. It would seem, therefore, that due to such a ‘free amount’, this tax will apply to many more taxpayers than in Poland. However, one should not forget about the second criterion, which is the specified sales area (400 m2 of premises).However, the tax construction does provide for a progressive rate, which in turn makes it somewhat similar to the Polish retail sales tax. The amount of tax is determined by applying to the total retail sales area of the establishment, a rate which varies according to the annual turnover per m², the area and the type of activity. Consequently, the standard rate of tax for taxpayers with a turnover of less than EUR 2999 per square metre is currently EUR 5.74, rising to EUR 8.32 (in the case of a service station, that is a retail establishment selling fuel (with the exception of workshops whose principal activity is the sale or repair of motor vehicles, on the same premises or within the same area). The rate increases steadily with increasing annual turnover per m² to eventually reach EUR 34.12 for those with a turnover of more than EUR 12 001 per m², or EUR 35.70 in the case of service stations. In addition, the tax is increased by 30% for establishments with a sales area of more than 5,000 m² and a turnover of more than €3,000 per m², and by 50% for establishments with a sales area of more than 2,500 m².31 The French tax adopts a slightly different concept of progression, but from the point of view of its basic assumptions, the French and Polish solutions are similar, and it seems that the differentiation of rates is based on similar arguments concerning the ability of larger entities to obtain higher revenues. Interestingly, the tax also does not apply to establishments opened before 1960. Comparing the Polish and French tax, it is worth noticing that it is even possible to try to find a certain connection between these taxes, which lies in the earning capacity, which, although defined in abstract terms, is perceptible both in the fact of obtaining revenue, which above a certain threshold is undeniably, in the legislator’s

30 M. Mariański, Challenges and problems of local government finances in the light of the french cour des comptes reports as a guide for the Polish legislature, in: P. Mrkývka, J. Gliniecka, E. Tomášková, E. Juchniewicz, T. Sowiński, M. Radvan (ed.), The challenges of local government financing in the light of european union regional policy, Acta Universitatis Brunensis Iuridica, Editio Scientia vol. 636, p. 95. 31 Service-public-pro.fr – Le site officiel de l’administration française, article 3 of the law of 13 July 1972. See: https://www.service-public.fr/professionnels-entreprises/vosdroits/F22790

Retail sales tax – an attempt at extraordinary taxation of trade in Poland against the European background

opinion, connected with generated profit, and the mere taxation of retail premises of more than 400 square metres also, in the French legislature’s view, is linked to the possibility of ’generating income’ which is above average and calls for a greater share in budgetary revenue. The equivalent Spanish tax, similar in general concept to the one introduced in the French legal system, was based to an even greater extent on the taxation of commercial buildings according to their surface area.32 This tax was intended to burden the activities of shopping centres because they generate more traffic and therefore have a negative impact on the environment and on town planning in the Autonomous Community of Aragon. The construction of the exemption contested by the Commission was as follows: ‘Article 29 of Law 13/2005 provides that a retail establishment is deemed to have a large sales area when its public sales area is greater than 500 m2 . Article 33 of Law 13/2005 provides that retail establishments whose principal business is the sale of the following products are exempted from that tax: machinery, vehicles, tools and industrial supplies; construction materials, plumbing materials, doors and windows, for sale only to professionals; nurseries for gardening and cultivation; fittings for individual, ’conventional’ and specialist establishments; motor vehicles, in dealerships and repair workshops; motor fuel. Article 34 of that law sets out the methods for calculating the basis of assessment and Article 35 the methods for calculating that tax, providing, inter alia, for the application of a coefficient according to the location of the establishment when the basis for assessment exceeds 2000 m2 . The result of those methods is that the taxable amount is 0 when the basis of assessment is 2000 m2 or less’ (...) ‘The amount of tax on the basis of Article 22 TRIMCA increases progressively from EUR 10.20 for 2000–3000 m² to EUR 14.70 for 5000–10 000 m² and decreases for 10 000 m² to EUR 13.50. The first 2000 m² are not taxed’.33 While the above-described French and Spanish taxes are connected with the Polish retail sales tax mainly in that they concern trade taxation, the degree of similarity to the Hungarian Turnover Tax is even higher. Moreover, the Hungarian tax is in line with other tax solutions introduced in Hungary, such as the tax on advertising. It is interesting that the administrative services of the Court of Justice of the EU were informed about the opinions of Advocate General Kokott on two complaints of the European Commission against the decisions of the Court of First

32 In the case of the Spanish tax, the Commission challenged the compatibility of the legislation with EU law. Asociación Nacional de Grandes Empresas de Distribución (ANGED) v Diputación General de Aragón, Judgment of the Court (First Chamber) of 26 April 2018, Cases C-236/16 and C-237/16, ECLI:EU:C:2018:291. 33 Opinion of Advocate General Juliane Kokott delivered on 9 November 2017, Joined Cases C-236/16 and C-237/16, Asociación Nacional de Grandes Empresas de Distribución (ANGED) v Diputación General de Aragón, ECLI:EU:C:2017:854.

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Instance concerning the Polish retail sales tax and the Hungarian advertisement tax in one communication.34 It is therefore worth presenting this tax as well, even though it is not strictly understood as a retail sales tax – ‘According to the Law on Advertisement Tax, whoever broadcasts or publishes advertisements is subject to the advertisement tax. Those who make advertisements public (newspapers, audiovisual media, billposters) are, therefore, taxable persons, but not advertisers (for whom the advertising is produced) or advertising agencies who are intermediaries between advertisers and broadcasters or publishers. The taxable amount to which the tax is applied is the net turnover for the financial year generated by the broadcasting or publication of advertisements. The territorial scope of the tax is Hungary. The scale of progressive rates was defined as six rates ranging from 1% to 40% depending on the amount of the tax base. ‘Subsequently, Hungary amended the advertisement tax of its own initiative, without prior notification to, or approval by, the Commission, by Law No LXII of 2015, enacted on 4 June 2015, replacing the scale of six progressive rates from 0 to 50% by the following scale comprising two rates of taxation: – 0% for the part of the taxable amount below HUF 100 million (approximately EUR 312 000); – 5.3% for the part of the taxable amount above HUF 100 million’.35 The Hungarian retail tax was introduced by the Special Tax Act for certain sectors.36 Under this Act, retail trade in shops, the operation of telecommunications and the supply of energy are taxed. Consequently, the scope of the tax as described above makes it, like the Polish retail tax, a sectoral tax. The group of taxpayers is broadly defined in the Hungarian Act to include legal persons, other organisations within the meaning of the General Tax Code and self-employed persons. The tax base is the net turnover of the taxpayers. The tax rates are structured as follows: ’The applicable tax rate: (a) on activities referred to in Paragraph 2(a), shall be set at 0% on the proportion of the taxable amount not exceeding 500 million [Hungarian forint (HUF)]; 0.1% on the proportion of the taxable amount in excess of HUF 500 million but not exceeding HUF 30 billion; 0.4% on the proportion of the taxable amount in excess of HUF 30 billion but not exceeding HUF 100 billion, and 2.5% on the proportion of the taxable amount in excess of HUF 100 billion.37

34 https://curia.europa.eu/jcms/upload/docs/application/pdf/2020-10/cp200132pl.pdf 35 Judgment of the General Court (Ninth Chamber) 27 June 2019, Hungary vs. European Commission, ECLI:EU:T:2019:448. 36 Az egyes ágazatokat terhelő különadóról szóló 2010. évi XCIV. törvény (Act No XCIV of 2010 on special tax for certain sectors). 37 C-323/18 Tesco-Global Áruházak Zrt. v Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága No ECLI: EU:C:2020:140.

Retail sales tax – an attempt at extraordinary taxation of trade in Poland against the European background

5.

Doubts of the European Commission concerning the construction of Hungarian Turnover Tax base

In the course of discussions on the introduction of retail sales tax in Poland, the argument of its incompatibility with EU law was raised, which was to be confirmed by the Court of Justice of the European Union (CJ EU) judgment in the Hervis Sport case of 5 February 2014.38 The Court examined the regulation from the perspective of the principle of freedom of establishment (Article 49 of the Treaty on the Functioning of the European Union, hereinafter: TFEU39 ) and the principle of equal treatment (Article 54 TFEU). The centre of the dispute was the aggregation of revenues of all related parties for the purpose of determining the tax base. It was argued that foreign entities are usually consolidated, while Hungarian entities generally act as independent entities using a franchise agreement. This results in foreign entities with the same turnover as the Hungarian networks being taxed more heavily.40 It is worth noting that similar reasoning can also be found in relation to the Polish retail sales tax.41 The CJEU’s statement was key: ‘38. It must be observed that, in the context of a tax rule, such as that at issue in the main proceedings, which concerns the taxation of turnover, the situation of a person subject to the tax who belongs to a group of companies is similar to that of a person subject to the tax who does not belong to such a group. In particular, both the legal persons active on the store retail market in the Member State concerned who belong to a group of companies and those who do not belong to such a group are subject to the special tax and their turnover is independent of that of other taxable persons. In those circumstances, if it is established that, on the store retail market in the Member State concerned, the taxable persons belonging to a group of companies and covered by the highest band of the special tax are, in the majority of cases, ’linked’, within the meaning of the national legislation, to companies which have their registered offices in other Member States, the application of the steeply progressive scale of the special tax to a consolidated tax base consisting of turnover is liable to

38 Judgment of the Court of Justice of the EU of 5 February 2014 in Case C385/12-, Hervis Sport- és Divatkereskedelmi Kft. V Nemzeti Adó- és Vámhivatal Közép-dunántúli Regionális Adó Főigazgatósága, ECLI:EU:C:2014:47. 39 Treaty on the Functioning of the European Union, Official Journal C 326 , 26/10/2012 P. 0001 – 0390. 40 In addition, Hungarian entities would most often be subject to the tax-free amount and thus would not pay any tax at all. 41 Judgment of the Court of First Instance of 16 May 2019, in Joined Cases T-836/16 and T-624/17 Republic of Poland v European Commission, paragraph 47.

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disadvantage, in particular, taxable persons ’linked’ to companies which have their registered office in another Member State’.42 This means that the CJEU agreed with the position of the European Commission and the Government of the Republic of Austria that the turnover level criterion is only apparently objective. The decision of the CJEU contains a very laconic justification and it is difficult to find it convincing. The functioning of a group of related companies cannot be compared to a situation where independent entrepreneurs cooperate under a franchise agreement. The franchise agreement creates a much weaker link between them. Entities that were franchisees and were related to each other would already have to accumulate their tax bases. Aggregation of tax bases can be regarded as a means of combating tax avoidance. This is, after all, cumulation involving related parties. The removal of the possibility of cumulating the tax base creates a natural temptation to spin off a network of subsidiaries, which in practice will act jointly, and their separation will only be aimed at tax avoidance. It is important to note, however, that this ruling was made in 2014, when the BEPS Project had not yet dominated the thinking of lawyers almost everywhere. It is possible that nowadays the Hungarian government would be raising precisely the anti-avoidance argument. And it is not at all clear that it would not convince the CJEU, which is increasingly emphasising the need to fight tax optimisation.

6.

 Tax progressivity and the tax-free amount as prohibited state aid?

The European Commission also had reservations about both the Polish retail sales tax43 and the Hungarian Advertisement Tax based on regulations on state aid. According to the European Commission, the tax-free amount and the progressive character of rates created public aid for entities to which the maximum rate did not apply. This view was disagreed with by Advocate General Juliane Kokott and this position was shared both by the Court of First Instance in its judgment of 16 May 2019 in joined cases T-836/16 and T-624/17 Republic of Poland v European Commission,44 and in the judgment of the Court of Justice of the EU of 3 March

42 Judgment of the Court of Justice of the EU of 5 February 2014 in Case C 385/12, Hervis Sport- és Divatkereskedelmi Kft. V Nemzeti Adó- és Vámhivatal Közép-dunántúli Regionális Adó Főigazgatósága, ECLI:EU:C:2014:47. 43 Commission Decision (EU) 2018/160 of 30 June 2017 on State aid SA.44351 (2016/C) (ex 2016/NN), notified under document number C(2017) 4449), Official Journal of the European Union L 29/38. 44 ECLI:EU:T:2019:338.

Retail sales tax – an attempt at extraordinary taxation of trade in Poland against the European background

2020 in case C-323/18 Tesco-Global Áruházak Zrt. v Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága.45 It was crucial to decide whether progressivity and the tax-free amount had a selective character. Thus, a comparison with a ‘normal’ tax system is necessary. The European Commission assumed that a normal tax system is one based on a linear rate. The Court and the Tribunal disagreed with this reasoning. The ‘Polish’ judgment stated: ‘Having regard to the sectoral nature of the tax at issue and the absence of differentiated scales of rates for certain undertakings, the only ‘normal’ system which could be chosen in the present case was, as the Polish Government maintains, the tax on the retail sector itself, with its structure including its scale of progressive rates and its bands, including, however, contrary to that government’s submissions, the reduction of the tax base specified for the band of turnover from PLN 0 to PLN 17 million; this is because that reduction de facto forms part of the structure of taxation and, although it is exempt from the tax, the corresponding activity falls within its sectoral scope of application’.46 The European Commission’s views on the discriminatory nature of the tax were not upheld. The Court of First Instance overlooked suggestions by the European Commission (expressed rather ambiguously47 ) that the retail sales tax was intended to discriminate against foreign operators. This is in line with the position of the Court of Justice of the EU in the ‘Hungarian’ judgment, where it stated: ‘72. The fact that the greater part of such a special tax is borne by taxable persons owned by natural persons or legal persons of other Member States cannot be such as to merit, by itself, categorisation as discrimination. As stated by the Advocate General, in particular, in points 62, 65 and 78 of her Opinion, that situation is due to the fact that the Hungarian store retail trade market is dominated by such taxable persons, who achieve the highest turnover in that market. Accordingly, that situation is an indicator that is fortuitous, if not a matter of chance, which may arise, even in a system of proportional taxation, whenever the market concerned is dominated by undertakings of other Member States or of non-Member States or by national undertakings owned by natural persons or legal persons of other Member States or of non-Member States’.48 ‘53. It must be observed, moreover, that the basic band of tax charged at 0% does not exclusively affect taxable persons owned by Hungarian natural persons or legal persons, since, as in any system of progressive taxation, any undertaking operating

45 46 47 48

ECLI No: EU:C:2020:140. Paragraph 68 of the judgment. Paragraph 101 of the judgment. Paragraph 72 of the judgment.

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on the market concerned has the benefit of the reduction for the proportion of its turnover that does not exceed the maximum amount of that band’.49 The ruling in the Polish case was appealed to the CJEU.50 This is not an isolated case, as almost simultaneously a similar case regarding the Hungarian advertising tax was brought before the CJEU.51 In both cases analogous opinions were prepared by Advocate General Juliane Kokott. They are favourable for both countries and confirm the position expressed in both previously discussed judgments. Following the publication of Advocate General Juliane Kokott’s opinion in the context of the earlier CJEU judgment of 3 March 2020 in case C-323/18, the chances for the retail sales tax not to become part of the Polish tax system have practically shrunk to zero. Ultimately, the CJEU ruled on 16 March 2021 in case C562/19 that the Polish retail sales tax and the Hungarian advertising sales tax do not violate EU state aid law. The main thesis was as follows – ‘The Commission has not demonstrated that this progressive character of the rates, adopted by the Polish legislator in the exercise of its discretion under its tax autonomy, was conceived in a manifestly discriminatory manner in order to circumvent the requirements of EU law in the field of State aid. In those circumstances, the progressive nature of the rates of the tax measure at issue must be regarded as inherent in the system of reference or in the ’normal’ tax system, in the light of which the existence of a selective advantage in the present case must be assessed’52 .

7.

Completion

The above presented rulings are worth attention also for more general reasons. Acceptance of the position of the European Commission would mean a risk for all tax solutions that differentiate taxation of entrepreneurs depending on their size. If the CJEU accepted this line of reasoning, it would have an enormous impact on our social reality. Regardless of whether we consider it right or not, states try to support small and medium enterprises, treating them as a counterbalance to large corporations. Many instruments could prove to be incompatible with EU law. The selective nature of the European Commission’s actions is surprising. Even a cursory analysis indicates that its interest should be primarily in TASCOM. After

49 Paragraph 53 of the judgment. 50  C-562/19P, Commission v. Poland, opinion: ECLI:EU:C:2020:834, judgment: ECLI:EU:C:2021:201. T-836/16 ECLI:EU:T:2019:338. 51 C-596/19P Commission v Hungary, ECLI:EU:C:2020:835. T-20/17, ECLI:EU:T:2019:448. 52 ECLI:EU:C:2021:201.

Retail sales tax – an attempt at extraordinary taxation of trade in Poland against the European background

all, it significantly impedes the emergence of new retail facilities, petrifying the existing trade structure (by excluding pre-1960 facilities).

References Legal acts Loi n° 72–657 du 13 juillet 1972 instituant des mesures en faveur de certaines catégories de commerçants et artisans âgés. Ustawa o zmianie ustawy o podatku od sprzedaży detalicznej z dnia 12 grudnia 2019 r. (Dz. U. 2019 poz. 2497) [Act amending the Act on retail sales tax of 12 December 2019 (Journal of Laws 2019 item 2497)]. Ustawa o podatku od sprzedaży detalicznej z dnia 6 lipca 2016 r. (Dz.U. z 2020 r. poz. 1293). [Polish Retail Sales Tax Act of 6 July 2016] (Journal of Laws of 2020, item 1293)]. Ustawa o zmianie ustawy o szczególnych rozwiązaniach związanych z zapobieganiem, przeciwdziałaniem i zwalczaniem COVID-19, innych chorób zakaźnych oraz wywołanych nimi sytuacji kryzysowych oraz niektórych innych ustaw z dnia 31 marca 2020 r. (Dz.U. z 2020 r. poz. 568) [Polish Act of 31 March 2020 amending the Act on special arrangements for preventing, counteracting and combating COVID-19, other communicable diseases and emergencies caused by them, and some other acts (Dz.U. of 2020, item 568)]. Treaty on the Functioning of the European Union, Official Journal C 326, 26/10/2012 P. 0001 – 0390. Act XCIV of 2010 on Specific Taxes for certain sectors – Az egyes ágazatokat terhelő különadóról szóló 2010. évi XCIV. törvény.

Jurisdiction Judgment of the General Court (Ninth Chamber) 27 June 2019, Hungary vs. European Commission, ECLI:EU:T:2019:448. Judgment of the Court of First Instance of 16 May 2019 in Joined Cases T-836/16 and T-624/ 17, Republic of Poland v European Commission, ECLI:EU:T:2019:338. Judgment of the Court of Justice of the EU (First Chamber) of 26 April 2018 in Cases C-236/ 16 and C-237/16, SOCIACIÓN NACIONAL DE GRANDES EMPRESAS DE DISTRIBUCIÓN (ANGED) v. DIPUTACIÓN GENERAL DE ARAGÓN, ECLI:EU:C:2018:291. Judgment of the Court of Justice of the EU of 5 February 2014 in Case C385/12-, Hervis Sportés Divatkereskedelmi Kft. V Nemzeti Adó- és Vámhivatal Közép-dunántúli Regionális Adó Főigazgatósága, ECLI:EU:C:2014:47. Judgment of the Court of Justice of the EU of 3 March 2020 in Case C-323/18, TescoGlobal Áruházak Zrt. v Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága No ECLI: EU:C:2020:140.

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Judgment of the Court of Justice of the EU of 16 March 2021 in Case C562/19-, European Commission v Republic of Poland, ECLI:EU:C:2021:201.

