Securing the payment of taxes may protect against exclusion
If tax arrears are a ground for exclusion under the procurement documentation, exclusion can be prevented by making payment or entering into an agreement with the tax authority. It is worth considering whether providing voluntary security would be an effective way to prevent exclusion.
Tax arrears and grounds for exclusion from procurement
The grounds for exclusion from a proceeding for award of a public contract due to tax arrears remain largely unchanged in Poland’s new Public Procurement Law. The act will continue to provide for mandatory exclusion of a contractor when a final administrative decision has been issued against it finding that the contractor has tax arrears (Art. 24(1)(15) of the Public Procurement Law in force until the end of 2020, Art. 108(1)(3) in the new Public Procurement Law). Other infringements in the area of payment of taxes will continue to constitute grounds for exclusion only if the contracting authority provides for such effect in the tender documentation (Art. 24(5)(8) of the current act, Art. 109(1)(1) of the new act). This optional ground for exclusion will continue to apply even if the administrative decision issued to a bidder on tax arrears has not yet become final. The fact that the contractor considers the decision to be unfounded and disputes it on appeal will not protect it from exclusion from the tender procedure.
Thus the finality of the decision is the dividing line between mandatory and optional grounds. Even though a non-final administrative decision does not give rise to a presumption of its correctness, under the case law of the National Appeal Chamber (KIO), the mere issuance of the decision demonstrates tax arrears justifying exclusion on the basis of an optional condition (KIO ruling of 22 May 2018, KIO 899/18).
At the same time, under both optional and mandatory grounds, after a breach of tax obligations, a contractor will not be excluded if it pays the tax (in which case the arrears disappear) or enters into a binding agreement with the authority on payment of the arrears.
Sometimes, however, the contractor does not settle tax arrears due to pending tax proceedings, i.e. a dispute with the authority as to the legitimacy or amount of tax due. If the contractor disputes the correctness of the tax calculation, it is difficult to require it to pay the tax arrears solely for the purpose of participating in a procurement procedure—particularly as there are often large amounts involved. But even though the tax cannot be effectively enforced by the tax authorities (because the decision is not final) and may prove in tax proceedings not to be due, the issuance of such a decision alone is sufficient to establish a breach of tax obligations in a public procurement procedure (if provided for in the tender documentation).
Voluntary security
In such a situation, it is worthwhile for the contractor to consider establishing voluntary security under Art. 33d of the Tax Ordinance. Security may be established in various forms, listed in that provision, such as a bank guarantee or insurance guarantee, bank surety, or a bill of exchange with bank surety.
Under this procedure, the contractor should, at its own initiative, establish security for enforcement of the decision of first instance (e.g. by paying the amount of arrears into a deposit account of the tax authority), and the authority should issue an order confirming the security. By establishing security, the contractor can demonstrate that payment of the amount specified in the non-final decision is fully protected. The contractor can also document the security to the contracting authority by presenting the tax authority’s decision and potentially also the contractor’s own statement or explanations. It would also be advisable to show that the contractor is appealing against the tax decision, and thus that in the contractor’s view there are no arrears.
Although the Public Procurement Law does not mention such an institution, let alone in the context of a defence against exclusion, given the nature of such security it should be regarded by the contracting authority as a sufficient guarantee that the contractor will perform its tax obligations, and prevent the contractor from being penalised by not allowing it to win the contract. Such an approach would be consistent with the call to deformalise public procurement and make the conditions to be met by contractors more realistic.
Voluntary security can be considered an intermediate solution between making full payment and concluding a repayment agreement. Such an agreement, expressly mentioned in the law, also does not eliminate the tax arrears, but only constitutes an undertaking by the contractor to pay the arrears under certain conditions. Indeed, security is more stringent than an agreement, as by its very nature it must provide for unconditional payment in the event of a final decision against the taxpayer.
Dr Hanna Drynkorn, attorney-at-law, Infrastructure, Transport, Public Procurement & PPP Practice, Wardyński & Partners
