Extended tax liability – forms of legal succession

„In this world, only death and taxes are certain" – this famous truism-throwing maxim, spoken by American politician Benjamin Franklin, is known to every tax collector. With regard to the tax rate, the scholar and philosopher certainly meant the tax obligation, which then turns into a tax liability. Although the relationship between the tax authority and taxpayers does not mean that it is limited to those two pages. It may be that the originally shaped legal tax relationship may be subject to subject modification. This is the case where a tax liability calls for a different entity than the original one. The author, presenting the position of doctrine and jurisprudence, examines in the study the issue of expanding the scope of tax liability, with particular emphasis on the legal implications of the entity.

1. Introduction

In order to focus on the above-mentioned subject matter and more detailed discussion of the cases listed directly in the Act of 29 August 1997 - Tax Ordinance 1 (hereafter: o.p.), the concepts of obligation and tax obligations should first be clarified. According to Article 4 o.p.

‘the tax obligation is the non-concrete obligation of a compulsory cash benefit due to the occurrence of an event specified in those laws’. It is therefore an objective institution and its creation is independent of the will of entities subject to such an obligation, namely taxpayers.

It is imposed exclusively by law and is therefore also compulsory. In itself, this concept is unconcrete, which distinguishes it from a tax liability. For the mere fact that an event has led to the obligation of a cash benefit (a tax liability cannot occur in non-monetary form) does not mean that the entity will be liable to pay it, e.g.

due to the application of tax exemptions or limitation[2]. This definition also raises some doctrinal doubts. ‘In particular, it is stressed that in the area of tax law, the term “tax liability” is used in a number of meanings which are generally different from the definition set out above.

There are also claims in the doctrine that using this concept becomes useless.” 3 .

In the next the general definition of the tax liability is given, stating that: ‘The tax obligation is the tax obligation of the taxpayer to pay to the Treasury, the province, the county or the municipality a tax of the amount, within the time limit and at the place specified in the tax law’ 4 . This concept is more specific.

Tax Ordinance predicts two how tax liability arises, i.e. by law and by way of service of a decision establishing the amount of the tax liability[5]. The literature also indicates the existence of differences in the temporal relationship between the formation of the obligation and the tax obligation.

In the case of open-state taxes, such as income taxes, the tax obligation does not have to be laid down in the Act as far as the moment is concerned.

In this case, it is important to start the actual situation, such as the start of the tax year, which will be specific after the end of that year, when and if there are any grounds for the tax obligation.

In the case of closed-state taxes, as in the case of a tax on goods and services, the designated legitimate acts form a closed factual situation linked to the payment of the tax, a paid supply of goods, which makes the obligation and the tax obligation almost simultaneous.

It can therefore be concluded that not all tax obligations will result in a tax liability, but no tax liability will arise without an earlier obligation[6]. At the same time, it is stressed that the tax obligation, as well as the tax obligation, cannot be transferred or ceded to other entities under civil law or other agreements[7].

The provisions provide for situations where it is not the entity of the original tax relationship that will ultimately be responsible for the satisfaction of the tax obligation. In such cases, the scope of corporate tax liability is raised. This is understood as both the legal consequence of the entity and the tax liability of persons third.

The purpose of this Article is to discuss the general principles concerning the extended scope of corporate tax liability, as there are detailed rules in the tax laws relating to the issues described here. Due to the size of the material analysed, the study was divided into two parts — first, in which the author focuses on forms of legal implications for both legal and physical persons, and second, the tax liability of persons third.

2. Legal consequence and tax obligation

A legal follow-up, also called universal succession, can be referred to in the event of the destruction of the entity. It should be pointed out that such an event alone does not give rise to the expiry of the tax obligation as it is not one of the forms indicated under Article 59(1) o.p. 8 .

The general rule is that all rights and tax obligations are assumed by legal successors. This applies to both materially and procedurally. The case law states, among others, that succession may also concern the protection provided by the interpretation of tax law[9].

However, there is no uniformity of view as to whether succession is contingent upon prior application by the previous successor to interpretation[10]. The purpose of such a regulation is to ensure that tax creditors can enforce their tax obligations, from second and the parties allowing successors to exercise the rights of predecessors.

The provisions of the Law regulate separately the situation of legal persons and organisational units without legal personality and natural persons.

In the case of legal persons and non-legal entities, the legal consequences of acquisition, conversion and division are distinguished. In the case of natural persons, there is more talk of succession.

It is worth noting here that the provisions concerning the issue of legal implications, which are regulated under Article 93-106, constitute lex generalis in relation to possible regulations of this issue in the laws on individual taxes.

Although o.p. outlines very broad limits of tax succession, covering both those with limited and unlimited tax obligations 11 , it is also restricted.

For the conflict standards established under Article 93e state that these provisions ‘apply to the extent that separate laws, double taxation agreements and other ratified international agreements to which the Republic of Poland is party do not provide otherwise’. Such an example may be.