Literature Brzeziński B., Prawo podatkowe. Zagadnienia teorii i praktyki [Theory and practice issues], TNOiK DOM ORGANIZATORA, Edition I, 2017. Carroll R., Viard A. D. Progressive Consumption Taxation: The X Tax Revisited, Rowman & Littlefield, 2012. Graves M., New York’s Retail Sales Tax, Tax Magazine, 1933, vol. 11, issue 7. Johmson C.R., The Ohio Retail Sales Tax Act, Ohio State Law Journal, vol. 11, issue 2, p. 143. Jurinski J., Tax Reform: A Reference Handbook, ABC-CLIO, 2012. Mariański M., Challenges and problems of local government finances in the light of the french cour des comptes reports as a guide for the Polish legislature, in: Mrkývka P., Gliniecka J., Tomášková E., Juchniewicz E., Sowiński T., Radvan M. (ed.), The challenges of local government financing in the light of european union regional policy, ACTA UNIVERSITATIS BRUNENSIS IURIDICA, Editio Scientia vol. 636. Mikesell J. L., Misconceptions about Value-Added and Retail Sales Taxes: Are They Barriers to Sensible Tax Policy?, 2014 Public Financial Publications, Inc. Nelson B. M., Collins J. T., Healy J. C., Sales and Use Tax Answer Book, CCH, 2008. Rosen H. S., Gayer T., Public Finance. New York, McGraw-Hill, 2010. Shiyu L., Shuanglin L., The Effect of an Introduction of Retail Sales Tax in China, Narayanan, Suresh. Asian Economic Papers. Summer 2018, Vol. 17 Issue 2. Szudoczky R., Hungary: Progressive Turnover Taxes in the Light of the EU Fundamental Freedoms and State Aid Rules, in: Lang M., Pistone P. Rust A., Schuch J., Staringer C., Storck A., CJEU – Recent Developments in Direct Taxation 2018, Linde Verlag GmbH, 2019. Szudoczky R., Karolyi B., The Trouble Story of the Hungarian Advertisement Tax: How (Not) to Design a Progressive Tax, Intertax, 2020, vol. 48, Issue 1.

Netography Christian P. C., ‘Sales Tax Enforcement: An Empirical Analysis of Compliance Enforcement Methodologies and Pathologies’ (2010). FIU Electronic Theses and Dissertations. https:// digitalcommons.fiu.edu/etd/335 https://podatki.gazetaprawna.pl/artykuly/1122305,duze-sieci-handlowe-w-polsce-apodatek-cit.html https://www.wiadomoscihandlowe.pl/artykul/ministerstwo-finansow-polskie-izagraniczne-sieci-powszechnie-optymalizuja-podatki/1 OECD (2018), Consumption Tax Trends 2018: VAT/GST and Excise Rates, Trends and Policy Issues, OECD Publishing, Paris, https://doi.org/10.1787/ctt-2018-en.

Retail sales tax – an attempt at extraordinary taxation of trade in Poland against the European background

Service-public-pro.fr – Le site officiel de l’administration francaise, (Vérifié le 01 janvier 2020 – Direction de l’information légale et administrative (Premier ministre), Ministère chargé des finances) https://www.service-public.fr/professionnels-entreprises/vosdroits/ F22790 Taxe sur les surfaces commerciales 2016 Guide https://www.lexisnexis.fr/pdf/L360_TAX_-_ Dossiers/Guide_TASCOM.pdf Explanatory Memorandum to the Government’s Draft Retail Sales Tax Bill https:// legislacja.rcl.gov.pl/projekt/12281601; http://www.sejm.gov.pl/Sejm8.nsf/PrzebiegProc. xsp?id=BD123343F204ECE8C1257FD300361C39

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Environmental and health taxes – not just a source of revenue

1.

Constitutional freedoms and rights as guarantees of pro-environmental and pro-health activities of the state

Pro-environmental and pro-health activities of the Polish state are constitutionally guaranteed. In the Constitution of the Republic of Poland of 2 April 19971 , issues related to the environment and state activities in the field of health protection are included in various provisions. Protection of the environment is provided for in one of the initial provisions of the Constitution. Namely, in accordance with Article 5 of the Constitution, the Republic of Poland shall safeguard the independence and inviolability of its territory, ensure freedom and human and civil rights and the security of citizens, safeguard the national heritage and ensure environmental protection in accordance with the principle of sustainable development.2 The principle of sustainable development is one of the basic system principles of the state.3 Sustainable development means that one should interfere in the environment in a manner that is least harmful to natural resources and that the social benefits of such interference should outweigh the potential damage to the environment.4 More specifically, environmental and health protection issues are included in the section on freedoms, rights and duties of man and citizen as economic, social and cultural freedoms and rights. Both environmental protection and public health are highly esteemed values.5 It is worth noting that, in accordance with Article 31(3),

1 Journal of Laws 1997, No. 78, item 483, as amended. 2 See M. Florczak-Wątor, Uwagi do Art. 5 [Comments on art. 5], in: Konstytucja RP. Tom I. Komentarz do Art. 1–86 [Constitution of the Republic of Poland. Volume I. Commentary to Articles 1–86]; Legalis/el. 3 M. Serowaniec, Sustainable Development Policy and Renewable Energy in Poland, Energies 2021, 14(8), 2244; https://doi.org/10.3390/en14082244. 4 B. Rakoczy, Principle of Sustainable Development, in: Lexicon of Environmental Protection, in: ed. J. Ciechanowicz-McLean; Wolters Kluwer Publishing House: Warsaw, Poland, 2009; p. 401. 5 A. Brzezińska-Rawa, Ochrona wartości wysoko cenionych w działalności gospodarczej [Protection of highly esteemed values in economic activity, in: ed. A. Brzezińska-Rawa, D. Sylwestrzak, Węzłowe problemy oddziaływania państwa na konkurencyjność i innowacyjność gospodarki z perspektywy różnych dziedzach prawa [Key problems of the state’s influence on the competitiveness and innovation of the economy from the perspective of various areas of law], Toruń 2015, pp. 11–23.

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limitations on the exercise of constitutional freedoms and rights may be established only by statute and only when they are necessary in a democratic state for its security or legal order or for the protection of the environment, health and public morals or the freedoms and rights of others. Such limitations may not impair the essence of the freedoms and rights.6 A permissible restriction of rights and freedoms must be so substantively justified that, in a conflict with, in particular, the principle of freedom of economic activity, the axiological calculus prevails in its favour.7 As regards protection of the environment, the Constitution stipulates in Article 74 that public authorities shall pursue a policy ensuring ecological security8 for present and future generations9 . Environmental protection is the duty of public authorities, and public authorities support the activities of citizens for the protection and improvement of the environment. In addition, everyone has the right to information about the state and protection of the environment. According to Article 86, everyone is obliged to take care of the state of the environment and is responsible for the deterioration caused by him. In matters of health protection, Article 68 (1)-(3) and (5) of the Constitution provides that everyone has the right to health protection. This refers to every citizen, and sometimes to every person.10 Citizens, regardless of their material situation,

6 More in: A. Brzezińska-Rawa, Wolność gospodarcza i jej ograniczenia oraz metody i środków prawne wpływu państwa na gospodarkę jako punkt wyjścia do rozważań nad rolą państwa w kształtowaniu konkurencyjności i innowacyjności przedsiębiorców [Economic freedom and its limitations as well as methods and legal means of the state’s influence on the economy as a starting point for considering the role of the state in shaping the competitiveness and innovation of entrepreneurs], in: ed. A. Brzezińska-Rawa, Rola państwa w procesach podnoszenia konkurencyjności i innowacyjności przedsiębiorców. Diagnoza istniejących uwarunkowań i barier prawnych, perspektywy rozwoju [The role of the state in the processes of increasing the competitiveness and innovation of entrepreneurs. Diagnosis of existing conditions and legal barriers, prospects for development], Warsaw 2015, pp. 1–8. 7 Judgment of the Constitutional Tribunal of 8 July 2008, K 46/07, OTK-A, No 6, item 104. 8 Ecological safety is defined by J. Ciechanowicz as: ”total elimination or reduction to minimum of various threats to human life and health which originate from his living environment, biosphere. These are threats which arise in the environment as a result of conscious or not fully conscious action of man himself and are directed against him, against specific populations. These are therefore ecological threats of an anthropogenic nature”, J. Ciechanowicz, Międzynarodowe prawo ochrony środowiska [International Law on Environmental Protection], Warsaw 1999, pp. 46–47. 9 See: T. Bojar-Fijałkowski, Bezpieczeństwo ekologiczne – aspekty prawne, polityczne i ekonomiczne [Ecological safety – legal, political and economic aspects], in: Administracja, biznes, bezpieczeństwo w zmieniającej się Europie [Administration, business, security in a changing Europe], Gdynia 2007, s. 161–163; P. Korzeniowski, Bezpieczeństwo ekologiczne jako instytucja prawna ochrony środowiska [Ecological safety as a legal institution of environmental protection], Łódź 2012, s. 47 i n. 10 In more detail: J. Trzciński, M. Wiącek, Komentarz do art. 68 [Commentary on art. 68], in: L. Garlicki, M. Zubik (ed.), Konstytucja Rzeczypospolitej Polskiej. Komentarz [Costitution of the Republic of Poland. Commentary], Vol. II, 2nd ed., LEX/el.

Environmental and health taxes – not just a source of revenue

shall be provided with equal access to health care services financed from public funds by public authorities. The conditions and scope of the provision of benefits shall be determined by law. Public authorities are obliged to provide special health care for children, pregnant women, the disabled and the elderly. Furthermore, the public authorities shall support the development of physical culture, especially among children and young people. One of the provisions of the Constitution clearly links the issues of environmental protection and health protection. In the light of Article 68 (4), public authorities are obliged to combat epidemic diseases and prevent the negative health effects of environmental degradation.

2.

Definitions, objectives and functions of environmental and health taxes

The fiscal activities of the state in both these areas are only selective and do not have a long tradition. At present, there is no tax in Poland with the words ecological or environmental in its name. Similarly, there is no tax which would be directly called a health tax. The problem of defining an environmental tax is clearly observable in Poland. Environmental tax is defined in various ways. According to one of the proposed definitions, environmental taxes are financial burdens, usually directed to the central budget, imposed by public authorities without counteraction, where the object of taxation is a phenomenon, action or thing affecting the environment in a negative way.11 There is no consensus in the literature on how environmental tax revenues can be used. Some authors indicate that they can be used in two directions. The first direction is to increase budget revenues (they can then be directed to various purposes, including reduction of the budget deficit and repayment of debt).12 The second direction is the allocation of these revenues for tasks related to environmental protection.13 This position is consistent with OECD guidelines, according to which environmental taxes support the implementation of the following goals:

11 M. Ziółko, Ecological taxes in Poland, in: eds. P. Urbanek, E. Walińska, Economics and management sciences under conditions of economic integration, Łódź 2016, https://wydawnictwo.uni.lodz.pl/wpcontent/uploads/2016/10/Urbanek_Walinska_Ekonomia-9.pdf, p. 140. 12 J. Głuchowski, Podatki ekologiczne [Ecological taxes]. Warsaw 2002:, p. 109. 13 B. Walczak, Podatki ekologiczne jako instrumenty polityki państwa w zakresie ochrony środowiska [Environmental taxes as instruments of state policy in the field of environmental protection], Zeszyty Naukowe Uniwersytetu Szczecińskiego nr 604, Ekonomiczne problemy usług, 2010, no. 60, p. 426, https://doi.org/10.15611/pn. 2015.409.12.

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– support a reduction in the production and consumption of goods that have a negative impact on the natural environment to a level considered safe, – increase in revenue of the state budget or local government units, – strengthening legal, administrative and penal provisions with a view to protecting the environment.14 – In other studies, however, it is indicated that the basic aim of an environmental tax is ‘implementation of environmental objectives and not covering fiscal needs of the state’.15 It is therefore a narrower approach than the one presented above. In this approach, the basic function of environmental taxes is to motivate companies to seek solutions which reduce the negative aspects of their business activities.16 In other words, the function of environmental taxes is to raise funds, encourage environmental protection activities and discourage environmentally harmful activities.17 It follows that environmental taxes, on the one hand, are a way to reduce pollution from diffuse sources of emissions; on the other hand, they provide incentives not only for businesses but also for consumers to use nature’s resources more rationally and consciously. Environmental taxation should prevent over-exploitation of natural resources and raise public awareness, as well as provide support for economical and rational management. They may also contribute to stimulating technological and organisational innovation, and provide support for structural changes.18 It is worth noting that there is a correlation between environmental taxes and economic, social and environmental indicators. Certainly, an appropriate tax system can be an incentive for entrepreneurs to make rational decisions on environmental protection.19

14 OECD, Implementation Strategies for Environmental Taxes, 1996, pp. 20–22. 15 F. Grądalski, Teoretyczne podstawy ekologicznego systemu podatkowego [Theoretical Foundations of the Ecological Tax System], Gospodarka Narodowa 2002, no. 10. https://doi.org/10.33119/gn/ 113864, p. 25. 16 P.P. Małecki, System opłat i podatków ekologicznych w Polsce na tle rozwiązań w krajach OECD [System of ecological fees and taxes in Poland compared to solutions in OECD countries], Wydawnictwo Uniwersytetu Ekonomicznego w Krakowie, Kraków, 2012, p. 2. 17 T. Żylicz, Ekonomia środowiska i zasobów naturalnych [Economics of the environment and natural resources], Warsaw 2004, PWE Publishing House, p. 157. 18 M. Ziółko, Ecological taxes in Poland, in: eds. P. Urbanek, E. Walińska, Economics and management sciences under conditions of economic integration, Łódź 2016, https://wydawnictwo.uni.lodz.pl/wpcontent/uploads/2016/10/Urbanek_Walinska_Ekonomia-9.pdf, pp. 139–149). 19 A. Misztal, Podatki środowiskowe a zrównoważony rozwój polskich przedsiębiorstw transportowych [Environmental taxes and the sustainable development of Polish transport enterprises], Material Economy and Logistics Journal, vol. LXXII, no. 1/2020, DOI 10.33226/1231-2037.2020.1.5, p. 39.

Environmental and health taxes – not just a source of revenue

Environmental taxes may also play an additional informative role, as the amount of revenue generated from taxes as well as their structure may be a carrier of information on the course of economic processes. For example, through the application of specific rates in fuel taxes, the revenues obtained on this account make it possible to analyse the consumption of energy carriers in the economy. The informative function of environmental taxes can also be identified with the transfer, by means of taxes, of signals on significant environmental threats and the need for appropriate behaviour of entities obliged to pay them. Consequently, a high charge on a particular product may be indicative of its high environmental harmfulness.20 Health taxes are designed to change the eating habits of consumers by raising the price of goods which are harmful to health. Apart from classic excise taxes on alcohol and tobacco products, for a long time there were no pro-health taxes in Poland. In the case of these two taxes, the fiscal, rather than the health-promoting, objective came to the fore, although of course there was talk of the harmfulness of smoking tobacco or drinking alcohol. Relatively recently, two levies have been introduced, namely a levy on sweetened beverages and beverages with caffeine and taurine, and a levy on small bottles of alcohol.

3.

Types of environmental and health taxes

As indicated above, there is no consensus in the Polish literature as to how an environmental tax should be understood. There is also no consistency as to what their types are. One of the classifications of environmental taxes presented in the literature is based on the division of environmental taxes by type into: 1. energy and fuel taxes: – carbon; – sulfuric; – on motor fuels and diesel oils; – on electricity; – on coal and coke; – from aviation fuels; 2. Other environmental taxes: – on motor vehicles;

20 B. Bartniczak, M. Ptak, Opłaty i podatki ekologiczne. Teoria i praktyka [Ecological fees and taxes. Theory and practice], Wydawnictwo Uniwersytetu Ekonomicznego we Wrocławiu, Wrocław 2011, p. 54.

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– from the final disposal of the waste; – from packaging21 . A more recent and broader classification of environmental taxes presented in the literature uses the criterion of the subject of taxation and, based on this, distinguishes four groups of environmental taxes: – energy taxes, which comprise taxes on energy carriers used in stationary processes and transport (petrol, diesel), and include carbon dioxide emission taxes, – transport taxes on the use of motor vehicles, aircraft and charges for related services, – emission taxes, which include taxes on pollutant emissions and on noise emissions, – taxes on natural resources, relating to mining, forestry use and water management.22 Due to the limitations of the volume of this study and the lack of a unified position on the types of environmental taxes, only excise tax rates as of January 1, 2021 will be presented below in a table. The table also includes excise tax rates on alcohol and tobacco products mentioned in the context of health taxes.

21 P.P. Małecki, Podatki i opłaty ekologiczne [Ecological fees and taxes], Wydawnictwo Akademii Ekonomicznej w Krakowie, Kraków 2006, p. 13. 22 B. Bartniczak, M. Ptak, Opłaty i podatki ekologiczne. Teoria i praktyka [Ecological fees and taxes. Theory and practice], Wroclaw University of Economics Publishing House, Wroclaw 2011, pp. 58–59.

Environmental and health taxes – not just a source of revenue

Table 1 Excise tax rates for 2021 PRODUCTION

UNIT

coal and coke motor spirits aviation gasolines gasoline-type jet fuel kerosene jet fuel diesel oils bio-components that are fuels in their own right gas oils for heating purposes light heating oils heavy fuel oils lubricating oils and lubricating preparations gaseous fuels for internal combustion engines – liquefied gaseous fuels for internal combustion engines – in gaseous state natural gas for internal combustion engines biogas for internal combustion engines hydrogen and biohydrogen for internal combustion engines other gaseous fuels for internal combustion engines other motor fuels gaseous fuels for heating purposes other heating fuels with a density < 890kg/m³ other heating fuels with a density ≥ 890kg/m³ electricity ethyl alcohol beer wine fermented drinks cider and perry of a strength of ≤ 5% vol. intermediate products cigarettes

GJ 1000 l 1000 l 1000 l 1000 l 1000 l 1000 l 1000 l 1000 l 1000 l 1000 kg 1000 l 1000 kg

rate in PLN or % 1,28 1514 1822 1822 1822 1446 1145 1145 232 232 64 1180 644

GJ

10,02

-

0 0 0

GJ

13,70

1000 l GJ 1000 l 1000 kg MWh hl 100% vol. hl OPlato hl hl hl hl 1000 pcs. + max retail price. kg + max retail prices. kg

1771 1,28 232 64 5 6275 8,57 174 174 97 350 228,10 + 32,05%

smoking tobacco cigars and cigarillos

155,79 + 32,05% 433

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PRODUCTION

UNIT

rate in PLN or % tobacco kg 252,25 innovative products kg + max retail 155,79 + 32,05% prices. liquid for electronic cigarettes ml 0,55 passenger cars with engine capacity > 2000 cm³ tax base 18,60% plug-in hybrid passenger cars with engine capac- tax base 9,30% ity>2000≤3500 cm3 hybrid passenger cars with engine tax base 9,30% capacity>2000≤3500 cm3 hybrid passenger cars with engine tax base 1,55% capacity ≤2000 cm3 passenger cars other tax base 3,10% Source: https://www.podatki.gov.pl/akcyza/stawki-podatkowe/?altTemplate=ArticlePdf&download= True (downloaded on: 12.09.2021).

Environmental taxes should be distinguished from environmental charges. Environmental charges are financial charges, not fully equivalent in nature, levied in exchange for the use of natural resources and environmental assets and enforced by public authorities.23 It is pointed out that environmental taxes therefore fulfil the criterion of transparency much better than environmental charges which, for the final consumer, are hidden in the prices of the final products and in most cases the consumer is not aware of them.24 The range of environmental charges is much wider than that of environmental taxes.25 When it comes to health taxes, two new fees are worth mentioning. They are effective from 1 January 2021. They have been introduced under the Act of 14 February 2020 on amending certain acts in connection with the promotion of prohealth consumer choices.26 The imposition of these duties is expected to improve

23 M. Ziółko, Podatki ekologiczne w Polsce [Ecological taxes in Poland], in: eds. P. Urbanek, E. Walińska, Ekonomia i nauki o zarządzania w warunkach integracji gospodarczej [Economics and management science in the conditions of economic integration], Łódź 2016, https://wydawnictwo.uni.lodz.pl/wpcontent/uploads/2016/10/Urbanek_Walinska_Ekonomia-9.pdf, p. 140. 24 B. Kryk, L. Kłos, L.A. Łucka, Opłaty i podatki ekologiczne po polsku [Ecological fees and taxes in Polish], Warsaw 2011, p. 27. 25 These include: Environmental fees, product fees, fees for used electrical and electronic equipment, fees for disposal of batteries and accumulators, fee for placing controlled substances on the market in the territory of the Republic of Poland, fees for lack of network and ”recycling” fees concerning recycling of end-of-life vehicles, fees for removal of trees or bushes, charges, fees and compensations in the Law on Protection of Agricultural and Forest Land, fees in the Law on Extraction of Minerals from Deposits, fees for putting into use a fishing circuit and land covered with waters – za: B. Bartniczak, M. Ptak, Opłaty ekologiczne w Polsce [Ecological fees in Poland], Wrocław 2013, pp. 71. 26 Journal of Laws of 2020, item 1492.

