Recent developments in Polish legislation - jurisprudence

All evidence in fiscal proceedings must be open to the party – verdict from the Court of Justice of the European Union dated 16 October 2019 in the case: Glencore C-189/18

In the most recent verdict concerning carousel frauds, the Court of Justice of the European Union took the side of the audited Hungarian company Glencore. The tax authorities accused it of purchasing products from entities involved in a VAT fraud. In addition, they claimed that the company should have been aware of the fact that by purchasing these products from these entities it became involved in the fraud. Considering this, its right to deduct VAT was questioned. However, the vast majority of the evidence on which the tax authorities had based their conclusions, constituted files from tax and criminal proceedings collected in other cases in which their openness to an audited company was excluded and, at the same time, the decision issued in the relevant case was based on this evidence. Therefore, the company was not in a position to familiarise itself with evidence which had been collected in the case and was the basis for the decision to be issued.

The Court of Justice of the European Union ruled that this practice violated the principle of the equality of parties in fiscal proceedings and unjustifiably restricted the taxpayer's right of defence. According to the Court, the taxpayer must be entitled to familiarise itself with each piece of evidence on the basis of which a decision is issued.

This ruling is also of great importance for Polish taxpayers. The Polish tax authorities persistently exclude the openness of documents, in whole or in part, especially in cases related to VAT (so called "carousel issues") in which evidence includes many files from other proceedings. The verdict issued in the Glencore case could apply in this case in two ways: with respect to cases finally and validly concluded, it will be possible to reopen the proceedings within one month as of the day on which the conclusion of the decision of the Court of Justice of the European Union is to be published in the EU Official Journal (the conclusion is waiting to be published); or by making a reference to the verdict in cases pending before the tax authorities (request for access to classified documents), or administrative courts (forming additional objections).

Goodwill is not a property right and is not subject to the tax on civil law transactions – verdict of the Supreme Administrative Court dated 8 October 2019, case file number II FSK 3272/17

Since goodwill originates as a result of a transaction of the sale of an enterprise, it is not a property right and as such is not subject to the tax on civil law transactions. This thesis results from the verdict of the Supreme Administrative Court which, at the same time, gives rise to the presumption that in the case in question jurisprudence favourable for taxpayers will be adopted.

For a long time, the tax authorities have demanded that a tribute be paid on goodwill in the case of the sale of an enterprise, i.e. the positive difference between the value of the assets of the enterprise being transferred, and the sale price. It follows from the provisions of law that the tax on civil law transactions applies to the sale of things and property rights, and the tax authorities classify goodwill as such.

According to the administrative courts, goodwill does not constitute a property right mainly because it does not exist as an independent item of trading. It might originate as a result of the sale of an enterprise and only in connection with a given transaction. Therefore, it is not subject to the tax on civil law transactions.

This is good news for taxpayers because despite the fact that in 2018 the Supreme Administrative Court issued similar verdicts, in the verdict dated 14 November 2018, the Court took the opposite, unfavourable standpoint.

Moment of completing a service depends on the contractual provisions and the signing of a protocol – verdict of the Supreme Administrative Court dated 18 July 2019, case file number I FSK 65/16

The Supreme Administrative Court issued a verdict in a case which had earlier been addressed by the Court of Justice of the European Union with respect to the case: Budimex, C-224/18. According to the Court, the acceptance of works agreed in an agreement for construction, building, and installation services in the situation where these types of conditions reflect the norms and standards applicable in the area in which these services were rendered, is of key importance for recognising that the services have been completed for the purposes of determining the moment when the obligation to pay the tax on goods and services arose.

This concerns an issue of great importance for the construction sector, i.e. when the VAT obligation arises. With respect to construction works, it follows from the provisions of law that the tax obligation arises on the day of issuing an invoice which should be issued no later than within 30 days as of the day of completing a given service. It was the determination of the moment of completing the service which was problematic for taxpayers. This was so because the tax authorities recognised that the factual completion of works was crucial while it usually followed from contractual provisions that a contractor could issue an invoice and expect payment only after the works had been accepted. Therefore, in practice, construction firms were obliged to show the output VAT before they could expect the payment to be made by the investor.

The Court of Justice of the European Union recognised that it should follow from the contractual provisions that the parties signing the protocol to such an agreement was necessary for the acceptance to be made, and that the date of this signing meant the formal completion of works, and therefore the completion of the service (or its part). The Supreme Administrative Court referred in turn to FIDIC contractual terms and conditions, specifying the verdict of the Court of Justice of the European Union and indicating that, as a rule, the performance certificate constitutes the acceptance of construction works by the investor, which means that for VAT purposes the service was completed.

The course of limitation cannot be suspended so easily – verdict of the Provincial Administrative Court in Wrocław dated 22 July 2019, case file number I SA/Wr 365/19 In a landmark verdict, the Provincial Administrative Court in Wrocław ruled that the mere fact of delivering to the taxpayer a notification on instituting penal fiscal proceedings without actually conducting them was insufficient to effectively suspend the course of the limitation of a tax obligation. The court in Wrocław ruled not only to the tax authorities' detriment, but also contrary to the resolution of the Supreme Administrative Court of 2018 in which the Supreme Administrative Court sanctioned the tax authorities' practice.

This verdict is revolutionary because it opposes the tax authorities’ abuse of the institution of penal fiscal proceedings only in order to suspend the course of the limitation of tax obligations. This practice, in general, distorts the sense of the legal form of limitation. This is so because the tax authorities deliver to the taxpayer a notice for instituting penal fiscal proceedings sometimes only a few days before their expiry os statutory limitation period, then refrain from conducting said proceedings and instead focus on fiscal or audit proceedings.

The Provincial Administrative Court in Wrocław ruled that this practice was unacceptable should it fail to lead to actual activities aimed at discovering a fiscal offence. The court recognised that the tax authorities were not entitled to undertake any sham activities. This is contradictory to the principle of the democratic state of law and the principle of conducting proceedings in a manner inspiring trust in the tax authorities.