Article 7(3)(4)(5) Act on 15 February 1992 on corporate income tax 12 (Next: the Corporate Income Tax Act), excluding the taking into account of losses of transformed, merged, acquired or divided entrepreneurs in the event of a transformation of the legal form, merger or division of undertakings, with the exception of the transformation of a capital company into another company, as well as losses of state enterprises acquired or acquired under the provisions on commercialisation and privatisation.

It should also be mentioned that ‘The amendment concluded under Article 93 and n.o.p. refers to rights and obligations arising from facts occurring before the date of merger. It does not, on the other hand, address the question of rights and obligations arising from the facts with which the legislator combines the possibility of exercising the power already existing after the date of possible merger." 13 .

3. Legal consequence of legal persons and non-legal entities

Such a consequence may arise both in the case of a newly created legal person through a merger of the entity and in the case of the acquisition of another legal person and of a personal commercial company.

According to Article 93 This entity shall assume all the rights and obligations provided for in the tax rules of each of the merging persons or companies. Similar regulations apply to entities arising from the transformation of another legal person or company without legal personality[14].

It is important in this respect to identify the timing of the merger as the date on which the tax succession takes place.

In this case, according to Article 493(2) Act on 15 September 2000 Commercial Companies Code 15 (the following: k.s.h.) this shall take place on the date of ‘entry of the merger into the relevant register according to the registered office of the acquiring company or the newly established company(s)’ or according to Article 552 k.s.h.

‘on entry of the converted company in the register (the day of conversion)’.

Universal success is therefore covered by mergers:

• • by acquisition (incorporation) or merger – described under Article 492(1)(1)(2) k.s.h.;
• • banks operating in the form of joint stock companies – Act of 29 August 1997 Banking law 16 ;
• • State enterprises – Act of 25 September 1981 State-owned enterprises 17 ;
• • municipalities – Act of 8 March 1990 about municipal government 18 ;
• • counties – Act of 5 June 1998 about the county government 19 ;
• • cooperatives – Act of 16 September 1982 Cooperative law 20 ;
• • R & D units – Act of 25 July 1985 on R & D units[21].

It is also necessary to distinguish between the legal consequences of other branches of the law, as this does not necessarily mean that there is tax succession. Confirmation can be found in the judgment of the Chief Administrative Court of 24 May 2016 22 : „The success governed by the provisions of the Public Laws is of a special nature resulting from the public nature of the rights and obligations covered by it, which means that, when the provisions of other branches of law provide for a legal consequence, this is not tantamount to the existence of tax succession and a clear basis in tax law is necessary to assume tax rights and obligations."

Other types of legal consequences for legal persons and non-legal entities occur in the event of acquisition or division[23]. Such entities shall include ‘any rights and obligations of a shared legal person in connection with their allocated assets in the distribution plan’. 24 . However, this principle applies only if the distributed or shared assets are an organised part of the undertaking[25].

Under Article 529(1) k.s.h. there are several ways to make a division, namely:

• • the division by acquisition is made by the transfer of all the assets of the company divided into other companies for the shares or shares of the acquiring company which include the partners of the shared company;
• • the division by the formation of new companies, by the incorporation of new companies, to which all the assets of the company shared for shares or shares of new companies pass;
• • the division by the acquisition and incorporation of a new company by the transfer of all the assets of the company to an existing and newly established company or company;
• • division by division – part of the assets of the split company is transferred to an existing company or newly established company.

Participation in the rights and obligations of such segregated assets shall take place in accordance with the set-up of the division plan. As has been mentioned earlier on the question of succession, the provisions of the General Court regulate this situation autonomously with regard to tax rights and obligations.

This is particularly indicated by the Supreme Court’s decision of 19 May 2016 26 , which highlighted that Article 531(1)(2) and Article 536(1) k.s.h. shall not apply to tax liabilities.

In the event of a split with the moment of tax succession, the day of its removal from the register (the day of division) 27 ; in the case of division by division, that moment shall take place on the date of its entry in the register, and in the case of transfer of part of the assets of the company divided into the existing company, on the date of entry in the register of the increase in the share capital of the acquiring company[28].

Compared to the legal implications of mergers, mergers or transformations of legal entities, succession is limited to separate assets only, and partial universal succession can therefore be referred to. "The legislator, in order to eliminate any doubts as to the scope of the above-mentioned rule of succession, stressed that this was all about the laws and obligations laid down in the tax legislation and linked them only to the assets allocated in the plan of division" 29 .

This solution is important in the context of the principle of trust in the functioning of tax authorities. It means that the successor will not be burdened with excessive liabilities that are not correlated with the relevant assets, i.e. that any risk is adequately compensated.

Similarly, this also restricts his acquisition of rights which cannot be linked to such assets. Such correlation should be considered rational. In the event of acquisition of assets which cannot be qualified as an organised part of the undertaking, the legal person may not be considered as a universal successor.

However, she may assume responsibility for tax arrears as a person third, based on Article 117 o.p., i.e. in a solidarity manner[30].

The above rules on legal implications also apply to purchasers of state-owned enterprises and companies which, on the basis of the rules on commercialisation and privatisation of state-owned enterprises, have acquired or acquired those undertakings, in accordance with the provisions on commercialisation and privatisation Article 94 p.p.