Environmental and health taxes – not just a source of revenue

the quality of health of Poles. The legislator indicates that the imposition of these levies is to be a use of fiscal policy as a tool to promote pro-health consumer choices.27 The first of them is a fee provided for in the Act on Upbringing in Sobriety and Counteracting Alcoholism.28 The fee amounts to 25 zlotys per litre of one hundred percent alcohol sold in containers of up to 300 ml. The money from the fee will go in 50% to communities and in 50% to the National Health Fund for education, prevention and psychiatric care and addiction treatment. The fee will be collected at the time of sale in a shop (the fee applies to alcohol intended for consumption outside the point of sale). The legal basis for the so-called sugar tax is the Public Health Act.29 It introduces a levy on foodstuffs. The Act of 14 February 2020 on amending certain acts in connection with the promotion of health-oriented consumer choices. In light of Article 12a of this Act, the levy is imposed on the marketing of beverages with additives on the domestic market: 1. sugars which are monosaccharides or disaccharides, and foodstuffs containing these substances and sweeteners,30 2. caffeine or taurine. A beverage is defined as a product in the form of a beverage and a syrup, being a foodstuff, included in the Polish Classification of Goods and Services in classes 10.32 and 10.89 and in Chapter 11, which contains one or more of the above substances (sugars, caffeine, taurine), excluding substances occurring naturally in them. Certain beverages are exempt from this fee. The introduction of beverages on the domestic market is not subject to the charge: 1. being medical devices,31 2. being food supplements,32

27 M. Brzostowska, Podatek cukrowy w praktyce [Sugar tax in practice], Lex 2021, p. 1. 28 Ustawa z dnia 26 października 1982 r. o wychowaniu w trzeźwości i przeciwdziałaniu alkoholizmowi [Act of 26 October 1982 on Upbringing in Sobriety and Counteracting Alcoholism], Journal of Laws of 2021. , item 1119. 29 Ustawa z dnia 11 września 2015 r. o zdrowiu publicznym [Act of September 11, 2015 on public health], Journal of Laws 2021, item 183. 30 Regulation (EC) No 1333/2008 of the European Parliament and of the Council of 16 December 2008 on food additives, OJ L 354, 31.12.2008, p. 16, as amended. 31 Artykuł 2 ust. 1 pkt 38 ustawy z dnia 20 maja 2010 r. o wyrobach medycznych [Article 2 (1) (38) of the Act of 20 May 2010 on medical devices], Journal of Laws of 2020, item 186 and 1493. 32 Artykuł 3 ust. 3 pkt 39 ustawy z dnia 25 sierpnia 2006 r. o bezpieczeństwie żywności i żywienia [Article 3 (3) (39) of the Act of 25 August 2006 on food and nutrition safety], Journal of Laws of 2020, item 2021.

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3. being food for special medical purposes, infant formulae, follow-on formulae,33 4. being excise goods,34 5. in which the proportion by weight of fruit, vegetable or fruit and vegetable juice is not less than 20 % of the raw material composition and the sugar content is less than or equal to 5 g per 100 ml of beverage; 6. being carbohydrate-electrolyte solutions containing 5 g or less of sugars per 100 ml of beverage;35 7. being products in which milk or milk products are first on the list of ingredients, regardless of their classification in the Polish Classification of Goods and Services. This levy constitutes 96,5 % of the revenue of the National Health Fund. The levy on sweetened beverages is not a tax as it is primarily intended to contribute to the budget of the National Health Fund. The National Health Fund allocates it for educational and preventive activities, as well as for health care services related to the maintenance and improvement of the health of recipients with diseases developed against the background of inappropriate health choices and behaviours, in particular overweight and obesity. In the remaining 3.5% the fee constitutes state budget revenue and is administered by the minister competent for public finance. The fee consists of the following parts: 1. PLN 0.50 for the content of sugars equal to or less than 5 g per 100 ml of beverage or for the content of at least one sweetener per litre of beverage in any quantity, 2. PLN 0,05 for each gram of sugars exceeding 5 g per 100 ml of beverage, calculated per litre of beverage. Beverages containing added caffeine or taurine are charged PLN 0.10 per litre of beverage. The maximum charge, irrespective of the substance they contain, is PLN 1.2 per litre of beverage.

33 Regulation (EU) No 609/2013 of the European Parliament and of the Council of 12 June 2013. on food intended for infants and young children and on food for special medical purposes and foodstuffs intended to replace the total diet, for weight control and repealing Council Directive 92/52/EEC, Commission Directives 96/8/EC, 1999/21/EC, 2006/125/EC and 2006/141/EC, Directive 2009/39/EC of the European Parliament and of the Council and Commission Regulations (EC) No 41/2009 and (EC) No 953/2009, OJ L 181, 29.06.2013, p. 35, as amended. 34 Within the meaning of Article 2(1)(1) of the Act of 6 December 2008 on Excise Tax, Journal of Laws of 2020, item 722 as amended and of 2021, item 72. 35 Commission Regulation (EU) No 432/2012 of 16 May 2012 establishing a list of permitted health claims made on foods, other than those referring to the reduction of disease risk and to children’s development and health, OJ L 136, 25.05.2012, p. 1.

Environmental and health taxes – not just a source of revenue

4.

Summary

Currently, there is no environmental or health tax in Poland. There are only certain tax solutions that perform such functions. Specifically, in the case of environmental tax solutions, they may have two main functions: repressive or incentive for proenvironmental actions. In the case of health taxes, their function is to change the eating habits of consumers. The range of taxes and fees that can be considered as environmental and health taxes is wide. There is a need for deeper reflection on systemic solutions in both of the above scopes and increasing the way of spending the money obtained as a result for the purposes related to environmental and health protection.

References Legal acts Konstytucja Rzeczpospolitej Polskiej z 2 kwietnia 1997 r. [Constitution of the Republic of Poland of 2 April 1997], Journal of Laws of 1997, No. 78, item 483 as amended. Regulation (EC) No 1333/2008 of the European Parliament and of the Council of 16 December 2008 on food additives, OJ L 354, 31.12.2008, p. 16, as amended. Regulation (EU) No 609/2013 of the European Parliament and of the Council of 12 June 2013. on food intended for infants and young children and on food for special medical purposes and foodstuffs intended to replace the total diet, for weight control and repealing Council Directive 92/52/EEC, Commission Directives 96/8/EC, 1999/21/EC, 2006/125/EC and 2006/141/EC, Directive 2009/39/EC of the European Parliament and of the Council and Commission Regulations (EC) No 41/2009 and (EC) No 953/2009, OJ L 181, 29.06.2013, p. 35, as amended. Commission Regulation (EU) No 432/2012 of 16 May 2012 establishing a list of permitted health claims made on foods, other than those referring to the reduction of disease risk and to children’s development and health, OJ L 136, 25.05.2012, p. 1. Ustawa z dnia 26 października 1982 r. o wychowaniu w trzeźwości i przeciwdziałaniu alkoholizmowi [Act of 26 October 1982 on Education in Sobriety and Counteracting Alcoholism], Journal of Laws of 2021, item 1119. Ustawa z dnia 25 sierpnia 2006 r. o bezpieczeństwie żywności i żywienia [Act of 25 August 2006 on food and nutrition safety], Journal of Laws of 2020, item 2021. Ustawa z dnia 6 grudnia 2008 r. o podatku akcyzowym [Act of 6 December 2008 on excise tax], Journal of Laws of 2020, item 722 as amended and of 2021, item 72. Ustawa z dnia 20 maja 2010 r. o wyrobach medycznych [Act of 20 May 2010 on medical devices], Journal of Laws of 2020, item 186 and 1493.

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Ustawa z dnia 11 września 2015 r. o zdrowiu publicznym [Act of September 11, 2015 on public health], Journal of Laws 2021, item 183. Ustawa z dnia 14 lutego 2020 r. o zmianie niektórych ustaw w związku z promocją prozdrowotnych wyborów konsumentów [Act of 14 February 2020 on amending certain laws in connection with the promotion of health-oriented consumer choices], Journal of Laws of 2020, item 1492.

Literature Bartniczak B., Ptak M., Opłaty i podatki ekologiczne. Teoria i praktyka [Ecological fees and taxes. Theory and practice], Wroclaw University of Economics Publishing House, Wroclaw 2011. Bartniczak B., Ptak M., Opłaty ekologiczne w Polsce [Ecological fees in Poland], Wrocław 2013. Bojar-Fijałkowski T., Bezpieczeństwo ekologiczne – aspekty prawne, polityczne i ekonomiczne [Ecological safety – legal, political and economic aspects], in: Administracja, biznes, bezpieczeństwo w zmieniającej się Europie [Administration, business, security in a changing Europe], Gdynia 2007. Brzezińska-Rawa A., Ochrona wartości wysoko cenionych w działalności gospodarczej [Protection of highly valued values in economic activity], in: A. Brzezińska-Rawa, D. Sylwestrzak (ed.), Węzłowe problemy oddziaływania państwa na konkurencyjność i innowacyjność gospodarki z perspektywy różnych dziedzach prawa [Key problems of the state’s influence on the competitiveness and innovation of the economy from the perspective of various areas of law], Toruń 2015. Brzezińska-Rawa A., Wolność gospodarcza i jej ograniczenia oraz metody i środków prawne wpływu państwa na gospodarkę jako punkt wyjścia do rozważań nad rolą państwa w kształtowaniu konkurencyjności i innowacyjności przedsiębiorców [Economic freedom and its limitations as well as methods and legal means of the state’s influence on the economy as a starting point for considering the role of the state in shaping the competitiveness and innovation of entrepreneurs], in: A. Brzezińska-Rawa (ed.), Rola państwa w procesach podnoszenia konkurencyjności i innowacyjności przedsiębiorców. Diagnoza istniejących uwarunkowań i barier prawnych, perspektywy rozwoju [The role of the state in the processes of increasing the competitiveness and innovation of entrepreneurs. Diagnosis of existing conditions and legal barriers, prospects for development], Warsaw 2015. Brzostowska M., Podatek cukrowy w praktyce [Sugar tax in practice], Lex 2021. Ciechanowicz J., Międzynarodowe prawo ochrony środowiska [International Law on Environmental Protection], Warszawa 1999. Florczak-Wątor M., Uwagi do Art. 5 [Comments on art. 5], in: Konstytucja RP. Tom I. Komentarz Do Art. 1–86 [Constitution of the Republic of Poland. Volume I. Commentary to Articles 1–86]; Legalis/el.

Environmental and health taxes – not just a source of revenue

Głuchowski J., Podatki ekologiczne [Ecological taxes]. Warsaw 2002. Grądalski F., Teoretyczne podstawy ekologicznego systemu podatkowego [Theoretical Foundations of the Ecological Tax System], Gospodarka Narodowa 2002, no 10. https://doi. org/10.33119/gn/113864. Korzeniowski P., Bezpieczeństwo ekologiczne jako instytucja prawna ochrony środowiska, [Ecological safety as a legal institution of environmental protection], Łódź 2012. Kryk B., Kłos L., Łucka L.A., Opłaty i podatki ekologiczne po polsku [Ecological fees and taxes in Polish], Warszawa 2011. Małecki P.P., Podatki i opłaty ekologiczne [Ecological fees and taxes], Wydawnictwo Akademii Ekonomicznej w Krakowie, Kraków 2006. Małecki P.P., System opłat i podatków ekologicznych w Polsce na tle rozwiązań w krajach OECD [System of ecological fees and taxes in Poland compared to solutions in OECD countries], Wydawnictwo Uniwersytetu Ekonomicznego w Krakowie, Kraków 2012. Misztal A., Podatki środowiskowe a zrównoważony rozwój polskich przedsiębiorstw transportowych [Environmental taxes and the sustainable development of Polish transport enterprises], Material Economy and Logistics Journal, vol. LXXII, no. 1/2020, DOI 10.33226/ 1231–2037.2020.1.5. OECD, Implementation Strategies for Environmental Taxes, 1996. Rakoczy B., Zasada Zrównoważonego Rozwoju [Principle of Sustainable Development], in: Leksykon Ochrony Środowiska [Lexicon of Environmental Protection], in: J. Ciechanowicz-McLean (ed.), Wolters Kluwer Publishing House: Warsaw 2009. Serowaniec M., Sustainable Development Policy and Renewable Energy in Poland Energies 2021, 14(8), 2244; https://doi.org/10.3390/en14082244. Trzciński J., Wiącek M., Komentarz do art. 68 [Commentary on art. 68], in: L. Garlicki, M. Zubik (ed.), Konstytucja Rzeczypospolitej Polskiej. Komentarz [Costitution of the Republic of Poland. Commentary], Vol. II, 2nd ed., LEX/el. Walczak B., Podatki ekologiczne jako instrumenty polityki państwa w zakresie ochrony środowiska [Ecological taxes as instruments of state policy on environmental protection], Zeszyty Naukowe Uniwersytetu Szczecińskiego nr 604, Ekonomiczne problemy usług, 2010, No. 60, p. 426, https://doi.org/10.15611/pn. 2015.409.12. Ziółko M., Podatki ekologiczne w Polsce [Ecological taxes in Poland], in: eds. P. Urbanek, E. Walińska, Ekonomia i nauki o zarządzania w warunkach integracji gospodarczej [Economics and management science in the conditions of economic integration], Łódź 2016, https://wydawnictwo.uni.lodz.pl/wp-content/uploads/2016/10/Urbanek_ Walinska_ Ekonomia-9.pdf. Żylicz T. Ekonomia środowiska i zasobów naturalnych [Economics of the environment and natural resources], PWE Publishing House, Warszawa 2004.

Jurisdiction Judgment of the Constitutional Tribunal of 8 July 2008, K 46/07, OTK-A, No 6, pos. 104.

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Netography Stawki podatku akcyzowego stawki podatku według stanu na 1 stycznia 2021 r. [Excise tax rates as of January 1, 2021], https://www.podatki.gov.pl/akcyza/stawki-podatkowe/? altTemplate=ArticlePdf&download=True (downloaded on: 12.09.2021).

Joanna Zawiejska-Rataj

Tax administration in Poland: changes to organisation, competencies and procedures – dilemma between effectiveness and audited entities rights

1.

Introduction

On 1 March 2017 in Poland the Act on National Revenue Administration1 (further referred to as: NRA Act) entered into force, bringing many innovations regarding the authorities and procedures allowing the state to verify in particular the appropriateness of tax settlements of taxpayers and tax remitters. The introduction of the new rules was justified by the necessity of tax authorities to have the ability to act with the highest efficiency in order to combat tax fraud. In this respect the new regulation, replacing among others the Act on Fiscal Control2 , was supposed to create a unified, effective tax administration, with proceedings to be applied as so called ‘hard’ procedure, existing next to ‘soft’ procedure regulated so far by the Tax Ordinance Act.3 After over 2 years of application of the NRA Act some practical aspects may be observed, and the question arises, whether the radical change to a tax audit model fulfilled the expectations of the authors of the reform. The analysis below is focused on the possibilities of tax authorities to verify the compliance with tax regulations, bearing in mind the comparison of the so far existing audit procedures regulated in the Tax Ordinance Act and the new procedure – customs fiscal audit, introduced by NRA Act, especially from the perspective of the audited entity rights and effectiveness of the given procedure. The article covers also a general overview of the Polish tax system with regard to the competent authorities as well as other procedures applicable, in order to give a wider picture of the current regulations in this respect.

1 Ustawa z dnia 16 listopada 2016 r. o Krajowej Administracji Skarbowej [The Act of 16 November 2016 on National Revenue Administration] J. of L. of 2016, item 1947 as amended. 2 Ustawa z dnia 28 września 1991 r. o kontroli skarbowej [The Act of 28 September 1991 on Fiscal Control], J of L. of 1991, No 100, item 442 as amended, repealed as of 1 March 2017. 3 Ustawa z dnia 29 sierpnia 1997 r. Ordynacja podatkowa [The Tax Ordinance Act of 29 August 1997], J. of L. of 1997 No 137, item 926 as amended.

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2.

Authorities and their competencies in the area of verification of taxpayers’ and tax remitters’ settlements

2.1

General remarks

According to the Tax Ordinance Act there are the following tax authorities: – Head of Tax Office, Head of Customs Fiscal Office, municipality head, mayor, and president of city hall, starosta, or province marshal – as first instance authorities – Head of Customs Fiscal Office as second instance authority in the case of decisions in particular issued in tax proceedings conducted by this authority, – Director of Revenue Administration Chamber, as: a) Second instance authority in connection with the decision of the Head of Tax Office, or other decisions of the Head of Customs Fiscal Office than indicated above, b) First instance authority if such a possibility is indicated in specific separate regulations, c) Second instance authority in the case of decisions issued by Director of Revenue Administration Chamber as first instance authority, – Local Government Board of Appeals – as second instance tax authority in the case of decisions issued by community head, mayor, and president of city hall. – Head of National Revenue Administration, as in particular: a) First instance authority in cases related to stating of invalidity of decision, retaking of the proceedings, change or deleting or stating of expiration of the decision – ex officio, b) Second instance authority in above-mentioned cases, c) Tax authority competent in the case of advanced pricing agreements, d) Authority competent in connection with tax rulings in connection with change of the individual rulings or cancelling the ruling and finishing the proceedings if there were a basis for denial of ruling issuance, e) Authority competent in connection with securing opinions, f) First instance authority in the case of proceedings involving application of General Anti Abuse Regulation (GAAR). – Director of National Revenue Administration in connection with cases regarding issuance of individual rulings, – Ministry of Finance as an authority competent to issue general rulings. Bearing the above in mind, it should be stressed that the authorities dedicated to conduct audits and tax proceedings in the first instance are the Head of Tax Office, Head of Customs Fiscal Office, as well as the municipality head, mayor, and president of the city hall (this last authority is generally competent in the case of

Tax administration in Poland: changes to organisation, competencies and procedures

local taxes). The second instance proceedings will be conducted respectively by the Director of the Revenue Administration Chamber, the Head of the Customs Fiscal Office, and the Local Government Board of Appeals. Bearing this in mind, this analysis will concern mainly the activity of these authorities, still, as in the case of local taxes generally, the same procedural regulations apply (as in the case of the Head of Tax Office and Director of Revenue Administration Chamber), there will be no separate comments regarding local taxes. 2.2

First instance authorities

The audits regarding taxes as well as tax proceedings are conducted in the first instance by the Head of the Tax Office or Head of the Customs Fiscal Office. Generally the Head of the Customs Fiscal Office is meant to have broad competencies and powers4 in order to react effectively in the most difficult or serious cases. In the case of the Head of the Tax Office, the general rule for its territorial competency is established according to the place of living or seat address of the controlled entity, and the tax authorities are obliged to follow its competency ex officio. The Head of the Customs Fiscal Office may perform its activities (conduct customs fiscal control) on the whole territory of Poland. It means that there is no territorial competency, and the entities may be audited by any such office. As other examples of the broad competencies of that authority one may indicate the power to request data outside of the scope of the audit, performing a formal search or engaging the tax officers with higher entitlements (functionaries) that should make it possible to gather the evidence in a more efficient way with the application of institutions specific for penal proceedings (e.g. search of private premises or wiretapping). It should be stressed that notwithstanding the tax cases, the tax authorities of first instance are also entitled to conduct additional proceedings connected with audit/tax proceedings that may have a crucial impact on a tax case, i.e. securing proceedings, execution proceedings, or penal fiscal proceedings5 . Namely, the 4 A. Zdunek, Krajowa Administracja Skarbowa – Konsolidacja służb skarbowych i celnych w celu uszczelnienia systemu podatkowego [National Revenue Administration – consolidation of fiscal and customs authorities in order to seal the tax system] , Nowe Narzędzia Kontrolne, dokumentacyjne i informatyczne w prawie podatkowym, poprawa efektywności systemu podatkowego, Wolters Kluwer 2018, p. 297. 5 More in this respect: J. Zawiejska – Rataj, A. Podsiadły, Rozpoznawanie, wykrywanie, ściganie i zwalczanie czynów zabronionych, zapobieganie im i ściganie ich sprawców przez organy Krajowej Administracji Skarbowej [Units of the National Revenue Administration recognition, detecting and counteracting prohibited acts, preventing them and prosecuting the perpetrators], Przegląd Podatkowy 2017/10, p. 37–42.

