Radosław Teresiak

New authority for fiscal inspectors

When must a financial institution release information to fiscal audit authorities identifying the holder of a bank account? Radosław Teresiak from the Tax Advisory practice group at Wardyński & Partners analyses the new Art. 7d(1) of the Polish Fiscal Audit Act.

A recent amendment to the Fiscal Audit Act which went into effect on 30 July 2010 added a new section, Art. 7d(1), which provides as follows:

“If a fiscal audit authority obtains substantiated information that a bank account is being used for the purpose of conducting business activity not declared for tax purposes, obtaining income not covered by reported sources or derived from unreported sources, or obtaining undeclared income or income not disclosed in tax declarations filed, and it is necessary to carry out a fiscal audit in the respect referred to in Art. 2(1)(1)–(3), financial institutions referred to in Art. 33(1)–(5) are required upon demand of the fiscal audit authority to provide information identifying the holder of such bank account. Art. 33b(1) and (2) shall apply accordingly.”

Definition of bank account

Under Art. 725 of the Polish Civil Code, a “bank account” means an agreement under which a bank undertakes to store funds for the holder of the account, for a definite or indefinite period, and, if provided by the agreement, to carry out monetary transactions in the account upon the holder’s instructions. Under Art. 49 of the Banking Law, banks may offer the following types of bank accounts:

  • transactional accounts (current or auxiliary)
  • time deposit accounts
  • savings accounts, savings and transactional accounts, and time-deposit savings accounts
  • escrow accounts.

Use of the collective term “bank account” means that Art. 7d(1) refers to all of these types of accounts.

“Use” of a bank account covers all actions related to use of the account, such as receiving deposits of receivables from customers for goods sold or services performed, or receiving funds to be paid out to suppliers. Disclosing a bank account number to third parties is also considered to be a form of “using” a bank account.

Purposeful activity

The requirement in the new Fiscal Audit Act section that the bank account be used “for the purpose” of conducting a given type of activity or obtaining certain income was not worded very well. Apparently the intent was to stress the functional connection between use of the bank account and, for example, conducting undeclared business activity. The phrase “for the purpose of conducting…” is wide of the mark, however, because it suggests that use of a bank account is an action aimed at achieving the effect of conducting business activity. However, a bank account is really used for the purpose of making financial transactions, so the account is used in connection with business activity that the holder performs, but not for the purpose of conducting the business activity. Similarly, obtaining income not covered by disclosed sources, or derived from undisclosed sources, is not dependent on use of the bank account.

In any event, it should be understood that information identifying the holder of a bank account may be disclosed only if the authority has substantiated information that the account is being used in business activity that has not been declared for taxation purposes. Similarly, with respect to obtaining income that is not covered by disclosed sources or derives from undisclosed sources, the point is that the bank account is used by the taxpayer when obtaining such unreported income.

Duties of financial institution

Before the fiscal audit authority applies to the financial institution for disclosure of information identifying the holder of a bank account, it must have substantiated information about use of the bank account for unreported activity as referred to in Art. 7d(1). This implies that the financial institution has a duty to determine whether the facts presented by the authority indicate a connection between use of the bank account and conducting the unreported activity. The financial institution will also have to determine whether the information to be provided is necessary for the fiscal audit authority to conduct tax-related aspects of a fiscal audit.

Financial institutions required to provide information

Information identifying the holder of a bank account is to be provided by banks, as well as brokerages, savings and loan associations, investment funds, insurance companies, insurance agents, and pension funds.

Purpose of the rule

The newly introduced regulation is designed to improve the effectiveness of tax enforcement with respect to undeclared activity and unreported income, particularly by persons who operate on the Internet. People who sell goods on auction sites, for example, typically use only a nickname. Then the main hook the tax inspectors have is the number of the bank account where payment is to be made. Thus it appears warranted for the tax authorities to obtain access to information identifying the account holder.

While the new regulation appears to serve a worthy goal, it is unfortunate that the wording was not more precise—particularly since it encroaches on an area that is subject to bank secrecy. It remains to be seen how the new rule functions in practice.