Restriction institution in Polish tax law

In Polish law, initially civil, the statute of limitations appeared from the granting of the legal systems of the possessive states.

He then evolved with the development of jurisdiction through the Napoleon Code 1 , Interwar Code of Obligations 2 (Article 273-287), until the modern provisions of the Act of 23 April 1964 Civil Code 3 (continue k.c.).

At present, this concept should be understood as a measure leading to the acquisition of an entitlement or exemption from a specific obligation as a result of the passage of time, subject to a condition strictly defined by law[4].

Although this institution exists in all branches of the law, it has not been developed one a concept that could be considered universal. The statute of limitations in criminal, civil and administrative law varies mainly between the function, subject matter and their foundations.

In this work, the author focuses his consideration on describing this institution in tax law, mainly in the context of case law and the position of doctrine, concerning the interruption and suspension of the limitation period, the tax on goods and services and tax obligations secured by a mortgage or a tax lien.

1. Introduction

The well-known Latin operative part says: tempus fugit, aeternitas manet, or time is running out, eternity remains. In turn, the Greeks believed that everything flows or everything is variable (pantha rei). For a long time, philosophers have considered the essence of change, the passing of time and what it carries.

And any such change also affects economic activity, causing uncertainty about the future. Since everything is to be variable due to the running time, it will not be avoided in the law either. The personification of this idea is the statute of limitations.

The limitation belongs to a group of institutions referred to as ‘extreme’ 5 . The connecting element of these institutions is their objective, which serves to remove the uncertainty caused by time. The word is a translation of the Latin praescriptio, derived from the verb praescribe[6].

This institution dates back to the time of Roman law, where it was mainly applied to complaints and was of a procedural nature. The failure to file a complaint for a certain period caused the opponent to acquire preescriptio temporis, which he could use against the complaint.

2. Limitation in tax law

When describing the limitation institution, it would be appropriate to consider the motives for the legislator to exclude, on account of the passage of time, the action of state coercion in respect of certain claims. This question can be answered by the Constitutional Court’s ruling from 17 July 2012 7 .

It indicates that the institution is for implementation two the essential constitutional values of the need to maintain budgetary balance and to stabilise social relations by extinguishing old tax obligations.

Although the legislator has full discretion in setting time limits, they should not be too short, which would limit the implementation of the principle of universality and tax justice, or too long, making it an apparent institution.

This institution is of particular importance to taxpayers in tax proceedings when employees of tax authorities abuse laws and instrumentally treat statute of limitations rules, in particular the suspension of limitation periods[8]. However, in such cases taxpayers are very often supported by administrative courts to limit fraud in this matter, as presented in this article.

The statute of limitations is regulated in the provisions of the Act of 29 August 1997 - Tax Ordinance 9 ((c) in the chapter 8, entitled ‘Restriction’. Articles from 68 to 71, normalizing really two fundamentally different institutions.

first, described under Article 68 and 69 o.p., is the limitation of the right to establish a tax liability.

According to the standards laid down in those provisions, a tax liability does not arise if the decision establishing that obligation has been served on expiry 3 years from the end of the calendar year in which the tax obligation arose.

This period may be extended to 5 years, if the taxpayer has not made a declaration within the time limit laid down in the tax legislation or in the declaration made, it has not disclosed all the data necessary to determine the amount of the tax liability[10].

Similar time limits were set for tax liabilities arising from the loss of the right to a reduction calculated from the end of the tax year in which the loss of the right to a tax credit occurred[11].

The tax limitation, understood in common, is described in the other provisions of this chapter. The principal limitation period for a tax liability is 5 years from the end of the calendar year in which the tax payment deadline expired[12]. As can be seen, therefore, for the beginning of the limitation period, it is not the moment when the obligation is created but the time limit for its payment.