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conducting of these proceedings may have influence on the statute of limitation of a given tax liability, and application of relevant means may result in suspending or even interrupting of the limitation period of tax liability. 2.3

Second instance authorities

In the case of decisions issued by the Head of Tax Office, the appeals should be filed with the Director of the Revenue Administration Chamber, via the Head of Tax Office. If a decision is issued by the Head of Customs Fiscal Office in connection with tax proceedings conducted by this authority, the appeal is filed to the same authority.

3.

Tax procedures

3.1

Tax audit

Tax audit is a procedure regulated in the Tax Ordinance Act, initiated ex officio by the Head of Tax Office.6 This procedure is aiming at the verification of the appropriateness of the realization of the obligations resulting from tax law. Importantly, the audited entity is generally granted the right to prepare for tax audit – while tax authorities should inform upfront about an upcoming tax audit that may be started not earlier than 7 days and not later than 30 days from the delivery of the information.7 A tax audit is generally subject to limitations that all other statutory controls/ audits also should meet, stipulated in the Law of Entrepreneurs Act.8 The regulation covers, among other matters, the time limit in days for all audits performed with respect to an entrepreneur during a calendar year9 and limits the number of audits

6 The tax audit in the area of local taxes is conducted by the municipality head, mayor, and president of city hall and with respect to APA or GAAR by Head of NFA. 7 There are, however, many exceptions to this rule, covering among others cases regarding VAT refund and non revealed income sources, audits initiated in connection with penal fiscal proceedings or in the case of extending the tax audit to other tax settlement periods due to irregularities found in the currently conducted tax audit. The audited entity should be informed of thereason for a lack of upfront information. Additionally immediate initiation of the audit is possible if the audit activities are required in order to prevent committing a penal fiscal misconduct/offence or securing the evidence in this respect. 8 Ustawa z dnia 6 marca 2018 r. Prawo przedsiębiorców [The Law of Entrepreneurs Act of 6 March 2018], J. of L. of 2019, item 1292 as amended. 9 The limit of days of all audits varies depending on the size of enterprise: 12 days for micro entities, 18 days for small entities, 24 for medium, and 48 days for the rest of entrepreneurs. There are also

Tax administration in Poland: changes to organisation, competencies and procedures

that may be conducted by different authorities at once.10 Additionally the audit cannot be conducted if it concerns the scope covered by a previously finished audit conducted by the same authority.11 If the deadline for the closing of the audit is not extended properly, the documents gathered after the expired deadline should not constitute the evidence in tax proceedings, unless the new deadline for closing the audit is indicated. According to the Law of Entrepreneurs Act, if an audit is conducted against the rules, the audited entity may file an objection within 3 days as from the occurrence of the basis for filing the objection, and the relevant procedure is launched in this respect. The tax audit is initiated with the delivery to the audited entity of proof of authorisation to conduct it. During the tax audit the authorities have many rights aimed at gathering relevant evidence. The most important are inter alia the right of entry to the audited entity premises, the right to request all kinds of documents and books, and to make relevant copies or excerpts therefrom, the right to hear witnesses, the right to conduct a visual inspection or the right to get an independent expert opinion. The audited entity has the relevant obligations, reflecting the rights of authorities. In particular a relevant place for conducting activity during the audit should be granted to the tax authorities, the possibility of copying the data in a different form should be provided, the tax authorities may also make a request for the provision of a translation into Polish of the documents relevant to the audited case. The audited entity has a right to be present during all audit activities of tax authorities. The tax authorities may generally work at the audited entity’s seat, in other places where the documents are stored, or where the business activity is conducted, and during working hours12 . In connection with the tax audit, tax authorities may require partners of the audited entity to provide documents within the scope of the audit or electronic excerpts from the books. The request may also concern the chain of the suppliers

exceptions from this rule connected with audits based on selected international regulations, VAT refunds, penal fiscal issues, APA, and others. The deadline may be doubled, if during the audit the inappropriate lowering of tax liability exceeding 10% of declared tax liability (not less than 500 PLN) or inappropriate loss settlement exceeding the amount of 50% of loss declared is revealed (not less than 2500 PLN) or no tax return (where obligatory) was filed. 10 Generally only one control may be conducted at once, but exceptions from this rule exist, e.g. connected with audits based on selected international regulations, VAT refunds, penal fiscal issues and other. 11 Exceptions apply, among others subject to the control may be a different settlement period (with the same scope of audit) or correction of tax return covering the previously controlled period. 12 If the working hours are shortened during the time of the audit, the audit may be performed up to 8 hours daily.

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of the same goods/commodities or service, still in this case the request is limited only to this supply. The tax audit is closed with the delivery of the tax audit protocol that should contain, not only the detailed description of activities performed by the tax authorities during the audit, but also a legal assessment of any inappropriateness of tax settlements identified. The audited entity has a right to file objections and explanations to the protocol within 14 days from its delivery, and the tax authorities are obliged to answer the audited entity standpoint within the next 14 days. The right to correct tax returns by the audited entity is suspended for the duration of the tax audit. It means that the correction may be filed until the initiation of the control (with delivery of relevant entitlement). The correction may be filed also after the information that the tax authority intends to initiate the audit, and after the closing of the audit with delivery of tax audit protocol. The correction is not subject to any formal acceptance procedure, may cover only selected inappropriateness identified by tax authorities, and may be reversed. If a correction is not made, the tax authorities may initiate tax proceedings aiming at issuing the decision covering the incompliances found during the tax audit. The deadline for the initiation of tax proceedings is 6 months from the closing of the tax audit: afterwards the right to initiate the proceedings connected with performed tax audit generally expires13 . In the case of lack of specific regulations regarding tax audit, the regulation on tax proceedings covered by The Tax Ordinance Act should apply. 3.2

Customs fiscal audit

The Customs fiscal audit is a procedure conducted by the Head of the Customs Fiscal Office, based on the NRA Act. It is generally a very wide-reaching institution that may control different areas of activities, but one of its main points is competency for auditing compliance with the regulations of tax law.14 The regulations of the Tax Ordinance Act are applicable to customs fiscal audit only in very strictly indicated areas.15

13 Exceptions from this rule cover 1) a situation of reversal of the tax correction performed after the tax audit and 2) new information received from other authorities justifying the initiation of the tax proceedings. 14 The definition of tax law is included in Art. 3 point 2 of Tax Ordinance Act, and this term generally covers tax acts, double taxation treaties, and other treaties regarding taxes, as well as the ordinances issued based on tax acts. 15 More in this respect: A. Podsiadły, J. Zawiejska – Rataj, Odpowiednie stosowanie przepisów Ordynacji podatkowej do kontroli celno skarbowej prowadzonej w odniesieniu do rozliczeń dokonywanych dla celów podatkowych [Application mutatis mutandis of the Tax Ordinance to customs and fiscal

Tax administration in Poland: changes to organisation, competencies and procedures

Customs fiscal audit is initiated ex officio with the delivery of entitlement to conduct a customs fiscal audit to an audited entity.16 The audited entity is not informed upfront of the planned audit, but in order to mitigate a negative effect in this respect the audited entity may correct the tax return within the scope of the audit during 14 days as of the initiation of the audit.17 Afterwards the right to file the correction is suspended until the closing of the audit. A customs fiscal audit is not subject to limitations resulting from the Entrepreneurs Law Act. It means that this procedure may be conducted along with other audits performed by different authorities. Regarding the time limits, according to the NRA Act, a customs fiscal audit should take no longer than 3 months, but this deadline may be extended. Documents gathered after a deadline which has not been extended properly should not constitute evidence in an audit.18 The tax authorities have very extended rights during the conducting of a customs fiscal audit. The catalogue is wider than in the case of a tax audit, and in particular the tax officers are entitled to perform formal searches of premises. It should be stressed that in this procedure also a request for documents is in practice unlimited – the tax authorities may request any documents, books connected with the scope of the audit, and also for other settlement periods if the archiving of these documents is still a statutory obligation. It should be stressed that according to the NRA Act there are two categories of tax officers that may conduct activities during the audit, where the category of functionary involves the right to undertake more extensive actions.19 The audited entities have extended obligations aiming at enabling the tax authorities to gather all relevant data. In particular the individuals entitled to representing the audited entity are obliged to file explanations regarding the scope of their activities or tasks realized. This provision is disputable, bearing in mind that the audited entity may be represented by professionals bound by professional secrecy. Still, according to commentators, the obligation construed in the NRA Act should not prevail over the obligation resulting from other acts, as in the case of some

16 17 18 19

inspections carried on with regard to settlements made for tax purposes], Przegląd Podatkowy 2017/7, p. 28–33. Also in this case the immediate initiation of the audit based on the presenting of the identity card is possible. In some cases the correction of tax returns at this stage may result in closing of the tax audit, if the correction is officially accepted by Head of Customs Fiscal office. It should be stressed that, like in the case of standard tax audit gathered documents should not constitute evidence, unless a new deadline for closing the audit is indicated. Functionary may in particular e.g. perform personal search.

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professionals, additional procedures should be performed allowing them to reveal information.20 The tax authorities have a right to audit also other entities than the audited entity itself, i.e. contracting parties, as well as other entities acting in the chain of delivery of the same goods/commodities, or service, or entities warehousing, reloading, repacking, or delivering the same goods/commodities. These entities are obliged to grant access to any necessary documents, provide books excerpts in relevant electronic form and file explanations. The customs fiscal audit is closed with delivery of the result of the audit. The result contains in particular information on identified irregularities or lack of irregularities. There is no procedure regarding filing an answer to the result and therefore no obligation on the part of the tax authorities to comment on the answer of the audited entity. The delivery of the result starts the 14-day deadline for the correction of the tax return in connection with the irregularities identified during the audit. A correction after the deadline is not legally effective. The correction is subject to acceptance by the tax authorities. Bearing in mind the current wording, some commentators (and in practice also tax authorities) present the standpoint that a partial correction (i.e. correction covering not all irregularities indicated in the result of the audit) is not possible. The correction generally may not be reversed.21 If no correction is filed, or a correction is not accepted by the tax authorities, the customs fiscal audit becomes transformed into tax proceedings continued by the Head of the Customs Fiscal Office basing on regulations included in the Tax Ordinance Act. The Head of the Customs Fiscal Office issues a resolution on the transformation, and there is no possibility to file an appeal against that resolution.22 3.3

Tax proceedings

The tax proceedings are regulated in the Tax Ordinance Act and the regulation applies notwithstanding the fact of which tax authority is competent to conduct the given proceedings. This procedure is generally basic procedure for tax cases (other procedures are as a rule referring to tax proceedings where no specific regulations apply) that are aimed at issuing a tax decision.

20 This applies in particular basically in the case of tax advisers, advocates, or attorneys at law. 21 The reversal of the correction is possible only if the correction results from a ruling issued after the closing of the audit and the ruling has impact on the statements included in the result of the audit, as well as in the case of basing the statements of the result of the audit on a regulation which is confirmed to be unconstitutional by the Constitutional Tribunal. 22 The transformation should be performed within 6 months as of delivery of the result of the audit – the regulations of the Tax Ordinance Act should be applied in this respect.

Tax administration in Poland: changes to organisation, competencies and procedures

The basis for conducting the proceedings are fundamental rules covering in particular the obligation of the authorities to act in accordance with statutory regulations, in a way building the trust in the authorities, to inform the engaged party about tax law, to act in order to reveal the facts of the case in detail, to grant the parties involved the possibility of acting during the proceedings, to explain to the parties the basis for their actions, and to act quickly. These rules constitute the basis for the most important rights of the parties involved in the tax proceedings. The regulations on tax proceedings cover in particular detailed instructions on the parties and their representatives, delivery of documents, summons, gathering of evidence, the issuing and executing of the decision, as well as regulation on extraordinary procedures, e.g. aiming at stating the invalidity of the decision or reopening closed proceedings. The duration of tax proceedings is not subject to any limits, but the tax authorities should, however, inform the parties involved if they will not finish the proceedings within the deadline.23 Before issuing the decision the tax authority informs the party on his/her right to file additional explanations or evidence and right to access the case file within the 7 day deadline from the delivery of the information. The tax proceedings are closed with the issuing of the decision – either resolving the case or discontinuing the proceedings (e.g. in case the tax liability subject to tax proceedings expires). The party has a right to file an appeal within 14 days from the decision delivery. The final decision generally closes the given settlement period for further audits/ proceedings, as well as for the correction of tax returns.24 3.4

Proceedings regarding GAAR

Specific rules apply to cases in which the General Anti Abuse Clause (further referred to as: GAAR) may apply. Generally in such a case the tax audit, the customs fiscal audit or tax proceedings should be handed over to the Head of NRA. The Head of NRA decides whether to take over the given case, in particular in a situation where other regulations than GAAR may be applicable.

23 Generally the tax case should be dealt with in first instance proceedings within 1 month, and 2 months in the situation of a complicated case. 24 Some exceptions may apply resulting from extraordinary proceedings or from the specific character of a given decision e.g. a decision stating overpayment in some specific circumstances may expire.

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During these proceedings The Head of NRA may ask for the opinion of the Counsel on Acting against Tax Avoidance.25 The status of the opinion is disputable, however, as it is not binding on the Head of NRA. During these proceedings the party has an exceptional additional right to file a correction of the tax return. Before issuing the decision, as in standard tax proceedings, the Head of NRA is obliged to inform the party on his/her right to file additional explanations or evidence and right to access the case file within the 14 days deadline from the delivery of the information. The deadline for filing the correction is 14 days from the delivery of the information. The correction may not be reversed. 3.5

Second instance proceedings

The proceedings conducted as a result of an appeal are regulated in the Tax Ordinance Act and generally conducted according to the regulations applicable to tax proceedings. In the case of decisions issued in the first instance by the Head of the Tax Office, the proceedings are conducted by the Director of the Chamber of Tax Administration. If the decision was issued by the Head of the Customs Fiscal Office as a result of a previously conducted customs fiscal audit followed by tax proceedings, the appeal proceedings are also conducted by the same authority, i.e. the Head of the Customs Fiscal Office. Also if the decision is issued by the Head of NRA in GAAR case, the Head of NRA is competent to conduct second instance proceedings. During the second instance proceedings it is possible to organize a hearing – either ex officio26 or upon a motion of party. The deadline for finishing the appeal procedure is two months from the receipt of the appeal by the second instance authority, but if the hearing was performed (or the party filed the motion for the hearing) the deadline is 3 months. The deadline may be extended. The second instance authority issues a decision which (i) sustains the decision of the first instance authority, (ii) cancels the decision – or partially cancels it, and in this scope solves the case or discontinues the proceedings, (iii) cancels the decision and hands the case to the proper first instance authority (if the authority issuing the first instance decision was not competent for the case) (iv) deletes the appeal proceedings.

25 The Counsel is an independent authority of experts from different areas of expertise (members are nominated among others by Ministry of Finance, administrative courts, universities). 26 The hearing ex officio may take place if there is a need to analyse crucial factual circumstances in the presence of witnesses, experts or visual inspection should be performed, or there is a need to make the legal standpoint of the party more precise.

Tax administration in Poland: changes to organisation, competencies and procedures

It is also possible to cancel the decision and hand over the proceedings to be conducted again by the first instance authority, but this solution may apply only to cases where all the evidence or a significant part of the evidence had not in the first instance been gathered27 . The second instance decision is executable – there is no deadline for payment of tax resulting from such a decision, therefore it should be paid immediately. The parties involved have a right to file a claim against the decision to the Administrative Court within the 30 day deadline from the delivery of the decision.

4.

Effectiveness and limiting of audited entity rights

4.1

General remarks

The procedure of a customs fiscal audit introduced with the NRA Act is still described as a ‘tough’ procedure that should be applied to the tax cases involving the most severe offences. Bearing this in mind, this procedure lacks many important instruments allowing the audited entity in particular to prepare for the audit or to present a standpoint. Such a shape for the audit was designed in order to ensure high effectivity and possibly quick solving of the case. Still one may observe that in some cases the limiting of the rights of the audited entity is not beneficial even from the perspective of the effectiveness of the conducted audit. Therefore providing more opportunity to interact with the audited entity might be helpful also to the tax authorities. 4.2

Right to active participation

Comparing the tax audit and customs fiscal audit – the limitation of the audited entity’s rights covers among other things the right to active participation in the proceedings, reflected in particular in the lack of possibility of official dialogue during the procedure conducted by the Head of Customs Fiscal Office. Starting from the initiation of the audit, in the case of a customs fiscal audit there is no upfront notification of a planned audit. The notification in practice in most cases should allow the audited entity to prepare for an audit, in order to have the possibility of quickly and timely reacting to the requests of the tax authorities, as well as participating actively in the conducted procedure. It should be stressed that also the right to notification in the case of a tax audit is excluded in some

27 It should be stressed that one can find a standpoint that this solution is not possible if the second instance authority is the same authority as in first instance proceedings.

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important exceptional circumstances (e.g. audits initiated in connection with penal fiscal proceedings). Bearing this in mind it seems that a solution acknowledging the right to notification would be the most effective way of conducting any kind of audit, of course providing for important exceptions where notification would undermine the necessity of immediate control. During the customs fiscal audit the right of active participation is also limited – bearing in mind that with the current construction of the customs fiscal audit the audited entity is presented with the standpoint of tax authorities right at the end of the audit, when receiving the results of the control. It is certain that the effectiveness of an audit would be increased if, within the frame of the procedure, the audited entity had the possibility of knowing at some stage the intentions of the tax authorities, allowing it to present its standpoint together with relevant evidence. In the current procedure in fact this stage is shifted to tax proceedings, whereas, one may easily imagine that in some cases, if the dialogue could take place, no tax proceedings would be started at all. It seems as if in practice also the tax authorities understand the importance of lack of relevant regulations in this respect, and – as the crucial activities of tax authorities should be documented by the protocol – use sometimes this institution to reveal its standpoint to the audited entity in order to enable it to answer and present new evidence. The importance of this dialogue is crucial, as – contrary to a standard tax audit – there is no regulation allowing the audited entity to respond to the result and afterwards to receive a comment on that response. The delivery of the result opens the very important deadline for correction, leaving no space for either the audited entity or the tax authorities to discuss the outcome of the audit. The dialogue and the possibility of actively participating in the audit may also be the result of a lack of geographical competency of the given Head of the Customs Fiscal Office. In practice it may mean that the physical access to the case file and contact with the officers conducting the proceeding may be more problematic. This could be potentially solved in future by further digitalization of the audit (e.g. where possible introducing as a standard continuous access to electronic acts of the case). It should be stressed that, according to the NRA Act, the result of the control should contain only information on irregularities identified during the audit (whereas the protocol of the tax audit should contain generally legal justification of the standpoint of the tax authorities), but in practice also in the result of the control, the tax authorities tend rather to broadly present their approach. Bearing this in mind the difference in the wording of the regulations regarding the content of the result of the control and the protocol of the tax audit is unjustified and such a protocol should constitute the instrument convincing the audited entity that it is correct to file a correction of its tax return.

