Introduction
Sources of tax law in Poland
As a member state of the European Union, Poland is required to apply EU law. Some EU regulations are applied in Poland directly while others are implemented within the Polish legal system.
Among the taxes of particular transactional importance, the most far-reaching harmonisation has occurred with respect to VAT.
EU law also has a major impact on income taxes and indirect taxes other than VAT, including capital duty or indirect taxes on raising capital (in Poland, the tax on civil-law transactions functions as a form of capital duty). Based on EU directives, tax neutrality has been introduced in Poland, upon fulfilment of certain conditions, with respect to dividends paid or received, under the Parent-Subsidiary Directive (90/435/ECC), as well as the possibility of exemption from withholding in Poland on interest and royalties paid abroad to certain related entities under the Interest and Royalties Directive (2003/49/EC).
Another result of implementation of EU law in Poland is the introduction of solutions that enable tax-neutral treatment of restructuring transactions, such as corporate mergers, divisions and conversions, under the Merger Directive (2009/133/EC) and Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital.
Tax interpretations in transactions
Interpretations issued by the tax authorities as well as rulings in tax cases issued by the administrative courts are of great importance in the process of interpreting and applying tax law. While it is true that in the Polish legal system tax interpretations and judicial rulings do not constitute a source of universally binding law, they nonetheless have an impact on how the law is applied by the tax authorities and by taxpayers—particularly in the case of judgments and resolutions issued by the Supreme Administrative Court.
Given the high degree of complexity of tax regulations, the frequent problems in their interpretation and application, and the potentially significant risks associated with improper application, the Tax Ordinance in Poland provides for issuance of interpretations of tax regulations (including tax treaties).
There are two types of tax interpretations: general interpretations, issued by the Minister of Finance, which are generally addressed to the tax authorities and are designed to unify the application of tax regulations, and individual interpretations, issued upon application of the interested parties (tax payers, remitters or collectors as well as entities that may potentially be required to pay tax). Individual interpretations are technically issued by the Minister of Finance, but the minister has authorised five directors of tax chambers to issue them. An exception to this system is individual interpretations concerning local taxes (e.g. real estate tax), which are issued by the local tax authorities. Authorities issuing interpretations are required to publish them online (with identifying details of the taxpayers redacted).
The procedure for applying for an individual interpretation is fairly cheap and simple, and provides a high degree of security if the party follows the interpretation. For this reason, tax interpretations have become a commonly used tool for managing tax risk in Poland. In the case of complex, multifaceted transactions which may also entail major tax exposure, applying for a tax interpretation is often standard operating procedure for the parties prior to carrying out the transaction.
The process of obtaining a tax interpretation begins with drafting the application, in which the applicant describes the planned transaction or event, formulates its query concerning the tax effects of the transaction or event, and presents its own position on the tax effects of the transaction or event. When the interpretation is issued, it will state that the applicant’s position is correct or incorrect, generally with a justification. The interpretation may be challenged by the party, first by calling on the authority issuing the interpretation to correct the legal errors in the interpretation, and then through the administrative courts.
An interpretation should be issued within 3 months after receipt of the application, but this deadline may be extended when the tax authority requests additional information concerning the application. The application bears a fee of PLN 40 (about EUR 10) for each state of facts or future event.
Individual interpretations are binding on the tax authorities, which means that an entity that follows an interpretation it has received concerning a future event cannot bear negative consequences if the interpretation is later found to be incorrect. More specifically, if the interpretation is later held to be incorrect, the taxpayer is not required to pay tax or interest. This protection also means that the authorities are not permitted to commence fiscal penal proceedings, and proceedings that are commenced should be dismissed. However, if the interpretation concerns events or transactions occurring before issuance of the individual interpretation (rather than a future event), the taxpayer is not released from paying the tax.
This protective function of individual tax interpretations is excluded if the decision is issued as a result of application of the general anti-avoidance rule. This now effectively limits the role of individual interpretations in tax planning. It should be stressed that the Minister of Finance is authorised to amend a general or individual interpretation that has been issued if he finds that the interpretation was unlawful. In such case, however, a taxpayer who followed the interpretation before it was amended will not suffer negative consequences because of the amendment.
Tax avoidance
A general anti-avoidance rule was introduced into the Polish tax system on 15 July 2016. Under Art. 119a of the Tax Ordinance, an action made primarily with the aim of achieving a tax advantage (that is, an action in which the economic or commercial aims are of little importance), inconsistent in the given circumstances with the subject and aim of a tax regulation, will not achieve the intended tax advantage if the manner in which the action was taken was “artificial.”
The manner in which an action is taken is regarded as artificial if it would not have been applied by an entity acting reasonably, guided by lawful aims other than achieving a tax advantage inconsistent with the subject and aim of a tax regulation. In determining whether an action was artificial, the particular factors to consider include the involvement of intermediaries without economic or commercial justification, and an economic or commercial risk outweighing the anticipated non-tax benefits to a degree that a rationally acting entity would not have chosen to act in that manner.
In this situation, the tax consequences of the action are determined on the basis of the state of affairs that would have existed if the entity had acted reasonably in the situation, guided by lawful aims other than achieving a tax advantage inconsistent with the subject and aim of a tax regulation. But if achievement of a tax advantage was the only aim of the action, the tax consequences are determined on the basis of the state of affairs that would exist if the action had not been taken.
Considering the vagueness of the concepts used in the Tax Ordinance, it can be expected that not only actions aimed exclusively at tax optimisation will be questioned, but also actions with a business rationale if their form does not result in maximisation of tax burdens. To eliminate this risk, an application can be filed with the Minister of Finance for issuance of a “precautionary opinion.” The application includes a detailed description of the transaction, an indication of the entities participating in the transaction, including the capital or personal ties between them, and an indication of the aims and economic or commercial justification for the transaction. The application should also contain a description of the tax consequences, including the tax advantages, that will be achieved as a result of the transaction, along with the applicant’s position on the matter.
A precautionary opinion should be issued within
6 months after receipt of the application (this period may be extended if the Minister of Finance submits additional questions to the applicant concerning the transaction). The cost of issuance of the opinion is PLN 20,000 (about EUR 5,000).
In cases in which the anti-avoidance rule may be invoked, the proceeding is conducted by the Minister of Finance. During the course of the proceeding, the minister may at his own initiative (before issuance of a decision) or at the request of the taxpayer (in its appeal from the decision) seek an opinion from the Tax Avoidance Council on the justification for applying the anti-avoidance rule. Before the council issues an opinion, the taxpayer may submit additional documents to the council and presents its position in writing. The council is an independent body whose members are appointed by the Minister of Finance for a 4-year term.
The Polish tax authorities may also dispute transactions under Art. 199a of the Tax Ordinance if they can prove that the given right or legal relationship from which a party derives tax effects is non-existent (that is, did not occur). If the tax authorities have doubts with respect to the existence of a legal relationship or right, they should seek a declaratory judgment to that effect from the common court.