Example

Mr Tomasz Iksiński is obliged to pay income tax on the conducted In 2018 individual activities to 30 April 2019 This means that first the date of the limitation period of that obligation is the last day 2019 If, therefore, the period is not suspended or interrupted, the time limit shall expire. 31 December 2024

Although the two institutions discussed here seem similar, they could not, in fact, be more different. A delay in the delivery of the decision in case of limitation of the right to establish a tax liability results in the failure to fulfil that obligation. In the second in the case of an expiry of the tax obligation, and in addition it must be examined by the tax authority of its own motion[13]. Limitation one from the methods of definitive termination of the tax relationship, i.e. the expiry of the tax obligation. Payment of such a benefit means payment of undue tax and results in overpayment. Other ways of expiring tax obligations can include 14 :

• • payment and collection of tax by the payer and the collector,
• • deduction 15 ,
• • Overpayment or tax refund,
• • failure to collect,
• • transfer of property ownership or property rights 16 ,
• • acquisition of property or property rights in enforcement proceedings,
• • remission of arrears,
• • exemption from the obligation to pay in connection with the application of the tax rules,
• • divestment of the inheritance entirely by the State Treasury or local government unit, as determined by the final decision to establish the acquisition of the inheritance.

The specific form of termination of the undertaking is envisaged under Article 15(2) Act on 10 September 1999 Tax Penal Code 17 (Next: k.k.s.). It states that ‘In the event of a decision to forfeit items, to collect their monetary equivalents or to pay their monetary equivalents, the obligation to pay public liabilities relating to such items shall expire’.

It is worth noting that although the Polish jurisprudence has a fairly stable view, the situation with regard to the limitation period in the event of deduction of losses in income taxes is different.

On the one hand, to the Supreme Administrative Court 18 , that ‘tax authorities may calculate the amount of the loss within the time limit within which they are entitled to determine the income tax liability, i.e.

5 years after the end of the calendar year in which it expired 5-year limitation period of the tax liability, in determining the amount taken into account by the value of the deducted loss’ 19 .

In other words, a decision determining the amount of the loss may be issued as long as it is possible to verify the declaration for the year in which the loss was deducted. Effectively, therefore, this gives a maximum period 10 years, since loss can be settled within 5 years.

In another judgment 20 The Supreme Administrative Court applied 5-year the limitation period, as with the rules governing the limitation of tax obligations. The interpretation in that judgment does not find reasonable grounds in the provisions of the judgment.

Furthermore, it should be borne in mind that the limitation does not apply only to a tax liability, but also to the right to claim and recover an excess tax.

According to Article 79(2) o.p., the right to submit such an application expires after the limitation period of the tax obligation, unless tax laws provide for a different method of reimbursement.

This provision was further amended as of 1 January 2016 establishing that an excess payment decision on application submitted before the expiry of the limitation period may also be issued after the expiry of that period (section 3).

In addition, as amended by the Act of 16 October 2019 on the settlement of double taxation disputes and the conclusion of prior price agreements 21 (Further: u.s.p.o.u.p.c.) ‘an application for an excess payment may be made after the expiry of the limitation period if the existence of an excess payment results from the implementation of a double taxation dispute settlement procedure in the cases referred to in:

(a) Chapter II, Chapter 2 U.s.p.o.u.c. or

(b) a double taxation agreement or other ratified international agreement to which the Republic of Poland is party, where that agreement provides for the possibility of implementing a settlement after the expiry of the limitation period, with a provision section 3 apply accordingly’ 22 .

3. Termination of the limitation period

Although the general rule of the limitation period states that it is ongoing 5 years from the end of the year in which the deadline for payment of the tax expired, this does not mean uniformity of that period. As in other branches of the law, tax law also allows the limitation period to be interrupted. Regulations o.p. list two such cases: declaration of bankruptcy and enforcement.

Based on Article 70(3) o.p. declaration of bankruptcy 23 it interrupts the limitation period and is resumed only from the day following the date on which the decision to terminate is finalised, or discontinuance of proceedings bankruptcy.

In addition, this excludes other possibilities for interruption or suspension of the limitation period[24]. However, this does not apply to the tax proceedings initiated before the bankruptcy was declared. The O.P.

Amendment that entered into force 1 January 2016 25 It removed earlier doubts about the bankruptcy before the limitation period began.

‘Because the declaration of bankruptcy is intended to lead to an extension of the period during which tax claims can be claimed — under Article 70(3a) the rule has been introduced that if the declaration of bankruptcy occurred before the limitation period begins, that course shall begin on the day following the date of the finalisation of the order, or discontinuance of proceedings bankruptcy’ 26 .