Tax administration in Poland: changes to organisation, competencies and procedures

4.3

The duration of the audit

According to the general rule, the customs fiscal audit should be closed within 3 months. Bearing in mind, however, that the deadline may be extended, and a customs fiscal audit is not subject to any limitation resulting from the Entrepreneurs Law Act, in practice one may observe that this procedure is applied rather to very complex issues, where in particular it would be difficult to perform a standard tax audit mainly owing to statutory time limits. The barrier to conduct basically any kind of procedure at the level of tax authorities28 is a limitation of tax liabilities. It should be stressed, however, that the Polish regulations contain exceptions to the rule of a limitation period, resulting in suspension or extension of the the deadline for the statute of limitation. The most commonly observed exception results from the connection between the tax law and penal fiscal proceedings. According to Art. 70 par. 6 point 1 of Tax Ordinance Act, the deadline for limitation of tax liability is suspended from the day of initiation of the penal fiscal proceedings, if the committed crime or offence is connected with that tax liability. The taxpayer should be properly informed on that fact. In practice, the tax authorities use the institution of information on the initiation of penal fiscal proceedings as a common instrument allowing for extending the deadline for tax liability expiration. The issue has been spotted also by administrative courts – it should be stressed that generally the aforementioned practice was accepted by jurisprudence at the beginning, but currently, as the activity in this area became a standard, the administrative courts started issuing judgements confirming that such activity of tax authorities cannot bring legally effective results,29 i.e. in the case of abuse of law regarding initiation of penal fiscal proceedings no suspension of statute of limitation occurs.30

28 The exception covers generally overpayment requests – in this case the proceedings may be further conducted, if initiated before the limitation of tax liability. 29 See judgements of Supreme Administrative Court of 17 May 2016, II FSK 894/14, II FSK 976/14 or II FSK 975/14 of 24 November 2016, II FSK 1488/15, of 5 April 2017 r., II FSK 134/17 and of 19 April 2018, II FSK 923/16 and II FSK 889/16. A similar judgement of the Supreme Administrative Court of 13 January 2016 II FSK 1532/15 was commented on by Joanna Zawiejska – Rataj, Postępowanie karne skarbowe a przedawnienie zobowiązania podatkowego, [Penal fiscal proceedings and status of limitation of tax liability] Orzecznictwo w sprawach podatkowych, komentarze do wybranych orzeczeń, Wolters Kluwer, Warszawa 2017, p. 136–146. 30 See in particular the judgement of the Supreme Administrative Court of 20 July 2020 I FSK 128/20 and I FSK 42/20, as well as the resolution of the Supreme Administrative Court of 24 May 2021 I FPS 1/21.

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4.4

Right to correct a tax return

The right to correct a tax return is also construed differently in the Tax Ordinance Act with respect to tax audit and in the NRA Act with respect to customs fiscal audit. Generally in the case of tax audit the right to correct a tax return is suspended for the duration of the tax audit, and within the remaining frames should generally not be limited (except for the situation of e.g. initiation of tax proceedings or other tax audit). In the case of customs fiscal audit, the right is generally suspended and there are two 14-day periods during this procedure in which generally a correction may be performed. The correction in the case of tax audit may be reversed, but in the case of customs fiscal audit it is irreversible. The irreversibility of the correction is a crucial limitation of the audited entity rights, bearing in mind also the fact that there is no possibility of discussing the result of the control closing the customs fiscal audit. The scope of correction may also be considered to be different. Generally, in the case of a tax audit the audited entity may correct the tax return after the closing of the audit not covering all the irregularities identified. It means that the potential further tax proceedings would cover only the remaining, uncorrected issues. In the case of a customs fiscal audit, the regulations are not clear enough in this respect. Doctrine presents the standpoint that the correction may be performed only fully reflecting the statements of the result of the audit.31 Such a construction means that when an audited entity agrees with some points of the result of the audit, but would like to conduct further proceedings regarding other points, in practice the tax proceedings should be conducted regarding all irregularities identified during the audit.32 The last important difference between the correction of a tax return filed as a result of a tax audit and one filed as a result of a customs fiscal audit is that in the case of the customs fiscal audit any correction is subject to the acceptance of the Head of Customs Fiscal Office. This is a significant exception to the general rule that the tax return or correction of tax return is basically binding unless corrected by the taxpayer or when the given tax period is closed by the decision issued with regards to the given case. Moreover, there is no chance to immediately challenge the lack of acceptance of the correction – potential irregularities in this respect may

31 D. Strzelec, Nowe Zasady kontroli przestrzegania przepisów prawa Podatkowego – realna czy iluzoryczna poprawa sytuacji kontrolowanych? [New rules of controlling the observance of tax laws: real or illusive improvement of the situation of controlled entities?], Przegląd Podatkowy 2017/2, p. 7–17. 32 It seems that also an additional solution would be applicable, i.e. after accepting the partial correction instead of initiation of the tax proceedings in the remaining part the Head of the Customs Fiscal Office could initiate again customs fiscal control with regards to uncorrected irregularities.

Tax administration in Poland: changes to organisation, competencies and procedures

be addressed in appeal from the decision closing the tax proceedings (whereas one may imagine a case that if the correction were properly accepted the tax proceedings would not be conducted at all). It should be stressed finally that the filing of a legally effective correction (and payment of tax due) should generally limit the possibility of subjecting the individual to selected penalties resulting from the Penal Fiscal Code.33 Bearing in mind that the penalties resulting from the Penal Fiscal Code may be severe, and the proceedings are initiated essentially automatically where a case closed negatively for the audited entity, it is crucial to ensure the right to correction in the broadest possible manner. 4.5

Right to second instance proceedings

According to current regulations the appeal proceedings may in fact use all the institutions provided for in the first instance proceedings, in particular relevant evidence may be gathered. The additional instrument that may be applied at this stage of the proceedings is the possibility of a formal hearing, still, in practice this formal hearing is rarely performed. The organizing of the hearing could, however, potentially improve the effectiveness of the proceedings. In the case of the tax proceedings conducted by the Head of Customs Fiscal Audit the second instance proceedings are conducted by the same authority. Bearing in mind that there is lack of specific provisions in this respect, and only general rules regarding the independence of the employees/functionaries34 apply, the question of the effectiveness of the second instance proceedings in such a form may arise (as in particular there is a view that reexamining the case in the first instance proceedings is in such a case not possible, which means that the second instance proceedings may in fact be more often connected with the extensive gathering of new evidence or presenting a new approach by the tax authorities at this stage). In practice it seems that in order to ensure the effectiveness and objectivity of proceedings conducted by the same authority, the introduction could be considered of more instruments making it possible to secure the rights of the taxpayer, e.g. introducing the hearing at this stage as an obligatory element.35

33 Ustawa z dnia 17 października 199 r Kodeks Karny Skarbowy [The Act as of 17 October 1999 Penal Fiscal Code] J. of L. of 1999 No. 83, item 931, as amended. 34 According to the Tax Ordinance Act the relevant tax officers may not participate in the appeal proceedings if they were engaged in the issuance of the decision which is subject to appeal. 35 It should be stressed that even before the entering into force of the NFA Act the doctrine presented a critical approach to filing an appeal to the same body, e.g. M Tużnik, Kilka uwag o Krajowej Administracji Skarbowej [Some remarks on the National Revenue Administration ], Studia Prawnicze i Administracyjne 17 (3) 2016, p. 49.

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5.

Continuous search for effectiveness

5.1

General remarks

It should be stressed that it seems as if the tax authorities are also still searching for opportunities to act in a more effective way, and that the existing regulations are not always meeting expectations in this respect. Bearing this in mind, one may observe the introduction of new regulations that should support the activities of the tax authorities, as well as attempts to apply existing regulations in an innovative way. 5.2

The Clearing House’s Information and Communications Technology System (STIR)

The The Clearing House’s Information and Communications Technology System (STIR) was designed in order to gather and analyse data from the bank accounts of qualified entities (legal entities, entities without legal entity, but having legal capacity, individuals qualified as entrepreneurs, as well as individuals conducting their own business activity, but not qualified as entrepreneurs). The amendment act dated 24 November 2017 introduced into the Ordinance Tax Act provides for detailed regulations allowing for the gathering and sharing of information on bank transfers. On the basis of the data which has been gathered, the settlement chamber should also define the risk evaluation for given entities. Bearing in mind the analysed data as well as the risk evaluation the Head of the National Revenue Administration is entitled to request the blocking of a given bank account for up to 72 hours.36 The blocking may be extended under specific circumstances for up to three months, but in that case the Head of the National Revenue Administration should issue a formal resolution that may be subject to appeal. The appeal should be resolved within 7 days from its receipt. In the case of filing a claim to the administrative court the court is obliged to resolve the case within 30 days from the receipt of the case file with the response to the claim. It is important to note that the introduction of STIR was connected with serious doubts regarding violation of the right to privacy, the transparency of the regulation (in particular regarding the defining of the risk evaluation), and compliance with EU law.37 In the case of the application of the analysed regulations the particular due diligence should apply, allowing for the right use of STIR only in appropriate 36 Please note that activities regarding STIR are currently realised by 5 selected Heads of Customs Fiscal Audit, as well as the respectiveHeads Directors of Administrative Chamber.s 37 More in this respect P. Mikuła, System teleinformatyczny Izby Rozliczeniowej – wybrane szanse i ryzyka [The Clearing House’s Information and Communications Technology System – selected

Tax administration in Poland: changes to organisation, competencies and procedures

situations, and not only from the perspective of tax administration effectiveness. However, one may observe that this institution is applied more often comparing year to year data.38 5.3

New interpretation of so-far existing regulations

From the 16th July 2016 amendments introducing General Anti Abuse Regulation (further: GAAR) into the Tax Ordinance Act entered into force. This new instrument was required in order to enable the tax authorities to conduct proceedings against taxpayers or tax remitters abusing the tax law and performing aggressive tax optimizations. It should be stressed, however, that owing to the limited time frame, past cases cannot be subject to GAAR, therefore recently one may observe many court judgements answering the tax authorities trying to apply a different legal basis instead of GAAR. The main regulation that the tax authorities tried to apply similar to GAAR was Art. 199a of the Tax Ordinance Act. This article construes the general rule of interpretation of declaration of intent. According to Art. 199a par. 1, a tax authority identifying the meaning of a legal act takes into account the common intent of the parties and the aim of the act, and not only the wording of the declaration of intent of the parties. According to art. 119a par. 2 of the Tax Ordinance Act, if under the guise of one legal act, another legal act is performed, the tax consequences are to be applied according to the hidden legal act. The analysed regulation is applied by the tax authorities in different ways. Firstly the interpretation was based on the application of art. 199a par. 1 of Tax Ordinance Act only as a basis allowing the tax authorities to omit selected transactions for tax purposes. Following their interpretation of the declaration of intent tax, the authorities were trying to construe a different background in a given case that resulted in standard (and not optimized) taxation. This application of Art. 199a par. 1 of the Tax Ordinance Act is considered by Administrative Courts as inappropriate,39 mainly as par. 1 itself cannot constitute the only basis for the solving of the tax case.40 Namely, the application of Art. 199a par. 1 of the Tax Ordinance Act may lead tax authorities only to the application of Art. 199a par. 2 of the Tax Ordinance Act, i.e. if as a result of the interpretation of the statements of intent

opportunities and risks], Nowe Narzędzia Kontrolne, Dokumentacyjne i Informatyczne w prawie podatkowym, Wolters Kluwer 2018, p. 367–398. 38 The reports regarding the STIR application are published by Ministry of Finance, on-line access: https://www.gov.pl/web/kas/struktury-stir (downloaded on 19.10.2021). 39 Judgement of the Supreme Administrative Court of 26 January 2018, II FSK 112/16. 40 Judgement of the Supreme Administrative Court of 15 January 2016, II FSK 3162/13, of 13 October 2017, II FSK 2690/15 or of 27 June 2017, I FSK 1832/15.

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the tax authorities were to identify a hidden legal act, it would be possible to apply different tax regulations appropriate to this hidden act. Bearing this in mind, the tax authorities are not entitled to ignore legally valid actions of the parties unless these actions are apparent. Taking into account the administrative court judgements, the tax authorities changed the approach and based some cases on art. 199a par. 2 of the Tax Ordinance Act, which is, however, difficult, bearing in mind the conditions that should be – according to jurisprudence – met in order to apply the analysed regulations.

6.

Recent amendments introduced by The New Polish Deal

The amendment packet called The New Polish Deal introduced also some amendments to NRA Act and Tax Ordinance Act41 . The changes entered into force as of 1 January 2022. Among other amendments, the new regulations in NRA Act on two new measurements available during custom fiscal controls entered into force: (1) controlled purchase, as well as (2) interim seizure of movable property. Basing on controlled purchase regulation the functionaries and tax officers are entitled to perform purchase of goods or services in order to verify, whether the sale is properly evidenced with use of cash register and whether the relevant fiscal receipt is issued. Interim seizure of movable property allows the functionaries conducting custom fiscal control to seize the movable property of taxpayer with arrears subject to execution conducted by Head of Tax Office exceeding the amount of 10,000 PLN. The seizure may last up to 96 hours. As it is indicated in the doctrine42 , generally the amendments introduced as a result of the Polish New Deal to NRA Act provide again specific measurements dedicated for tax authorities, whereas the instruments designed for the entities subject to custom fiscal control remained basically unchanged.

41 Ustawa z dnia 29 października 2021 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych oraz niektórych innych ustaw [The Act of 29 October 2021 on Amendments to Personal Income Tax Act, Corporate Income Tax Act and Selected Other Acts], J. of L. of 2021, item 2105 as amended. 42 J. Zawiejska-Rataj, J. Sekulski, Polski ład a ustawa o Krajowej Administracji Skarbowej w procesie zmian [The Polish New Deal and Act on National Revenue Administration in process of change], Przegląd Podatkowy 2022, No. 1, p. 26.

Tax administration in Poland: changes to organisation, competencies and procedures

7.

Conclusions

The aim of the reform was to provide the new authorities with effective instruments allowing for identifying and preventing tax frauds and the application of relevant ‘tough’ procedures to the most severe cases. Bearing in mind, however, that the current regulations are not clearly describing the scope of tax settlements that may be subject to customs fiscal control, this procedure may apply in fact to all tax cases conducted by Heads of Customs Fiscal Control in Poland that have no specifically dedicated territorial jurisdiction. In practice one may observe that the new procedure is not only applied to tax frauds (e.g. VAT frauds), but to cases with difficult and complicated subject matter, where extended time for conducting tax audit and more experienced tax officers are required. Bearing this in mind, the question arises whether the effectiveness in fact is connected more with extraordinary instruments granted to tax authorities or rather with the limiting of the rights of audited entities. It should be stressed that according to press publications, currently the number of tax audits and in previous years the number customs fiscal controls, is generally decreasing.43 The answer to the question ‘why’ is rather a complex issue, but – apart from the current situation resulting from COVID-19 restrictions – one of the reasons indicated is an effective application of the instruments making it possible to analyse data before conducting the audit and initiating the audits towards very precisely selected entities. In fact the practice of tax authorities acting in accordance with customs fiscal audit regulations, should be focused more and more on the effective analysis of data gathered on an ongoing basis in order to be prepared for the audit conducted on properly selected entities. At the same time the legal amendments should rather be aiming at increasing the rights of audited entities, as it seems that such amendments would not only be beneficial for taxpayers/tax remitters subject to audit, but in some cases could ensure also an increase in the effectiveness of the proceedings.

43 Ł. Zalewski, Kontrole podatkowa są rzadsze, ale coraz bardziej trafione [There is less of tax audits, still they are more relevant], on-line access: https://podatki.gazetaprawna.pl/artykuly/ 8233324,rozliczenia-kontrole-podatkowe.html (downloaded on 19.10.2021). The author and experts indicate that decrease of regular tax audits may be also connected with COVID-19 restrictions, whereas the number of custom fiscal controls is currently quite similar to previous year. It should be stressed, however, that this decreasing trend was observed with regard to custom fiscal controls in prepandemic period, see J. Królak, Zanikają kontrole celno-skarbowe [Disappearance of customs fiscal audits], on-line access: https://www.pb.pl/zanikaja-kontrole-celno-skarbowe-961925 (downloaded on 19.10.2021).

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References Legal acts Ustawa z dnia 28 września 1991 r. o kontroli skarbowej [The Act of 28 September 1991 on Fiscal Control] J of L. of 1991 No 100, item 442 as amended, repealed as of 1 March 2017. Ustawa z dnia 29 sierpnia 1997 r. Ordynacja podatkowa [The Tax Ordinance Act of 29 August 1997] J. of L. of 1997 No 137, item 926 as amended. Ustawa z dnia 6 marca 2018 r. Prawo przedsiębiorców [The Law of Entrepreneurs Act of 6 March 2018], J. of L. of 2019, item 1292 as amended. Ustawa z dnia 17 października 1999 r Kodeks Karny Skarbowy [The Act of 17 October 1999 Penal Fiscal Code] J. of L.1999 No. 83, item 931, as amended. Ustawa z dnia 16 listopada 2016 r. o Krajowej Administracji Skarbowej [The Act of 16 November 2016 on National Revenue Administration] J. of L. of 2016, item 1947 as amended. Ustawa z dnia 29 października 2021 r. o zmianie ustawy o podatku dochodowym od osób fizycznych, ustawy o podatku dochodowym od osób prawnych oraz niektórych innych ustaw [The Act of 29 October 2021 on Amendments to Personal Income Tax Act, Corporate Income Tax Act and Selected Other Acts], J. of L. of 2021, item 2105 as amended.

Jurisdiction Judgement of Supreme Administrative Court of 17.05.2016, II FSK 894/14. Judgement of Supreme Administrative Court of 17.05.2016, II FSK 976/14. Judgement of Supreme Administrative Court of 17.05.2016, II FSK 975/14. Judgement of Supreme Administrative Court of 24.11.2016, II FSK 1488/15. Judgement of Supreme Administrative Court of 5.04.2017, II FSK 134/17. Judgement of Supreme Administrative Court of 19.04.2018, II FSK 923/16. Judgement of Supreme Administrative Court of 19.04.2018, II FSK 889/16. Judgement of Supreme Administrative Court of 13.01.2016, II FSK 1532/15. Judgement of Supreme Administrative Court of 26 January 2018, II FSK 112/16. Judgement of Supreme Administrative Court of 15 January 2016, II FSK 3162/13. Judgement of Supreme Administrative Court of 13 October 2017, II FSK 2690/15. Judgement of Supreme Administrative Court of 27 June 2017, I FSK 1832/15.

Literature Mikuła P., System teleinformatyczny Izby Rozliczeniowej – wybrane szanse i ryzyka, [The Clearing House’s Information and Communications Technology System – selected opportunities and risks] Nowe Narzędzia Kontrolne, Dokumentacyjne i Informatyczne w prawie podatkowym, Wolters Kluwer 2018.

Tax administration in Poland: changes to organisation, competencies and procedures

Podsiadły A., Zawiejska – Rataj J. Odpowiednie stosowanie przepisów Ordynacji podatkowej do kontroli celno skarbowej prowadzonej w odniesieniu do rozliczeń dokonywanych dla celów podatkowych [Application mutatis mutandis of the Tax Ordinance to customs and fiscal inspections carried on with regard to settlements made for tax purposes], Przegląd Podatkowy 2017, No. 7. Strzelec D., Nowe Zasady kontroli przestrzegania przepisów prawa Podatkowego – realna czy iluzoryczna poprawa sytuacji kontrolowanych? [New rules of controlling the observance of tax laws: real or illusive improvement of the situation of controlled entities?] Przegląd Podatkowy 2017, No. 2. Tużnik M., Kilka uwag o Krajowej Administracji Skarbowej [Some remarks on the National Revenue Administration], Studia Prawnicze i Administracyjne 2016, No. 2. Zawiejska-Rataj J., Sekulski J. Polski ład a ustawa o Krajowej Administracji Skarbowej w procesie zmian [The Polish New Deal and Act on National Revenue Administration in process of change], Przegląd Podatkowy 2022, No. 1. Zawiejska-Rataj J., Podsiadły A., Rozpoznawanie, wykrywanie, ściganie i zwalczanie czynów zabronionych, zapobieganie im i ściganie ich sprawców przez organy Krajowej Administracji Skarbowej [Units of the National Revenue Administration recognition, detecting and counteracting prohibited acts, preventing them and prosecuting the perpetrators], Przegląd Podatkowy 2017, No. 10. Zawiejska-Rataj J., Postępowanie karne skarbowe a przedawnienie zobowiązania podatkowego, [Penal fiscal proceedings and status of limitation of tax liability] Orzecznictwo w sprawach podatkowych, komentarze do wybranych orzeczeń, Wolters Kluwer 2017. Zdunek A., Krajowa Administracja Skarbowa – Konsolidacja służb skarbowych i celnych w celu uszczelnienia systemu podatkowego [National Revenue Administration – consolidation of fiscal and customs authorities in order to seal the tax system], Nowe narzędzia kontrolne, dokumentacyjne i informatyczne w prawie podatkowym, poprawa efektywności systemu podatkowego, Wolters Kluwer 2018.

Netography Królak J., Zanikają kontrole celno-skarbowe [Disappearance of customs fiscal audits], on-line access: https://www.pb.pl/zanikaja-kontrole-celno-skarbowe-961925 (downloaded on 19.10.2021). Zalewski Ł., Kontrole podatkowa są rzadsze, ale coraz bardziej trafione [There is less of tax audits, still they are more relevant], on-line access: https://podatki.gazetaprawna.pl/ artykuly/8233324,rozliczenia-kontrole-podatkowe.html (downloaded on 19.10.2021). Ministry of Finance, Reports on the STIR application, on-line access: https://www.gov.pl/ web/kas/struktury-stir (downloaded on 19.10.2021).

