Since July 15, 2016, a tax avoidance clause has been in force in Polish law. This allows the tax authorities to collect tax even if, according to the regulations, the activities performed do not give rise to a tax liability. The basis for imposing the tax is the inconsistency of the activity with the subject matter and purpose of the Act.
The introduction of the anti-avoidance rule was intended to streamline the tax law system by defining the limits of permissible tax optimization. Pursuant to Article 7 of the Act of 13 May 2016 amending the Tax Ordinance Act and certain other acts (which introduced the anti-avoidance rule), tax avoidance provisions apply to tax benefits obtained after the Act's effective date.
But what if the act resulting in a tax advantage was performed before the clause came into effect? The Supreme Administrative Court recently addressed this issue.
The case concerned a company operating in the telecommunications industry that sold telecommunications infrastructure to a subsidiary in 2009 and then leased it. One of the consequences of the transfer of ownership was a reduction in the tax base. The Head of the National Revenue Administration, who conducted the tax proceedings regarding tax avoidance, determined that the provisions of the Tax Ordinance should be applied in the case. The company, however, maintained that the provisions of the anti-avoidance clause should not be applied to an act performed many years before the anti-avoidance clause came into force, even if the effects of the act were felt after its entry into force.
The Provincial Administrative Court in Warsaw found in the taxpayer's favor. The court found no time limit on the application of the clause to acts performed before its effective date, if the act produced tax consequences after July 15, 2016. However, taking into account the principle of a democratic state ruled by law, the principle of legal certainty, and the principle of procedural fairness, it concluded that, with respect to acts performed significantly later, the authority may issue a decision under Article 119a of the Tax Ordinance only in extreme and unequivocal cases. However, in the tax proceedings conducted, the authority failed to demonstrate that the act was undertaken by the taxpayer primarily to obtain a tax advantage. In considering the case, the taxpayer's motivation cannot be assessed from the perspective of subsequent events; instead, the circumstances and knowledge that existed before the act was undertaken should be considered.
The Supreme Administrative Court, reviewing the cassation appeal filed by the Head of the National Revenue Administration, agreed with the Provincial Administrative Court. As a result, the company will not be required to pay additional tax. However, the courts hearing the case did not question the applicability of the anti-avoidance clause to actions undertaken before its introduction. The courts hearing the case found that the provisions introducing the clause into the legal order clearly indicate that it does not apply to benefits gained after its introduction, meaning that it can be applied to actions undertaken in the past. They also did not find that such conduct by the tax authorities could violate the constitutional principle of legal certainty.
Although the presented case ended happily for the taxpayer, the position of the administrative courts may be disturbing. It allows for the application of tax regulations to events occurring before they became applicable. However, it seems obvious that a prudent taxpayer, aware of the applicable regulations, would not have undertaken actions that could expose them to tax consequences. In 2009, when the transaction in the presented case took place, no one knew that regulations would be in force allowing for taxation of its effects, even though this was not implied by the substantive provisions of tax law at the time.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of September 11, 2023
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