The enforcement measure also interrupts the limitation period, according to Article 70(4) It is important that the taxpayer be notified of this. The application of an enforcement measure for so long shall not result in interruption of the limitation period until the taxable person has been informed accordingly.[27].

This view was developed in interpretative disputes within the Supreme Administrative Court, concluding that the two conditions of the said article (application of an enforcement measure and notification of the taxpayer) should be met together before the expiry of the limitation period.

After the interruption, that period shall run again from the day following the date on which the enforcement measure was applied. The term execution measure is defined under Article 1a(12) Act on 17 June 1966 on enforcement proceedings in the administration 28 (Further: u.p.e.a.)

Another question was whether any enforcement measure led to the interruption of the limitation period. This is the legal question that he finally addressed to the Constitutional Court one from administrative courts[29]. He sought to find out whether ‘the provisions of the O.P.

to the extent that, as a result of the possibility of applying an unlimited number of enforcement measures, allow for the interruption of the limitation period of the tax obligation each time, without at the same time setting the final limitation period, is compatible with Article 2 Constitution’ 30 .

Constitutional Court in judgment of 21 June 2011 31 He ruled that this provision was in line with the Constitution and that excluding the possibility of interruption of the limitation of tax obligations currently subject to compulsory enforcement would result in a breach of the principle of universality and tax justice.

Therefore, the legislator is free to decide whether or not the interruption of the limitation period will occur several times or not. It is worth noting that there is a favourable view in the case law for taxpayers that the securing occupation does not interrupt the statute of limitations.

This effect is only due to the transformation of the securing occupation into enforcement[32].

4. Suspension of the limitation period

Another type of extension of the limitation period is its suspension. Although in the colloquial language of the term “interrupt” and “suspension” of the limitation period are often treated as synonyms, it should be borne in mind that both institutions operate in a very different way.

The interruption of the limitation period causes that, after its resumption, the term runs from the beginning. In the event of a suspension, we are talking about ‘stopping time’ for this term, and after it is resumed, the period of suspension is added to 5-year limitation period.

This also applies to the interruption of the limitation period. Tax Ordinance lists under Article 70(6) the following grounds for suspension (stopping) of the limitation period:

• Initiating proceedings in the case of fiscal criminal offence or fiscal misdemeanour, • bringing an action before the administrative court on a decision relating to that obligation • making a request for the general court to establish whether or not there is a legal relationship or a law • serving the order to accept a security for the performance of a tax obligation or to order a security under the law of enforcement in the administration • serving a notice of accession to the security in certain cases Under Articles 32a(3) and 35(2) u.p.e.a., • speech by the Head of National Tax Administration, at the request of the party concerned under Article 119h(2) o.p., the opinion of the Council on the prevention of tax avoidance, hereinafter referred to as the ‘Council’, on the appropriateness of application Article 119a or contractual advantage restrictive measures[33] – which follows the date of the above grounds.

However, its resumption (starting) according to section 7 the same Article shall take place after:

• • final termination of the procedure fiscal criminal offence or fiscal misdemeanour,
• • to provide the tax authority with a copy of the administrative court’s ruling, stating its validity,
• • the validity of the ordinary court ruling on the existence or non-existence of a legal relationship or law,
• • the expiry of the freezing decision,
• • termination of the safeguard procedure under the law on enforcement in the administration,

• Service to the party to the Council opinion issued after a speech by the Head of National Tax Administration, at the request of the party concerned under Article 119h(2) o.p., as to the appropriateness of the application Article 119a o.p. or contractual benefit restrictive measures, or after the expiry of the period for that opinion[34].

In the former wording of the provisions of the O.P., significant controversy was raised by the fact that the authorities were not obliged to inform the taxpayer of the measures taken which suspended the limitation period. The practice of keeping taxpayers in a state of unawareness in this matter has only been shortened by the Constitutional Court's ruling from 17 July 2012 35 .