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Increasing the efficiency of the tax system from the budgetary perspective

1.

Introduction

Any normative changes aimed at increasing tax revenues to the state budget may prove to be effective or ineffective. On the other hand, an increase in tax revenue may result from changes in regulations, from a pro-fiscal approach on the part of tax authorities, but also from other non-fiscal factors – economic growth, rising inflation, etc. Without broad, interdisciplinary research, it is impossible to determine clearly what caused the increase in tax revenues to the budget and to what extent. The aim of the study is to analyse how the state budget’s tax revenues developed in the years 2014–2020 and to undertake an attempt to explain whether the changes could be a result of legislative changes in tax legislation.

2.

State budget revenue – introductory notes

State budget revenue is the part of public revenue that is established by public authorities and collected by the public administration. It has primarily a fiscal function. Basic public revenue includes public levies as well as property and other kinds of revenue. Undoubtedly, from a financial perspective, public levies, which comprise taxes, fees, duties, social security contributions, and health insurance, are the most important. It is clear that in Poland taxes are the most important component of public levies1 . The literature provides a variety of views on the constituent elements of public levies. For instance, it can be pointed out that B. Brzeziński distinguishes 4 basic categories of public levies (taxes, fees, supplements, and duties) and indicates

1 See e.g. J. Wantoch-Rekowski, O stosowaniu Ordynacji podatkowej do należności z tytułu składek na ubezpieczenia społeczne [On the application of the Tax Ordinance to social security contributions], in: J. Głuchowski (ed.), Współczesne problemy prawa podatkowego. Teoria i praktyka. Tom I. Księga jubileuszowa dedykowana Profesorowi Bogumiłowi Brzezińskiemu [Contemporary problems of tax law. Theory and practice. Volume I. Jubilee book dedicated to Professor Bogumił Brzeziński], Wolters Kluwer, Warszawa 2019, p. 535; A. Borodo, Polskie prawo finansowe. Zarys ogólny [Polish financial law. General outline], Toruń 2010, p. 135.

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that they also include ‘various types of obligatory contributions for purposes considered public. They are treated as legal constructs different from the rest, mainly because the proceeds from them usually do not belong to the budget, but are organized in a different way (e.g., they add to the resources of special purpose funds)’.2 In the years 2014–2020, state budget earnings, both fiscal and non-fiscal, showed a general increase in relation to the revenues from the previous year, as well as in relation to the actual revenues to the revenues forecast in the budget laws for a given year.3 In 2014, the projected total revenue was to amount to PLN 277,782,224,000, while the actual revenue amounted to PLN 283,542,707,000. In 2015, revenues in the Budget Act (after the amendment) were to amount to PLN 286,700,000,000, while they amounted to PLN 289,136,706,000. In 2016, the Budget Act provided for PLN 313,808,526,000 of revenue, while the execution yielded PLN 314,683,570,000. In 2017, the total income was expected to reach PLN 325,428,002,000, while the execution brought PLN 350,414,702,000. In 2018, the revenue was again planned at PLN 355,705,405,000, i.e. higher than in the previous year, and again the result proved clearly better than the forecast – PLN 380,048,140,000. In 2019, the revenue was planned at PLN 387,734,520,000 and the result was PLN 400,535,255,000. In 2020 (after the amendment) the revenue was planned at PLN 398,671,644,000 and the result was PLN 419,795,677,000.4 The amount of total revenues forecast and actually achieved by the state budget in the years 2014–2020 is shown in the graph below.

2 B. Brzeziński, Prawo podatkowe. Zagadnienia teorii i praktyki [Tax law. Problems of theory and practice], ‘Dom Organizatora’, Toruń 2017, p. 129. 3 In 2015, the revenue forecasted in the original Budget Law was higher than the actual revenue. However, the law was revised and, as a result of the amendment, the revenue forecast was reduced. Total revenues realized were higher than those projected in the amended Budget Law (they would be lower than those projected in the Budget Law in its original wording). 4 Council of Ministers, Sprawozdania z wykonania budżetu państwa. Omówienia za 2014, 2015, 2016, 2017, 2018, 2019, 2020 r. [Reports on the implementation of the state budget. Discussions for 2014, 2015, 2016, 2017, 2018, 2019, 2020].

Increasing the efficiency of the tax system from the budgetary perspective

Fig. 1 Total state budget revenues in 2014–2020 – forecast and actual Source: Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres 1 stycznia – 31 grudnia 2014 r. Omówienie (Report on the implementation of the State budget for the period 1 January to 31 December 2014. Discussion), Warszawa 2015, and analogically Omówienia (Discussions) for the years 2015, 2016, 2017, 2018, 2019, 2020.

The data presented confirm that total state budget revenues in 2014–2020 were forecast to be higher year-on-year than in the previous year and that their yield was better than the forecasts contained in the Budget Acts. From 2014 to 2020, total revenues increased by more than PLN 120 billion (forecast) and PLN 136 billion (actual) in relation to the 2014 levels. Thus, the growth achieved in 2020 in relation to 2014 amounted to almost PLN 140 billion, which is about 32% more than the level in 2014. A high yield of the total revenues in relation to forecasts was particularly evident in 2017 and 2018. In the years analysed, tax revenues have been constantly increasing. Non-tax revenues showed greater fluctuations. Tax revenues expected in the budget laws were as follows: in 2014 PLN 247,980,007,000, in 2015 PLN 257,591,000,000, in 2016 PLN 276,140,000,000, in 2017 PLN 301,155,210,000, in 2018 PLN 331,672,637,000,000, in 2019 PLN 359,731,300,000 and in 2020 PLN 349,740,000,000. Non-tax revenues were to amount to: in 2014, PLN 28,148,107,000, in 2015, PLN 27,561,067,000, in 2016, PLN 35,930,976,000, in 2017, PLN 22,476,313,000, in 2018 PLN 21,908,680,000, in 2019, PLN 25,806,040,000, in 2020 PLN 46,589,928,000. The revenue realized that both tax and non-tax was generally higher than projected. The amount of tax and non-tax revenues in the years 2014–2020 is presented in Figure 2.

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Fig. 2 State budget tax and non-tax revenue in 2014–2020 – forecast and actual Source: Own study on the basis of Discussions (Omówienia) of reports on the implementation of state budget for the years 2014–2020.

The data presented shows that the state budget is mainly based on tax revenues. On average, in 2014–2020, they accounted for over 90% of total projected revenues and 89% of total realized revenues. The highest percentage of total forecast revenues was achieved in 2018 – 93.2%, and the lowest in 2020 – 87,7%. The amount of tax revenue – and indirectly total revenue – was largely influenced by the amount of value added tax (VAT). The amounts forecasted and collected for the total revenues of Polish State budget in 2014–2020 are presented in the tables below.

Increasing the efficiency of the tax system from the budgetary perspective

Table 1 Overview of forecast and implemented amounts of State budget revenue in 2014 (in thousand PLN) Specification

Revenue forecast in the Budget Act Total revenue 277 782 224 1. Tax revenue 247 980 007 1.1 Tax on goods and services 115 700 000 1.2 Excise duty 62 080 000 1.3 Tax on gambling 1 250 000 1.4 Corporate income tax 23 250 000 1.5 Personal income tax 43 700 000 1.6 Tonnage tax 7 1.7 Mineral extraction tax 2 000 000 2. Non-tax revenue 28 148 107 2.1 Dividends 5 207 850 2.2 Duty 2 003 000 2.3 Fees, fines, interest and other non-tax rev- 18 431 276 enue 2.4 Payments by local government units 2 505 981 3. Funds from the European Union and other non- 1 654 110 refundable sources

Actual revenue 283 542 707 254 780 985 124 262 243 61 570 439 1 234 718 23 266 188 43 021 971 1 1 425 044 27 231 861 4 213 495 2 440 718 18 149 476 2 428 173 1 529 860

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Table 2 Overview of forecast and implemented amounts of State budget revenue in 2015 (in thousand PLN) Specification

Revenue forecast in the Budget Act5 Total revenue 286 700 000 1. Tax revenue 257 591 000 1.1 Tax on goods and services 121 301 000 1.2 Excise duty 62 952 000 1.3 Tax on gambling 1 250 000 1.4 Corporate income tax 25 610 000 1.5 Personal income tax 45 028 000 1.6 Mineral extraction tax 1 450 000 1.7 Tonnage tax [no data] 2. Non-tax revenue 27 561 067 2.1 Dividends and profit-sharing contributions 6 158 310 2.2 Duty 2 789 751 2.3 Revenue of state budget entities and other 16 716 427 non-tax revenue 2.4 Payments by local government units 1 896 579 3. Funds from the European Union and other non- 1 547 933 refundable sources

Actual revenue 289 136 706 259 673 511 123 120 798 62 808 633 1 337 125 25 813 386 45 040 043 1 553 465 0 27 710 223 6 351 193 2 929 145 16 534 586 1 895 299 1 752 972

5 The table takes into account the data contained in the Budget Act as amended by the Act of 16 December 2015 amending the Budget Act for 2015, J. of L. of 2015, item 2195.

Increasing the efficiency of the tax system from the budgetary perspective

Table 3 Overview of forecast and implemented amounts of State budget revenue in 2016 (in thousands PLN) Specification

Revenue forecast in the Budget Act Total revenue 313 808 526 1. Tax revenue 276 140 000 1.1 Tax on goods and services 128 683 000 1.2 Excise duty 64 083 000 1.3 Tax on gambling 1 383 000 1.4 Corporate income tax 26 067 000 1.5 Personal income tax 46 894 000 1.6 Mineral extraction tax 1 530 000 1.7 Tax on certain financial institutions 5 500 000 1.8 Tax on supermarkets 2 000 000 1.9 Tonnage tax [no data] 2. Non-tax revenue 35 930 976 2.1 Dividends 4 799 670 Payments from NBP profit 3 200 000 2.2 Duty 3 034 000 2.3 Revenue of state budget entities and other 22 924 868 non-tax revenue 2.4 Payments by local government units 1 972 438 3. Funds from the European Union and other non- 1 737 550 refundable sources

Actual revenue 314 683 570 273 138 413 126 584 120 65 749 274 1 406 925 26 381 397 48 232 395 1 277 488 3 506 810 [no data] 0,3 40 131 266 2 814 682 7 861 992 3 177 775 24 044 869 2 231 948 1 413 891

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Table 4 Overview of forecast and implemented amounts of State budget revenue in 2017 (in thousands PLN) Specification

Revenue forecast in the Budget Act Total revenue 325 428 002 1. Tax revenue 301 155 210 1.1 Tax on goods and services 143 483 000 1.2 Excise duty 69 000 000 1.3 Tax on gambling 1 709 000 1.4 Corporate income tax 29 817 000 1.5 Personal income tax 51 000 000 1.6 Mineral extraction tax 1 000 000 1.7 Tax on certain financial institutions 3 937 000 1.8 Tonnage tax [no data] 2. Non-tax revenues 22 476 313 2.1 Dividends and profit-sharing contributions 2 440 637 Payments from NBP profit 627 570 2.2 Duty 3 720 000 2.3 Revenue of state budget entities and other 13 564 757 non-tax revenue 2.4 Payments by local government units 2 123 349 3. Funds from the European Union and other non- 1 796 479 refundable sources

Actual revenue 350 414 702 315 257 413 156 801 211 68 261 286 1 640 203 29 758 467 52 668 801 1 786 224 4 341 221 0,3 33 671 671 2 427 406 8 740 937 3 555 681 16 825 199 2 122 448 1 485 618

Increasing the efficiency of the tax system from the budgetary perspective

Table 5 Overview of forecast and implemented amounts of State budget revenue in 2018 (in thousands PLN) Specification

Revenue forecast in the Budget Act Total revenue 355 705 405 1. Tax revenue 331 672 637 1.1 Tax on goods and services 166 000 000 1.2 Excise duty 70 000 000 1.3 Tax on gambling 1 913 982 1.4 Corporate income tax 32 400 000 1.5 Personal income tax 55 500 000 1.6 Mineral extraction tax 1 290 000 1.7 Tax on certain financial institutions 4 568 655 2. Non-tax revenue 21 908 680 2.1 Dividends and profit-sharing contributions 2 247 987 2.2 Duty 3 787 000 2.3 Revenue of state budget entities and other 13 611 334 non-tax revenue 2.4 Payments by local government units 2 262 359 3. Funds from the European Union and other non- 2 124 088 refundable sources

Actual revenue 380 048 140 349 353 843 174 947 071 72 108 486 1 901 915 34 640 853 59 558 738 1 689 121 4 507 386 28 887 911 2 792 216 4 034 596 19 801 635 2 259 465 1 806 385

Table 6 Overview of forecast and implemented amounts of State budget revenue in 2019 (in thousands PLN) Specification

Revenue forecast in the Budget Act Total revenue 387 734 520 1. Tax revenue 359 731 300 1.1 Tax on goods and services 179 600 000 1.2 Excise duty 73 000 000 1.3 Tax on gambling 2 080 000 1.4 Corporate income tax 34 800 000 1.5 Personal income tax 64 300 000 1.6 Mineral extraction tax 1 400 000 1.7 Tax on certain financial institutions 4 551 300 2. Non-tax revenue 25 806 040 2.1 Dividends and profit-sharing contributions 2 781 618 2.2 Duty 4 184 000 2.3 Revenue of state budget entities and other 16 247 096 non-tax revenue 2.4 Payments by local government units 2 593 326 3. Funds from the European Union and other non- 2 197 180 refundable sources

Actual revenue 400 535 255 367 290 721 180 891 751 72 395 920 2 336 574 39 984 713 65 444 928 1 536 509 4 700 379 31 379 034 3 510 656 4 409 000 20 861 634 2 597 744 1 865 501

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Table 7 Overview of forecast and implemented amounts of State budget revenue in 2020 (in thousands PLN) Specification

Revenue forecast in the Budget Act6 Total revenue 398 671 644 1. Tax revenue 349 740 000 1.1 Tax on goods and services 170 000 000 1.2 Excise duty 68 400 000 1.3 Tax on gambling 2 300 000 1.4 Corporate income tax 38 500 000 1.5 Personal income tax 64 100 000 1.6 Mineral extraction tax 1 700 000 1.7 Tax on certain financial institutions 4 740 000 2. Non-tax revenue 46 589 928 2.1 Dividends and profit-sharing contributions 499 868 2.2 Payments from NBP profit 7 437 077 2.3 Duty 4 680 000 2.4 Revenue of state budget entities and other 31 034 571 non-tax revenue 2.5 Payments by local government units 2 938 412 3. Funds from the European Union and other non- 2 341 716 refundable sources

3.

Actual revenue 419 795 677 370 261 752 184 551 929 71 787 252 2 337 873 41 293 051 63 797 444 1 672 113 4 822 113 47 401 895 468 833 7 437 077 4 557 740 32 001 061 2 937 184 2 132 030

Revenues from tax on goods and services (VAT) in 2014–2020

In 2014, the budget act provided for VAT receipts in the amount of PLN 115.7 billion, but the implementation of the budget in this respect was higher and amounted to PLN 124.2 billion. It is worth noting that such a large difference between the forecast and the 2014 performance occurred only in the case of VAT. The remaining revenues, both tax and non-tax, were made either at a lower amount than forecasted or at a slightly higher amount. Good execution of VAT revenues was therefore the only significant reason for the good execution of total revenues of the budget in 2014. As a significant increase in revenues compared to the forecast in 2014 occurred only in VAT, one may wonder about the reason for this disproportion in relation to other sources of income. Higher than planned VAT receipts were influenced by:7

6 The table takes into account the data contained in the Budget Act as amended by the Act of 28 October 2020 amending the Budget Act for 2020, J. of L. of 2020, item 1919. 7 Council of Ministers, Omówienie sprawozdania z wykonania budżetu państwa za 2014 r. Rozdział 2. Dochody budżetu państwa [Discussion of the report on the implementation of the state budget for 2014 Chapter 2. State budget revenue], Warszawa 2015, p. 37, further: Omówienie za 2014 r. [Discussion for 2014].

Increasing the efficiency of the tax system from the budgetary perspective

– higher contribution of domestic demand to GDP growth (the planned 1.9 percentage point in the end reached 4.4 percentage points), – action taken by the government to prevent VAT fraudulent activities. The economic growth resulted in an increase in the VAT tax base. The nominal private consumption rate was 2.6% compared to 1.8% in 2013. Public investment also increased, which in 2013 recorded a decrease of 10.9%.8 On October 1, 2013, a law entered into force which introduced solutions aimed at increasing the effectiveness of the fight against tax fraud in the trade of certain sensitive products, i.e.: – extending the scope of the reverse charge mechanism to trade in certain steel products, copper products and to additional groups of waste goods, – introducing the tax liability of the purchaser for the seller’s VAT obligations in the case of supplies of such sensitive goods as certain steel products (not under the reverse charge mechanism), fuels and unwrought gold – listed in Annex 13 added to the VAT Act, – elimination of the possibility of quarterly VAT settlements by taxpayers selling sensitive goods under the previous point.9 In turn, the lack of inflation during the financial year 2014 was a factor lowering potential revenues from this tax. The state budget revenues were also adversely affected by the change in the rules for deducting VAT on passenger cars and other vehicles with a maximum permissible weight of 3.5 tonnes and other expenses related to these vehicles. The estimated loss of revenue in 2014 amounted to approximately PLN 1.1 billion.10 In 2015, in the absence of significant changes in the tax system, the most important factor influencing the state budget revenues was the macroeconomic situation. Apart from macroeconomic factors, the level of state budget revenues in 2015 was influenced by low tax collection, mainly VAT. According to the estimates of the Ministry of Finance, the so-called VAT gap, which illustrates the degree of tax receivables collection, amounted to over 24% in 2015 (i.e. almost 14 of VAT receivables were not settled).11

8 9 10 11

Omówienie za 2014 r. [Discussion for 2014], (above n. 7), p. 40. Omówienie za 2014 r. [Discussion for 2014], (above n. 7), p. 41. Omówienie za 2014 r. [Discussion for 2014], (above n. 7), p. 37, 41. Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2015 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2015. Overview], Warszawa 2016, p. 37, further: Omówienie za 2015 r. [Discussion for 2015].

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Therefore, while in 2014 the significant increase in VAT receipts was due to the economic situation and measures ‘sealing’ the collection of this tax, in 2015 no positive impact of both factors is visible. VAT receipts decreased in relation to the previous year. However, the decrease amounted to ca. PLN 1.1 billion, which, as it seems, can indeed be explained by the weaker economic situation. Despite the ‘sealing’ measures taken, in 2015 there was still a significant gap in VAT, amounting, according to the estimates of the Council of Ministers, to 24% of the total receivables from this tax. Thus, the amount of VAT revenue received by the state budget in 2015 was 76% of the amount which, according to the Council, should actually be received. In 2016, the real GDP decreased in relation to the planned figure, mainly due to a decrease in public investment, which constitutes the VAT tax base. This translated into worse macroeconomic conditions for tax revenue collection in that year.12 The VAT revenue received in 2016 amounted to PLN 126.5 billion and was lower than projected in the Budget Act by over PLN 2 billion. Such a large discrepancy between the forecast and yield (to the disadvantage of yield) only occurred in the tax on some financial institutions (PLN 3.5 billion against the planned PLN 5.5 billion) and dividends (PLN 2.8 billion against the planned PLN 4.8 billion). Other tax and non-tax revenues were generally realized at a level higher than projected. The lower than forecast yield of VAT revenue in 2016 was influenced by increased payments of VAT reimbursements to entrepreneurs in December 2016. They made it difficult to assess overall VAT receipts and developments in this respect. In the opinion of the Council of Ministers, after correcting this factor, budgetary data indicate that VAT revenue in 2016 on an accrual basis amounted to PLN 131 billion and was higher by PLN 5.2 billion compared to the revenue in 2015. Considering that effect, the revenues from VAT in 2016 increased faster than the macroeconomic VAT base. This indicates, according to the government, that the reason for the increase in VAT receipts was an improvement in the collection of this tax. This effect was estimated at about PLN 3 billion.13 Activities aimed at improving the collection of VAT included:14 – modification of the reverse charge mechanism and extension of its scope to transactions involving some products in the electronics category in order to

12 Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2016 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2016. Overview], Warszawa 2017, p. 33, further: Omówienie za 2016 r. [Discussion for 2016]. 13 Omówienie za 2016 r. [Discussion for 2016], (above n. 12), p. 36. 14 Omówienie za 2016 r. [Discussion for 2016], (above n. 12), pp. 36–37.

