When in 1920 a general income tax was introduced in the independent Republic of Poland, after the first few years of its operation, representatives of the legal doctrine and specialists lamented its shortcomings, including, among others, the low quality of the jurisprudence of tax commissions, which resulted in a high rate of repealing decisions issued in appeal proceedings. In 1928, it reached a reprehensible 40% in Warsaw.
And what does it look like today?
According to official data, not much better. In 2022, the rate of repealing tax decisions by provincial administrative courts reached a record 31.07%, while in previous years it fell even below 20%. The tax administration does not like to boast about this data and I have not been able to find more up-to-date information. However, you can try to estimate them. For example, the Lexa database of judgments lists about 9.5 thousand judgments on complaints against decisions of the Tax Administration Chamber (the authority of the second instance in tax proceedings) in the years 2023-2025, of which about half are annulment judgments. However, the lex does not contain all judgments, so the choice may be selective. However, in the Central Database of Administrative Court Decisions we can find 4132 judgments of the Provincial Administrative Court in Warsaw on complaints against IAS rulings, of which 37.4% are annulments. And this is only part of the problem. We do not know anything about possible repeals made within the tax administration (second-instance decisions of the Tax Administration Chamber), and only on the basis of our practice and to our surprise can we say that there are quite a few of them. There is also a cassation appeal to the Supreme Administrative Court, where there are also chances to overturn the judgment, although statistically significantly smaller and, what is worse, after a very long waiting period. If we were to put these indicators together, it can be assumed that the chances of winning an appeal against a tax decision, and only on the basis of statistics, range between 30-60%. This is confirmed by the internal statistics of our law firm. Out of several dozen tax proceedings conducted recently, the vast majority were completely or partially successful.
Where does this unfavourable trend for the tax administration come from?
Even without knowing the internal data of the Ministry of Finance, one can be tempted to make some hypotheses:
“First of all, there is a clear trend (confirmed by official data) in which Tax Offices cease to conduct any control proceedings, limiting themselves to the so-called verification activities, leaving the former to allegedly specialized Customs and Tax Offices. Tax Offices, as the authorities of first contact with taxpayers, are generally quite friendly to them and the quality of these contacts is improving year by year. They have also never had a strong pressure to end each audit with a tax surcharge. On the contrary, in the last decade we have commonly encountered “resultless” activities of tax offices, where later the UCS undertook regular inspections, ending it with a tax surcharge.
“Since the reform of the National Revenue Administration and the imposition of extensive reporting obligations on taxpayers (SAF-T, financial statements and tax returns in electronic form, TPRs, MDRs, etc.), the effectiveness of customs and tax inspections that are carried out against taxpayers selected on the basis of algorithmic and automated analyses has been increasing. UCS likes to boast about this effectiveness, which exceeds 90%. However, this effectiveness is measured not in relation to the final decision (after appeals and complaints), but on the basis of a decision issued by the same authority that conducts the inspection. Such a situation creates particular pressure on the inspectors to end the proceedings with a tax surcharge. Proceedings without results are suspicious. How is it possible that the algorithm that selects the controlled person made a mistake? The effects of this pressure are deplorable. Either we get bizarre decisions that can be repealed after the first appeal, or the proceedings are dragged out indefinitely. The latter circumstance was pointed out by NIK in its 2023 report, where it noted that the average duration of UCS audits is about a year, and nearly half of the proceedings lasted well over a year. In our practice, we already have inspections that have entered their third year, and none of them has been completed before the end of the year.
– The last issue concerns only VAT inspections (which are the most numerous). Historically, criminal liability for tax crimes has been constructed in parallel to liability for tax arrears. When tax liabilities expired, so did the criminal record. If the taxpayer settled the tax voluntarily, he was not subject to criminal liability. The amendments to the Penal Code in recent years, and in particular the introduction of provisions penalizing the so-called blank invoices (Article 270a, Article 271a and 277a of the Penal Code) have broken this principle. A taxpayer who is accused of using blank invoices may be imprisoned for up to 25 years, completely regardless of the possible tax settlement. Empty invoices, on the other hand, are probably the key word of every second VAT audit. With criminal charges in mind, taxpayers have no incentive to voluntarily, even opportunistically, settle their tax after the possible result of the audit. They will fight until they drop…
For further information, please contact:
Marcin Gorazda, Managing Partner
Gorazda, Świstuń, Wątroba i Partnerzy adwokaci i radcowie prawni, Kraków
e: lp.moc.wsg@adzarog.nicram
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