On the basis of the above judgment, the condition for suspension of the time limit for notification of the taxable person was supplemented, but was also passed Article 70c o.p.: ‘The tax authority responsible for the tax liability, the non-execution of which is suspected of committing fiscal criminal offence or fiscal misdemeanour, notify the taxable person of the failure or suspension of the limitation period for the tax liability in the case in question under Article 70(6)(1), no later than the expiry of the limitation period referred to under Article 70(1), and on the commencement or continuation of the limitation period after the end of the suspension period.’

However, this has led to fraud involving the commencement of tax proceedings by the tax authorities in order to suspend the limitation period and not to carry out penal functions.

This was criticised, among others, in the Supreme Administrative Court judgment of 24 November 2016 According to the Court of First Instance, ‘(...) the limitation period for a tax liability has not been suspended due to the initiation of a procedure for the fiscal criminal offence, In so far as the applicant’s proceedings are incorrectly qualified as fiscal criminal offence – there was no real link between the initiation of an investigation and the non-execution of that undertaking.

This relationship was purely apparent and formal; it was only due to the flawed determination of the amount of the alleged loss of revenue of the State Treasury, which resulted in the legal qualification of the act and the limitation of criminality.

Tax Ordinance makes the suspension of the limitation period conditional on informing the taxable person of a particular procedural event in the area of criminal proceedings (carnoscarp) relating to the failure to comply with the obligation.

As a result of the decision to discontinue the investigation, the actions taken in its course are considered to be non-existent, in other words, such a decision has, in the present case, abrogated any procedural effect taken by the authorities in the course of that procedure.

In such a situation, it cannot be assumed that, in the absence of procedural power, the initiation of an investigation may affect the duration of the limitation period of the tax obligation.’ 36 .

This is an example of the caring role of administrative courts, ensuring that tax authorities do not abuse their rights and make statute of limitations an apparent institution.

In addition, the limitation period shall be suspended as information is obtained from other authorities.

The condition for such suspension is ‘the need for the existence of the applicable provisions in the double taxation agreement or another international agreement authorising the Polish tax authorities to take a decision setting an obligation or determining its amount on the basis of information obtained from other authorities’ 37 .

The beginning of such suspension period is the date of the application by the Polish tax authority and the suspension period ends either on the date of receipt of the information or after the expiry of the 3 years.

The suspension shall take place in any case where the tax authority so requests, but the total period of suspension may not exceed 3 years. Similar rules apply to the initiation of a mutual agreement procedure on the basis of a ratified double taxation agreement[38].

It is worth noting that, although the Constitutional Court found that the head of the tax office could, acting on behalf of the Treasury, bring to the civil court a Paulian complaint 39 , Whereas, in the current state of the law, the submission of such a complaint does not result in suspension or interruption of the limitation period of tax obligations;

5. Termination of tax liabilities secured by mortgages or by tax liabilities

A separate subject is a mortgage or treasury-backed liability, mainly due to the controversy in doctrine.

By Sound Article 70(8) The tax liability secured by mortgages or by a tax lien shall not be subject to limitation, however, after the expiry of the limitation period, those liabilities may be enforced only on the subject of the mortgage or lien.

This provision sounds just like Article 70(6) valid from 1 January 1998 to 31 December 2002, to which the Constitutional Court ruled on non-compliance with the Constitution[40]. The problem is that, in the meantime, this provision has been amended and replaced by the current one section 8.

The Court therefore pointed out that, although this provision was not subject to review, the same reservations apply to it because of its wording. Formally, however, the constitutionality of this provision has not been undermined. This creates ambiguities when interpreting this provision and affects the state of the taxpayer’s knowledge.

In principle, non-compliance with the Constitution is due to unjustified differentiation of the legal situation of taxpayers, depending on whether they have assets on which a tax liability can be secured or not.

In that case, we can talk about “secondary” unconstitutionality Article 70(8) of the Supreme Court of 17 March 2016 41 , as well as the Supreme Administrative Court in judgment of 12 April 2016 42 .

The dominance of this view in the various judgments of the administrative courts is so clear that one might even be tempted to refer to it as a uniform line of judgment. It states that the tax liabilities secured by mortgages or mortgages are subject to a general rule.

