Harmonisation of Polish tax regulations with EU law
When Poland joined the European Union on 1 May 2004, it had a major impact on the Polish tax system. Despite obtaining certain grace periods, Poland was required to implement specific tax solutions into national tax law. Polish taxpayers and tax authorities were also required to apply certain EU regulations directly.
Among the taxes of particular transactional importance, the most far-reaching harmonisation has occurred with respect to VAT.
EU law has also had 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 right to apply a lower rate of withholding taxes, and from 1 July 2013 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 12February2008 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 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 now 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 offices 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.
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, using an official form, 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.
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.
Avoidance of law
Polish tax law does not provide a general anti-avoidance clause which would entitle the tax authorities to challenge transactions whose sole purpose or main purpose is to achieve tax benefits. Such a provision did exist in Polish law until 31 May 2004, but it was held unconstitutional by the Constitutional Tribunal. A certain exception in this respect is the tax neutrality of a corporate merger or division, which requires an economic justification for the merger or division.
Currently the Polish tax authorities may only 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.