Increasing the efficiency of the tax system from the budgetary perspective

prevent fraud in this sector of the economy in the fulfilment of tax obligations towards the State,15 – introduction of an obligation to report on a monthly basis the information about the records kept by active VAT taxpayers who keep the records referred to in art. 109 section 3 of the VAT Act using computer software. The obligation for the period from 1 July 2016 covered taxpayers with the status of a large enterprise,16 – entry into force of the so-called fuel package, regulating the trade in liquid fuels and sealing the tax system,17 – entry into force of the so-called energy package in September 2016. In the opinion of the Council of Ministers, the above-mentioned measures had an impact on a relatively good implementation of VAT revenue taking into account the macroeconomic situation.18 In 2017, there was a general increase in budget revenues, both in relation to the implementation (PLN 350.4 billion) of the forecast (PLN 325.4 billion) and in comparison with the implementation of revenues in 2016 (PLN 314.6 billion). Such a good result of the budget was achieved owing to the activities of the tax administration sealing the tax system, and a better than expected economic situation. As far as the latter is concerned, there was a GDP growth of 1 percentage point higher than projected, resulting from an increase in private consumption. To some extent, the good yield of the budget was influenced by inflation (2% instead of the projected 1.3%) and the situation on the labour market which was characterized by economic upturn and wage growth. A positive trend is visible in the collection of VAT revenues, in which the treasury administration took ‘particularly intensified actions’.19

15 As a result of the entry into force on 1 July 2015 of the provisions of the ustawa o zmianie ustawy o podatku od towarów i usług oraz ustawy – Prawo zamówień publicznych [Act of 9 April 2015 amending the VAT Act and the Act – Public Procurement Law], J. of L. of 2015, item 605. 16 These changes were introduced by the ustawa o zmianie ustawy – Ordynacja podatkowa i niektórych innych ustaw [Act of 13 May 2016 amending the Tax Ordinance Act and some other acts], J. of L. of 2016, item 846, as amended. 17 The amendment to the VAT, excise and concession regulations came into force at the beginning of August 2016. Ustawa z 7 lipca 2016 r. o zmianie ustawy o podatku od towarów i usług oraz niektórych innych ustaw [Act of 7 July 2016 amending the VAT Act and certain other acts] J. of L. of 2015, item 1052, as amended. 18 Omówienie za 2016 r. [Discussion for 2016], (above n. 12), p. 38. 19 Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2017 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2017. Overview], Warszawa 2018, p. 31, further: Omówienie za 2017 r. [Discussion for 2017].

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As regards the factors indicated by the Council of Ministers in the form of an increase in private consumption, inflation, and the good situation on the labour market, it should be noted that as of April 2016, the payments of benefits under the ‘Family 500 plus’ programme were launched, which could have affected consumption and inflation, contributing to GDP growth. While in 2016, the programme was in place for 9 months, starting from 2017, it operated continuously over full fiscal years. In addition, wages have increased throughout the period under examination. The minimum wage in 2014 was 1680 PLN gross, while in 2020 already 2600 PLN gross.20 The average salary also increased – in 2014 it amounted to 3783.46 PLN, and in 2020 already 5167.47 PLN21 . On the other hand, price increases have only had a positive impact on GDP since 2017, when inflation first increased in the years under review and amounted to 2%.22 The good VAT results in 2017 indicate, according to the Council of Ministers, an improvement in VAT collection. In addition to macroeconomic factors, the increase in VAT revenue in 2017 was mainly influenced by:23 – implementation of the obligation to submit a single control file (JPK VAT), – introduction of the fuel package, – introduction of the monitoring system for the road carriage of goods (SENT). In addition, the increase in revenue from VAT was also influenced by the increase in the effectiveness of the collection of this tax and the controls carried out.24

20 Rozporządzenie Rady Ministrów w sprawie wysokości minimalnego wynagrodzenia za pracę w 2014 r. z dnia 11 września 2013 r., [The Regulation of the Council of Ministers on the amount of the minimum remuneration for work in 2014 of 11 September 2013], J. of L. of 2013, item 1074; Rozporządzenie Rady Ministrów w sprawie wysokości minimalnego wynagrodzenia za pracę oraz wysokości minimalnej stawki godzinowej w 2020 r. z dnia 10 września 2019 r. [The Regulation of the Council of Ministers on the amount of the minimum remuneration for work and the amount of the minimum hourly rate in 2020 of 10 September 2019], J. of L. of 2019, item 1778. 21 Komunikaty Prezesa GUS w sprawie przeciętnego wynagrodzenia w gospodarce narodowej [Announcements of the President of the CSO on the average salary in the national economy]: in 2014 of 10 February 2015, Monitor Polski of 2015, item 179; in 2020 of 9 February 2021, Monitor Polski of 2021, item 137. 22 In 2014 it was 0%, in 2015 -0.9%, in 2016 -0.6%, in 2017 2%, in 2018 1,6%, in 2019 2,3%, in 2020 3,4%. Announcements of the President of the CSO on the average annual consumer price index in total in: 2014 of 15 January 2015, Monitor Polski of 2015, item 109; 2015 of 15 January 2016, Monitor Polski of 2016, item 73; 2016 of 13 January 2017, Monitor Polski of 2017, item 72; 2017 of 15 January 2018, Monitor Polski of 2018, item 106; 2018 of 15 January 2019, Monitor Polski of 2019, item 64; 2019 of 15 January 2020, Monitor Polski of 2020, item 72; 2020 of 15 January 2021, Monitor Polski of 2021, item 58. 23 Omówienie za 2017 r. [Discussion for 2017], (above n. 19), p. 34–35. 24 Omówienie za 2017 r. [Discussion for 2017], (above n. 19), p. 35.

Increasing the efficiency of the tax system from the budgetary perspective

It should also be remembered that the volume of VAT revenue in 2017 was also affected by the postponement of VAT refunds from 2016 until the end of 2017. It worsened the budget outturn on VAT revenue in 2016 but improved it in 2017. According to the Council of Ministers, the sealing measures have contributed both to an increase in VAT receipts and a decrease in the rate of growth of VAT refunds. They brought about the reduction of the so-called VAT gap by 6%. However, the remaining gap was estimated at 14%, which, according to the government, leaves room for further sealing activities and increasing VAT revenues in the following years.25 In 2018, both the implemented tax and non-tax revenues of the state budget were higher than projected. This trend was evident in all taxes except the tax on gambling and the tax on certain financial institutions. The reasons for the overall increase in budget revenues include a good macroeconomic situation and measures to tighten the tax system.26 Implemented VAT revenue amounted to approximately PLN 174.9 billion and increased both in relation to the 2017 revenue received (which amounted to PLN 156.8 billion), as well as in relation to the forecast for 2018 (PLN 166 billion was forecast). Similarly, in the opinion of the Council of Ministers, such a good result of VAT execution was influenced by macroeconomic factors and the improvement of VAT collection, which indicated the effect of the introduction of a single control file (JPK_VAT) and the extension of the obligation to submit it to all taxpayers. In 2018, further VAT sealing measures were implemented, such as the tightening of the provisions on exemptions from the obligation to keep records using cash registers, introduction of the split payment mechanism, the VAT register, and then replacing VAT-7 and VAT-7K returns with a new transformed JPK_VAT file. Their effects are expected to be visible in 2019 and in the following years. According to the Council of Ministers, the gap in VAT in 2018 decreased from 15.4% to 12.5%.27 In 2019, the revenues from VAT amounted to PLN 180.9 billion, which was PLN 1.3 billion higher than the forecast in the Budget Act. According to the Ministry of Finance, the increase in revenue performance was influenced by macroeconomic factors and the introduced measures to tighten the tax system: the introduction of the split payment mechanism (SPM) as of July 1, 2018, the implementation of the mandatory submission of the Standard Audit File for Tax (JPK_VAT) (extension obligation on all taxpayers), and the STIR system, introduced in 2018. According

25 Omówienie za 2017 r. [Discussion for 2017], (above n. 19), p. 35. 26 Omówienie za 2017 r. [Discussion for 2017], (above n. 19), p. 33. 27 Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2018 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2018 Overview], Warszawa 2018, p. 36, further: Omówienie za 2018 r. [Discussion for 2018].

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to the Ministry of Finance, in 2019 the tax gap was 12.03% (down from 12.08% in 2018), compared to the gap of 24–25% in in the years 2012–2015.28 In 2020, revenues from VAT amounted to PLN 184.5 billion and were higher than planned in the amended Budget Act by PLN 14.5 billion (execution amounted to 108.6% of the plan). The realization of state budget revenues from VAT was influenced by factors such as the COVID-19 pandemic, which resulted in lowering revenues, and measures implemented in previous years in the field of sealing tax collection, which in turn had a positive impact on VAT revenues.29

4.

Revenue from Corporate income tax (CIT) in 2014–2020

In the years 2014–2016 CIT revenue was slightly increased, but the significant growth occurred from 2017. It is also remarkable that from 2018 the yield collected was significantly higher than the amounts forecasted. The majority of CIT revenue comes from tax paid by non-financial entities. The amount of income from CIT was influenced by the size of revenues, taxdeductible costs, income, or losses made by financial and non-financial entities which are CIT taxpayers. The manner of settling CIT by some taxpayers in the form of simplified advance payments, the amount of which does not depend on their current economic situation, was also significant.30 In 2015, the factors that influenced the CIT income were the bigger number of taxpayers settling in the form of simplified advance payments and an increase in the positive balance from the settlement of this tax for 2014 as compared to the balance from the settlement for 2013. In 2017, the revenue from CIT was significantly higher than before. Such a good result was influenced by the economic environment. The real GDP was 4.6% higher than in 2016. Business entities also achieved higher financial results as compared to the previous year. The growth of CIT revenues was much higher than the nominal economic growth rate. The yield of CIT income was also influenced

28 Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2019 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2019. Overview], Warszawa 2019, p. 36, further: Omówienie za 2019 r. [Discussion for 2019]. 29 Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2020 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2020. Overview], Warszawa 2021, pp. 66–67, further: Omówienie za 2020 r. [Discussion for 2020]. 30 Omówienie za 2014 r. [Discussion for 2014], (above n. 7), pp. 46–47.

Increasing the efficiency of the tax system from the budgetary perspective

by the settlement of some taxpayers with the use of simplified advance payments and the balance resulting from CIT settlement for 2016.31 The actions to ‘seal’ the tax system were taken in 2018 and 2019 and they are assumed to be one of the factors of increase of CIT revenue in these years (the others factors were: in 2018 – preventive actions, including the publication of warnings against applying tax optimisation on the website of the Ministry of Finance and the favourable economic situation of the country in 2018, reflected, inter alia, in high GDP growth; in 2019 – good situation of non-financial enterprises and stable situation of financial sector entities).32 In 2020, the economic environment caused by the COVID-19 pandemic, which translated into the current situation of entrepreneurs, undoubtedly had an impact on the implementation of budget revenues in 2020 from CIT. In order to support companies whose operation has been limited as a result of the pandemic and protect them against its negative effects, solutions have been prepared that affect the level of current tax revenues. At the same time, it is noted that the changes tightening the income tax system introduced in previous years also had a significant impact on the implementation of revenues in 2020.33

5.

Revenues from Personal income tax (PIT) in 2014–2020

The forecast revenue from PIT in 2014–2020 increased from PLN 43.7 billion in 2014 to PLN 64.1 billion in 2020. The forecasted revenue was higher year-by-year. The income collected was – in general – higher than forecasts, except for the years 2014 and 2020. The general revenue from PIT results from the collection of PIT using some tax methods: the tax scale (used especially by the employers and by the persons meaning business activity), the 19% flat rate income from business activities and some other methods or sources (i.e. tax on income from the sale of securities). The factors that have significance in the amount of PIT collected are: the amount of salaries, pensions and jobs – the minimum and average salary increased in 2014–2020, which affected the PIT income. The good situation in the employment market is also a factor favourable to PIT growth and the level of funds in bank accounts influence PIT from bank interests. For the PIT from the sale of securities or derivative financial instruments the factor of its amount is the situation on the

31 Omówienie za 2017 r. [Discussion for 2017], (above n. 19), pp. 41–42. 32 Omówienie za 2018 r. [Discussion for 2018], (above n. 27), pp. 41–43, Omówienie za 2019 r. [Discussion for 2019], (above n. 28), pp. 42–44. 33 Omówienie za 2020 r. [Discussion for 2020], (above n. 29), pp. 74–76.

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stock exchange market and the realisation of investors’ profits in the year preceding the budgetary year. The yield of PIT income was also influenced by the balance of settlements from last year, especially as regards the tax collected at the 19% flat rate and the tax on income from paid sale of securities. In 2019, the factors that influenced the revenue from PIT were also the systemic changes related to the reduction of fiscal burdens (tax exemption for people up to the age of 26, reduction of the rate in the first tax threshold from 18% to 17% – from October 1, 2019, and an increase in tax deductible costs for employees). In 2020, the introduction of tax reliefs (estimated loss of income of approx. PLN 8 billion), the COVID-19 pandemic and the introduction of various support instruments for entrepreneurs and other people affected by its effects on the basis of PIT34 , were all also factors influencing the revenue from PIT.

6.

Revenue from excise duty in 2014–2020

In 2014–2020, the revenues from excise duty increased, amounting to PLN 62.08 billion (planned) and PLN 61.57 billion (yield) in 2014, and PLN 68.4 billion (planned) and PLN 71.78 billion (yield) in 2020. Excise tax is imposed on numerous products. Within the scope of particular groups, income higher or lower than expected was recorded, hence the total amount raised is a resultant of upward trends in some and downward trends in other income groups. In order to indicate what factors influenced the amount of total income from this tax, it is necessary to analyse how the income from taxation of the most profitable groups of products was shaped. The groups of products subject to excise duty, which generated the largest revenue in 2014–2020 period, included: – motor fuels – tobacco products – ethyl alcohol – beer – passenger cars. In the period 2014–2020, revenues from excise duty on motor fuels increased from PLN 26.06 billion (forecast) and PLN 27.45 billion (performance) in 2014 to PLN 32.05 billion (forecast) and PLN 32.57 billion (performance) in 2020. The amount of revenues from excise duty on motor fuels in 2014–2020 was influenced by factors

34 Omówienie za 2020 r. [Discussion for 2020], (above n. 29), p. 77.

Increasing the efficiency of the tax system from the budgetary perspective

such as increased consumption of motor gasoline and diesel. The demand for motor fuels is related to the number of cars purchased or the price level of motor fuels (a drop in prices increases the demand). The level of excise duty rates should also be mentioned as a factor influencing the demand – reducing the rates leads to lower prices and an increase in demand. As a result, there is no loss of excise tax revenues. The so-called fuel package, introduced by the government in 2016, the aim of which was, inter alia, to combat the shadow economy and increase the demand for fuels from legal sources, was the cause of growth consumption from legal sources. In 2020, a decrease in revenues was recorded compared to 2019, caused by a decrease in demand for liquid fuels due to restrictions on traffic and economic activity and institutions during the COVID-19 pandemic and the introduction of a mechanism reducing excise duty rates. The amount of revenues from excise duty on tobacco products did not show a constant increase in the years 2014–2020. In 2014, it was planned at PLN 19.12 billion, but the yield was only PLN 17.92 billion. In the years 2015 and 2016 the revenue from excise duty on tobacco products were planned at a lower level than in 2014 and in the years 2018 and 2019 the forecasts were lower than the forecast for 2017. The amounts collected also were different from the forecasts, lower or higher in particular years. In 2020, the forecast was PLN 20.54 billion and the yield was PLN 21.46 billion. The amount of revenues from the excise duty on tobacco products was influenced by such factors as the fashion for non-smoking and the displacement of traditional in favour of electronic cigarettes (impact on incomes in 2014–2015) and the price of tobacco products. The increase in revenues has been noticeable since 2016, when changes were introduced to counteract the shadow economy and increase the consumption of tobacco products from legal sources. The forecast revenues from excise duty on ethyl alcohol in 2014–2020 increased from PLN 7.39 billion in 2014 to PLN 8.24 billion in 2020. The realized income amounted to PLN 6.61 billion in 2014 and PLN 9.42 billion in 2020. Since 2017, there has been an increase in excise tax revenues, both forecasted and performed. The following factors influenced the amount of income in the years 2014–2020: – the decrease resulted from the increase of the excise duty rate on ethyl alcohol by 15% from January 1, 2014. This resulted in a sharp increase in production and stocks of alcohol in 2013, on which excise duty at the rate prior to the increase was paid. Hence, revenues from the excise duty in 2013 were high. For part of the year 2014, earlier stocks were used, which resulted in lower production of ethyl alcohol in 2014 and consequently lower excise revenue in that year. Higher revenues in 2015 than in 2014 are related to their reduction in 2014, which was unusual in nature and contributed to the effect of a lower tax base in the examined year,

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– the increase in revenue in 2016 and 2017 results from the increase in demand for spirit products, – its volume is also affected by the volume of spirit drinks in the market and the structure of consumption of various types of spirit drinks, – in 2019, the increase was related to the industry’s preventative actions in connection with the announced excise tax increases in the form of accumulating inventories taxed in 2019 with a lower rate. The reduction in the shadow economy was also indicated as a growth factor, – in 2020, despite the decrease in consumption, revenues increased, which is explained by an increase in excise duty rates for ethyl alcohol. The projected income from the excise duty on beer in 2014–2020 decreased from PLN 3.61 billion in 2014 to PLN 3.27 billion in 2020 (after the budget amendment). The amount of income from the excise duty on beer results mainly from the volume of beer consumption. Beer consumption was influenced by factors such as: – the weather (hot summer was the factor favorable for growth of consumption i.e. in 2014 and 2018 and a cold summer was a factor reducing consumption in 2016 and 2017), – sport events (the World Football Championship in 2014, the Euro 2016 Football Championship in 2016 were factors of growth consumption), – fashion for certain types of alcoholic beverages, – beer excise tax rates. The projected revenue from the excise duty on passenger cars increased regularly in 2014–2019. On the other hand, the performances exceeded forecasts. In 2014, revenues were forecasted in the amount of PLN 1.41 billion, and realized in the amount of PLN 1.64 billion. In 2019, the forecast was already PLN 2.94 billion, and the execution was PLN 3.03 billion. Only in 2020, after the budget amendment, revenues were forecasted to be lower than in the previous year – PLN 1.74 billion, which meant a ‘return’ to the level from 2015. Execution in 2020 amounted to PLN 2.31 billion. In the entire 2014–2020 period, the revenue performance was higher than forecast. The revenues on this account were shaped by two factors: the volume of imports of used cars into the country and the development of sales of new cars in Poland. Both factors were growing in the 2014–2019 period. In 2020, the pandemic of COVID-19 was indicated as the most important factor of the decrease in income, resulting in postponing purchasing decisions of institutional and private customers.

Increasing the efficiency of the tax system from the budgetary perspective

7.

Tax on gambling in the years 2014–2020

The forecasted revenues from tax on gambling in the years 2014–2020 increased from PLN 1.25 billion in 2014 to PLN 2.3 billion in 2020. In the years 2014–2016 the forecasted revenue increased from PLN 1.25 billion in 2014 and 2015 to PLN 1.38 billion. From 2017, the revenue forecasts increased significantly: in 2017 it was PLN 1.7 billion, in 2018 PLN 1.91 billion, in 2019 PLN 2.08 billion and in 2020 PLN 2.3 billion. The revenues collected in the years 2014, 2017 and 2018 were lower than forecast. The highest difference between forecast and yield in these years was in 2017 (over PLN 60 million lower than forecast). In the years 2015–2016 and 2019–2020 the yield was higher than forecast. The highest difference between forecast and yield was in 2015 and it was over PLN 80 million more than forecast for this year. The factors that influenced to the amount of revenues from tax on gambling in the years 2014–2020 were: – changes in tax on gambling construction, liquidating some types of games (for yield in 2014 and 2015, there were changes introduced by the Gambling Act of 19 November 2009, which provided for the gradual liquidation of game halls with slot machines and game rooms with low stake slot machines. The decrease in the above segments was compensated for by an increase in other segments, such as number games, casino games, betting, cash lotteries, and audiotele lotteries. The decreasing effects of liquidation of some types of games gave way in 2016). – the actions to fighting the shadow economy (in the betting market) and to expand on state monopoly for certain types of games (for number games) in 2017, which effects were visibles in 2018 and 2019, – the increase in demand for some games in 2019, – the COVID-19 pandemic, which resulted in the closure of some venues in 2020, but there was an increase in revenues from online game sales in this year.