6. Limitation of tax obligations and VAT

The statute of limitations in the case of a tax on goods and services is so specific that the author decided to give it a separate place to focus more specifically on this area of tax law. This particularity is mainly linked to the issue of input tax and to the return of surplus or carry-over for a further period.

The reference point in this matter is the resolution of the Supreme Administrative Court in its composition seven Judges from 29 June 2009 43 . It states that the statute of limitations, as described in the preamble to that Law, may also refer to the liability for an undue refund of the tax on goods and services.

In earlier case law, the views on this issue were split.

This resolution was a positive breakthrough for taxpayers. This was particularly the case for errors in accounts for which the taxpayer would be liable to pay additional interest for e.g. 15 years which could exceed in full the amount of overpayment of VAT.

Such a ‘withdrawal’ would impede both the control and the possible defence of the taxpayer. Despite this, in some cases the limitation period for VAT can continue to create a problem not only for taxpayers but also experts.

In the case of VAT reimbursement, reference should be made not to the payment deadline but also to the reimbursement deadlines specified under Article 87 Act on 11 March 2004 on tax on goods and services 44 (Next: the VAT Act).

Example

VAT reimbursement within the time limit 180-day of declaration May 2016, complex 27 June 2016 Common 27 December 2016, hence the limitation of the refund will take place on the date 31 December 2021

VAT reimbursement within the time limit 180-day of declaration June 2016, complex 25 July 2016 Common 23 January 2017, therefore the limitation of the refund will take place on the date 31 December 2022

Limitation in the event of a transfer of excess input tax on the settlement due in the following period, according to one of the positions of doctrine, “in itself” is not subject to statute of limitations. There is no obligation on the taxpayer or authority to make a refund directly to the bank account.

In the earlier resolution, the Supreme Administrative Court referred to the general principles of law. According to k.c. 45 the limitation period starts with the date of the claim or the date on which the claim would become due if the rightholder had acted at the earliest possible time.

Therefore, only a clear statement of the taxpayer's will, i.e. the declaration of return of VAT, would render the claim due.

This, however, gives rise to the fear of the taxpayer maintaining this right indefinitely and thus maintaining the situation of legal uncertainty. ‘Since, for objective reasons, it is difficult to determine the “payment deadline” with a specific institution, namely the transfer of surplus, i.e.

“intermediate return”, it is, however, following an NSA resolution from 29 June 2009 – the principle of equality before the law (Article 32 The Constitution), recognising that in the case of a transfer, the earliest hypothetical term of return could be taken into account, so that taxpayers declaring the transfer are not in a more favourable tax situation than those declaring the return.

Amendment made on date 1 January 2016 it merely decided that the limitation period would run from the end of the calendar year in which the tax authority had reimbursed or credited the undue amount (Article 71(2) o.p.). Therefore, the issue of “restriction of transfers” has not yet been established.’ 46 .

As regards the interruption of the limitation period, the Supreme Administrative Court in its composition 7 Judges 47 He decided that the repeal of the final decision on the determination of the VAT liability and the transfer of the case for re-examination would bring an end to the effect of the enforcement measure in the form of an interruption of the limitation period. In the opinion of the Supreme Administrative Court, the rule of law cannot be reconciled where a breach of law by an authority first the instance, because for this reason the decision could be repealed, would have had advantages for the State, which would undoubtedly have increased the investigation period for the implementation of the tax obligation.

7. Summary

The statute of limitations for many years has caused many interpretational problems not only for doctrine but also for taxpayers and tax authorities. This is not due to its very essence and to its objectives, which no one questions, but to its complex nature, which is most evident in terms of VAT limitation.

The tax authorities have often attempted to turn this institution against taxpayers, whether through intentional instrumentalisation or misinterpretation, as described in particular with regard to the suspension of the limitation period, as well as the limitation of obligations secured by a mortgage or a tax lien.

However, the administrative courts and the Constitutional Court formed a line of case law that secured not only the principles of universality but also tax justice – although it was not always beneficial for the taxpayer.

In this study, the author wanted to give the reader an insight into the issue while encouraging him to develop his knowledge on his own so that he could make full use of the rights of the taxpayer.

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