8.

Mineral extraction tax in the years 2014–2020

Because of its specific nature, the mineral extraction tax is paid by a single taxpayer, i.e. KGHM company, which conducts taxable mining operations. For this reason, this tax does not impose such great needs for carrying out as equally spectacular ‘sealing’ activities as those applied elsewhere in taxation. Revenue from this tax depends on the volume of copper and silver extraction, metal quotations on London exchanges and the exchange rate. The level of revenues in 2019 and 2020 could also be affected by two legislative changes: lowering the

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tax rate for copper and silver and accelerating the collection of the tax on oil and natural gas extraction.35 Revenues from this tax weren’t stable in the years 2014–2020. Its forecast was higher in 2014 (PLN 2 billions) than its forecasts in 2015–2017 and in 2019–2020. But the forecast for 2014 was overestimated, because the yield amounted to PLN 1.42 billion. In the next three years there was then a lower amount planned in forecasts than in 2014 (PLN 1.45 billion, 1.53 billion and 1.78 billion). The amount collected was lower than forecast in 2014, 2016 and 2020. Therefore, there were significant differences between the forecasts and the performance, which may indicate the instability of this source of income or the incorrect forecasting of its amount.

9.

Tax on certain financial institutions in the years 2016–2020

Tax on certain financial institutions was introduced as of February 1, 2016 by the Act of January 15, 2016 on tax on certain financial institutions. The amount of the tax depends on the value of assets of a given institution at the end of each month, with the provision that treasury securities reduce the tax base of taxpayers from the banking sector. Moreover, taxpayers covered by the recovery programme are exempt from the tax. Therefore, changes in the bank’s asset structure by increasing the share of treasury bonds will reduce the tax due, as will the institution’s entry into the resolution process.36 The revenue from this tax in 2020 was decreased compared to the year 2016. In 2016 the revenue was forecasted at PLN 5.5 billion, but the yield amounted to only PLN 3.5 billion. In the years 2017–2020 the forecasts were planned at a lower level than in 2016, and the yield amounted to slightly higher or lower than the forecasts each year.

10.

Conclusion

Overall, the years 2014–2020 saw a steady increase in state budget revenues from taxes. This concerned the majority of taxes, both those where ‘sealing’ measures were taken and those where no such activities were implemented. The increase was particularly pronounced for VAT (see Fig. 3). Each year except 2020, revenue from this tax was forecast to be higher than last year with performance usually turning out well above the forecast. Compared to the 2014 level, in 2020, the forecast

35 Omówienie za 2019 r. [Discussion for 2019], (above n. 28), p. 47. 36 Omówienie za 2016 r. [Discussion for 2016], (above n. 12), p. 46.

Increasing the efficiency of the tax system from the budgetary perspective

revenue as well as the yield increased by over PLN 54 billion. Thus, the amounts of VAT obtained in 2020 were higher by 32% than the amounts obtained in 2014. A particularly visible increase in VAT receipts took place in 2017 and 2018. The increase in income was the result of a favourable economic situation, which consisted, inter alia, in inflation, increased employment, and wages or increased consumption. Government programmes, especially the ’Family 500 plus’, likely also contributed to the growth of the latter, although the statistics for 2016 do not offer a clear answer in this respect.37 To some extent, the volume of VAT revenue in 2016 and 2017 was also affected by the statistical effect of postponing the execution of VAT refunds. According to the Council of Ministers, the increase in revenue was also due to the government’s policy of ’sealing’ VAT. Data on the yield of the state budget in 2014–2020 confirm that all the above factors could have contributed to the increase in VAT revenue.

Fig. 3 State budget revenues from VAT in the years 2014–2020 in thousand PLN – forecast and actual Source: Own elaboration based on Discussions of reports on the execution of the state budget for the years 2014–2020.

In the years 2014–2020 CIT revenues significantly increased. Compared to the level of 2014, the CIT amounts in 2020 are higher by 39% (forecast revenues) and by 43% (realized revenues). A clear increase in CIT revenues is visible from 2017.

37 Data on the implementation of the state budget for particular months of 2016 do not confirm that VAT revenue clearly increased in that year from 1 April (when the programme became operational) (e.g. compared to the data for particular months in other years). Therefore, if the increase in consumption is due to the implementation of the programme, this effect is only visible in the 2017 data.

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Their amount was influenced by factors such as the favourable economic situation, the method of tax collection in the form of ’regular’ or simplified advance payments, the balance of settlements from previous years, and the government’s actions to ’seal’ the tax. The effects of the latter measures are visible from 2018. In previous years, the increase in revenue was, in the opinion of the Council of Ministers, due to the factors presented above.

Fig. 4 State budget revenues from CIT in the years 2014–2020 in thousand PLN – forecast and actual Source: Own study based on Discussions of reports on the execution of the state budget for the years 2014–2020.

In the years 2014–2020, PIT revenues – both forecast and actual – recorded a clear increase, except 2020. In relation to the amounts in 2014, they increased in 2020 by PLN 20.4 billion (forecast revenues) and by PLN 20.7 billion (actual revenues). Thus, PIT amounts in 2020 were higher by 31% (forecast revenues) and by 32% (actual revenues) than those of 2014. It should be noted that in the light of the Discussions of the reports on the state budget execution, PIT revenues increased for reasons other than measures increasing the efficiency of this tax. According to the information contained in the Discussions, such actions were not taken in relation to PIT.38

38 However, it should be borne in mind that some of the measures for improving tax collection are of a general nature and are laid down in the Tax Ordinance (e.g. tax schemes, tax avoidance) and the application of these provisions also applies to PIT. The PIT result may also be indirectly affected by ’sealing’ measures taken in relation to other taxes, e.g. VAT.

Increasing the efficiency of the tax system from the budgetary perspective

Fig. 5 State budget revenues from PIT in the years 2014–2020 in thousand PLN – forecast and actual Source: Own study based on Discussions of reports on the execution of the state budget for the years 2014–2020.

In 2014–2020 an increase in excise duty revenues occurred. In 2020, these revenues increased by 6.3 billion PLN (forecast) and 10.2 billion PLN (yield) compared to the amounts obtained in 2014. The amounts obtained in 2020 were 9% (forecast) and 14% (yield) higher than the amounts obtained in 2014. The increase in revenue was influenced by trends in the markets of products subject to excise duty, such as the increase in demand for these products, but also by the government’s actions aimed at ‘sealing’ this tax, resulting in an increase in the supply of excise goods from legal sources and reducing the grey market.

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Fig. 6 State budget revenues from excise duty in 2014–2020 in thousands PLN – forecast and actual Source: Own study based on Discussions of reports on the execution of the state budget for the years 2014–2020.

Between 2014 and 2020, the revenue from the tax on games also significantly increased. Systematic changes were introduced in the scope of this tax consisting in the liquidation of gaming halls and rooms, which contributed to the decrease in revenue from the tax on games from this type of activity. At the same time, however, revenue from other segments of the game market increased. However, the data from the Discussions of State Budget Implementation Reports do not indicate what exactly the increases in other market segments were caused by. It is therefore difficult to identify clear reasons for the increase in revenue from this tax over the period considered. Possible effects of the sealing measures were visible from 2018. In the previous year, as discussed in the Report for 2017, their effect in the form of growth in some segments of the game market was offset by decreases in other segments.

Increasing the efficiency of the tax system from the budgetary perspective

Fig. 7 State budget revenues from the gambling tax in the years 2014–2020 in thousand PLN – forecast and actual Source: Own study based on Discussions of reports on the execution of the state budget for the years 2014–2020.

The fluctuations in the mining tax on some minerals are due to external factors such as the price of copper on world exchanges or the price of the US dollar. They do not result from the activities of the Council of Ministers to ‘seal’ taxes. From the Discussions of the 2014–2020 budget execution reports, it does not appear that any ‘sealing’ measures were taken in respect of this tax.

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Fig. 8 State budget revenues from the tax on extraction of certain minerals in the years 2014–2020 in thousands PLN – forecast and actual. Source: Own study based on Discussions of reports on the execution of the state budget for the years 2014–2020.

The tax on financial institutions brings some revenue to the state budget. However, it was introduced in 2016, hence the financial effects are only visible from that year on. In the first year of the tax’s application, the forecast revenue was clearly overestimated in relation to the yield. The forecasts were made more realistic in subsequent years. The data for the years 2016–2020 indicate that the revenue from this tax increased in subsequent years. From the Discussions of the reports on the implementation of the state budget for the years 2014–2020, it does not appear that the tax on some financial institutions was being sealed. Therefore, the amount of revenue from this tax and its possible increase depends on factors not directly related to the actions of state authorities.

Increasing the efficiency of the tax system from the budgetary perspective

Fig. 9 State budget revenues from the tax on some financial institutions in 2016–2020 in thousands PLN – forecast and actual Source: Own study based on Discussions of reports on the execution of the state budget for the years 2016–2020.

References Legal acts Ustawa z dnia 9 kwietnia 2015 r. o zmianie ustawy o podatku od towarów i usług oraz ustawy – Prawo zamówień publicznych [Act of 9 April 2015 amending the VAT Act and the Act – Public Procurement Law], J. of L. of 2015, item 605. Ustawa z dnia 13 maja 2016 r. o zmianie ustawy – Ordynacja podatkowa i niektórych innych ustaw [Act of 13 May 2016 amending the Tax Ordinance Act and some other acts], J. of L. of 2016, item 846, as amended. Ustawa z dnia 7 lipca 2016 r. o zmianie ustawy o podatku od towarów i usług oraz niektórych innych ustaw [Act of 7 July 2016 amending the VAT Act and certain other acts] J. of L. of 2015, item 1052, as amended. Rozporządzenie Rady Ministrów w sprawie wysokości minimalnego wynagrodzenia za pracę w 2014 r. z dnia 11 września 2013 r. [The Regulation of the Council of Ministers on the amount of the minimum remuneration for work in 2014 of 11 September 2013], J. of L. of 2013, item 1074. Rozporządzenie Rady Ministrów w sprawie wysokości minimalnego wynagrodzenia za pracę oraz wysokości minimalnej stawki godzinowej w 2020 r. z dnia 10 września 2019 r. [The Regulation of the Council of Ministers on the amount of the minimum remuneration for

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work and the amount of the minimum hourly rate in 2018 of 12 September 2017], J. of L. of 2017, item 1778.

Literature Borodo A., Polskie prawo finansowe. Zarys ogólny [Polish financial law. General outline], Toruń 2010. Brzeziński B., Prawo podatkowe. Zagadnienia teorii i praktyki, [Tax law. Problems of theory and practice] ‘Dom Organizatora’, Toruń 2017. Wantoch-Rekowski J., O stosowaniu Ordynacji podatkowej do należności z tytułu składek na ubezpieczenia społeczne [On the application of the Tax Ordinance to social security contributions], in: J. Głuchowski (ed.), Współczesne problemy prawa podatkowego. Teoria i praktyka. Tom I. Księga jubileuszowa dedykowana Profesorowi Bogumiłowi Brzezińskiemu [Contemporary problems of tax law. Theory and practice. Volume I. Jubilee book dedicated to Professor Bogumił Brzeziński], Wolters Kluwer, Warszawa 2019.

Netography Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2014 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2014 Overview], Warszawa 2015, pp. 311. Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2015 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2015. Overview], Warszawa 2016, pp. 334. Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2016 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2016. Overview], Warszawa 2017, pp. 342. Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2017 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2017. Overview], Warszawa 2018, pp. 339. Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2018 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2018 Overview], Warszawa 2019, pp. 346. Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2019 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2019. Overview], Warszawa 2019, pp. 356. Council of Ministers, Sprawozdanie z wykonania budżetu państwa za okres od 1 stycznia do 31 grudnia 2020 r. Omówienie [Report on the implementation of the state budget for the period from 1 January to 31 December 2020. Overview], Warszawa 2021, pp. 463.

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Komunikat Prezesa GUS w sprawie przeciętnego wynagrodzenia w gospodarce narodowej [Announcement of the President of the CSO on the average salary in the national economy] in 2014 of 10 February 2015, Monitor Polski of 2015, item 179. Komunikat Prezesa GUS w sprawie przeciętnego wynagrodzenia w gospodarce narodowej [Announcement of the President of the CSO on the average salary in the national economy] in 2015 of 9 February 2016, Monitor Polski of 2016, item 145. Komunikat Prezesa GUS w sprawie przeciętnego wynagrodzenia w gospodarce narodowej [Announcement of the President of the CSO on the average salary in the national economy] in 2016 of 9 February 2017, Monitor Polski of 2017, item 183. Komunikat Prezesa GUS w sprawie przeciętnego wynagrodzenia w gospodarce narodowej [Announcement of the President of the CSO on the average salary in the national economy] in 2017 of 9 February 2018, Monitor Polski of 2018, item 187. Komunikat Prezesa GUS w sprawie przeciętnego wynagrodzenia w gospodarce narodowej [Announcement of the President of the CSO on the average salary in the national economy] in 2018 of 11 February 2019, Monitor Polski of 2019, item 154. Komunikat Prezesa GUS w sprawie przeciętnego wynagrodzenia w gospodarce narodowej [Announcement of the President of the CSO on the average salary in the national economy] in 2019 of 11 February 2020, Monitor Polski of 2020, item 174. Komunikat Prezesa GUS w sprawie przeciętnego wynagrodzenia w gospodarce narodowej [Announcement of the President of the CSO on the average salary in the national economy] in 2020 of 9 February 2021, Monitor Polski of 2021, item 137. Komunikat Prezesa GUS w sprawie średniorocznego wskaźnika cen towarów i usług konsumpcyjnych ogółem w 2014 r. [Announcement of the President of the CSO on the average annual consumer price index in total in 2014] of 15 January 2015, Monitor Polski of 2015, item 109. Komunikat Prezesa GUS w sprawie średniorocznego wskaźnika cen towarów i usług konsumpcyjnych ogółem w 2015 r. [Announcement of the President of the CSO on the average annual consumer price index in total in 2015] of 15 January 2016, Monitor Polski of 2016, item 73. Komunikat Prezesa GUS w sprawie średniorocznego wskaźnika cen towarów i usług konsumpcyjnych ogółem w 2016 r. [Announcement of the President of the CSO on the average annual consumer price index in total in 2016] of 13 January 2017, Monitor Polski of 2017, item 72. Komunikat Prezesa GUS w sprawie średniorocznego wskaźnika cen towarów i usług konsumpcyjnych ogółem w 2017 r. [Announcement of the President of the CSO on the average annual consumer price index in total in 2017] of 15 January 2018, Monitor Polski of 2018, item 106. Komunikat Prezesa GUS w sprawie średniorocznego wskaźnika cen towarów i usług konsumpcyjnych ogółem w 2018 r. [Announcement of the President of the CSO on the average annual consumer price index in total in 2018] of 15 January 2019, Monitor Polski of 2019, item 64.

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Komunikat Prezesa GUS w sprawie średniorocznego wskaźnika cen towarów i usług konsumpcyjnych ogółem w 2019 r. [Announcement of the President of the CSO on the average annual consumer price index in total in 2019] of 15 January 2020, Monitor Polski of 2020, item 72. Komunikat Prezesa GUS w sprawie średniorocznego wskaźnika cen towarów i usług konsumpcyjnych ogółem w 2020 r. [Announcement of the President of the CSO on the average annual consumer price index in total in 2020] of 15 January 2021, Monitor Polski of 2021, item 58.

Authors

Prof. NCU dr hab. Anna Brzezińska-Rawa Department of Environmental and Public Economic Law Faculty of Law and Administration Nicolaus Copernicus University in Toruń Poland ORCID: https://orcid.org/0000-0003-3865-9823 Prof. dr hab. Bogumił Brzeziński dr h.c. Former Head of the Department of Financial Law (retired) Faculty of Law and Administration Jagiellonian University in Cracow Poland ORCID: https://orcid.org/0000-0003-3923-5627 dr Małgorzata Cilak Department of Public Finance Law Faculty of Law and Administration Nicolaus Copernicus University in Toruń Poland ORCID: https://orcid.org/0000-0003-1429-8429 dr Agnieszka Franczak Institute of Law Cracow University of Economics Poland ORCID: https://orcid.org/0000-0001-9393-634X Michał Goj Partner, Tax Controversy EY Poland ORCID: https://orcid.org/0000-0001-5665-4095

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Authors

Wojciech Kaczmara Senior Manager, International Tax Services EY Faculty of Law and Administration Faculty of Philosophy University of Warsaw Poland ORCID: https://orcid.org/0000-0002-4851-7362 dr Adam Kałążny  Partner Associate Tax Department | Real Estate Tax Team Deloitte Doradztwo Podatkowe Dąbrowski i Wspólnicy sp.k. Poland ORCID: https://orcid.org/0000-0002-6186-9549 dr Mikołaj Kondej Tax & Legal Technical Manager in PwC Poland Poland ORCID: https://orcid.org/0000-0002-9727-3931 dr Sławomir Krempa Partner in the PwC Deals Tax Team in Poland Poland ORCID: https://orcid.org/0000-0002-3769-1867 Prof. NCU dr hab. Krzysztof Lasiński-Sulecki Director of the Centre of Fiscal Studies Faculty of Law and Administration Nicolaus Copernicus University in Toruń Poland ORCID: https://orcid.org/0000-0002-8380-8392 Prof. NCU dr hab. Wojciech Morawski Head of the Department of Public Finance Law Chairman of the Council of the Scientific Discipline Law of NCU Faculty of Law and Administration Nicolaus Copernicus University in Toruń Poland ORCID: https://orcid.org/0000-0002-2396-9434

Authors

Prof. NCU dr hab. Anna Moszyńska Head of the Department of Commercial and Maritime Law and Civil Procedure Faculty of Law and Administration Nicolaus Copernicus University in Toruń Poland ORCID: https://orcid.org/0000-0003-2349-6603 dr Ewa Prejs Department of Public Finance Law Faculty of Law and Administration Nicolaus Copernicus University in Toruń Poland ORCID: https://orcid.org/0000-0003-2784-2227 Paula Przybielska Tax Manager, International Tax and Transaction Services EY Poland / Luxembourg OECID: https://orcid.org/0000-0001-5306-994X Izabela Rymanowska Senior Manager, Tax Advisor no. 11292 Tax Controversy, EY Doradztwo Podatkowe Krupa sp. k. (Tax Advisory) Wrocław Poland ORCID: https://orcid.org/0000-0002-4854-0917 Prof. NCU dr hab. Maciej Serowaniec Department of Constitutional Law Faculty of Law and Administration Nicolaus Copernicus University in Toruń Poland ORCID: https://orcid.org/0000-0003-4693-7977 Teresa Sławińska-Choryło Head of the Tax Office ORLEN Aviation sp. z o.o. PhD student at the Institute of Legal Sciences of the Polish Academy of Sciences in Warsaw Poland ORCID: https://orcid.org/0000-0001-7716-3527

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Authors

Marek Słupczewski PhD Student Faculty of Law and Administration Nicolaus Copernicus University in Toruń Poland ORCID: https://orcid.org/0000-0001-7661-6504 Prof. NCU dr hab. Jacek Wantoch-Rekowski Department of Public Finance Law Deputy Dean for Economic Affairs and Development Faculty of Law and Administration Nicolaus Copernicus University in Toruń Poland ORCID: https://orcid.org/0000-0002-1606-7790 Martyna Wilmanowicz-Słupczewska PhD student at the Doctoral School of Social Sciences Faculty of Law and Administration Nicolaus Copernicus University in Toruń Poland ORCID: https://orcid.org/0000-0003-1847-9905 dr Joanna Zawiejska-Rataj Partner Associate Deloitte Doradztwo Podatkowe i Wspólnicy sp.k. Poland ORCID: https://orcid.org/0000-0002-5023-8514