In the above-mentioned successes, it was mainly pointed out the obligations related to the payment of the tax benefit, but it is worth noting that the legal consequence may also give rise to the right to benefit from the rights granted to the annihilated or secreted entities, e.g.

reimbursement of overpayment or the use of a simplified form of payment of advances on income tax from legal persons.

Of which second In the case of such a form of advance settlement, the company which took over other companies as a result of the consolidation may also benefit.

In the letter of the Tax Chamber in Warsaw from 9 June 2010 31 We read: “Since the merger by acquisition does not affect the legal entity of the acquiring company, The company as the acquirer retains legal and organisational continuity, which allows the possibility to pay advances in simplified form.

Since there are no different provisions concerning the situation of companies after the merger, The company considers that the amount of the advance on CIT due for the year following the merger should be determined as 1/12 tax due from the annual statement made in the previous tax year.

If such a statement did not result from the tax due, the basis for calculating the advance should be the tax return made in the year preceding the tax year in question by two years, if the tax is due. The basis will be only the tax settlement – the tax return submitted by the Company, i.e. the statement before the merger.

Such a rule results from the wording of the provision Article 25(6) the Corporate Income Tax Act” 32 . Provided, of course, that the successor will comply with the conditions for the application of the relevant law, in this case the conditions listed under Article 25(6) the Corporate Income Tax Act 33.

Therefore, in any succession of rights, the substantive provisions concerning the possible successor of rights should be carefully analysed in terms of the correctness of their application to his person.

1. A single-member capital company was created by the transformation of an entrepreneur who is a natural person

Specific regulation concerns the transformation of an entrepreneur who is a natural person into a single-member capital company (described under Article 93a(4) o.p.). Such a company only enters into the rights of a transformed entrepreneur related to its business activity, the consequence does not include tax obligations, except for those rights which cannot be continued under the provisions governing the taxation of capital companies.

That provision shall take into account the specificity of such conversion. ‘In this case, the transformation means not only a change in the organisational form of the taxpayer, but also a fundamental change in the tax rules, in particular as regards income taxation. In such a case, the legislator considered it appropriate to exclude the consequences of tax obligations and those tax laws which, by nature, do not apply to legal persons." 34 .

As far as liability for tax obligations is concerned, it will apply to the tax liability. 1 July 2012 Article 112b, establishing the joint liability of a single-member capital company together with that natural person[35].

This is therefore a specific type of standard in which we can talk about legal follow-up in terms of rights, but with regard to tax obligations only the responsibility of individuals third. An analogous situation arises when a company having no legal personality of its company is transferred as a contribution to cover its share[36].

5. Legal consequence of natural persons

With regard to natural persons, their heirs shall assume the rights and obligations of the successionor provided for in tax law. Rights of a non-material nature relating to his business shall be transferred to heirs only if he continues to be held on their account.

Although the provisions of the General Court neither define the concept of heir nor refer to the relevant regulations of the Act from 23 April 1964 Civil Code 37 (Further: k.c.), there is no doubt that using this concept is about his civil understanding[38].

Thus, the heir may be both a natural person and a legal person, and this may also result from the will as well as from the bill. The liability of the heirs for tax obligations shall be governed by provisions c.c. in particular as regards the acceptance and rejection of the inheritance[39].

The liability of the heirs shall include: 40

• tax arrears, including those referred to under Article 52 and Article 52a O.P.;
• interest on late payment of the inheritance;
• collected and unpaid taxes in respect of the functions of the payer or collector exercised by the decedent;
• the advance paid by the decedent for the input tax on goods and services and their interest rate;
• the extension charge;
• costs of tax proceedings;
• the costs of reimbursing and enforcement proceedings against the successionr, up to the date of the opening of the inheritance.

In order to avoid excessive risks for legal successors from taking over tax rights and obligations, legal instruments were created to protect heirs.

Thus, from the date of death until the date of finalisation of the order of the court to acquire the inheritance or register the certificate of succession, no longer than the date of expiry 2 years after the death of the heir, they do not begin and the time limits for the tax liability, repayment of overpayment and limitation of the right to reimbursement of overpayment are suspended.[41].

The liability or powers of individual heirs shall be determined by the tax authority by decision[42]. The heirs also obtain procedural rights, as it were, to replace the deceased party in the proceedings concerning the rights and obligations of the heir[43].

The ultimate form of protection of heirs is the obligation of the tax authority to notify them of: 44

• appeals against decisions, complaints against orders and complaints to the administrative court by the succession;
• decisions based on Article 67a(1)(1)(2) o.p. if the deadline for payment of deferred tax or tax arrears or payment of instalments has not expired;
• the decisions and provisions which have been served on the heir and on the day of his death have not yet expired the time limit for appeal, complaint or action to the administrative court;
• the tax control initiated;
• applications for the opening of proceedings submitted by the succession;
• proceedings initiated ex officio against the heir.

In addition, the time limits for lodging an appeal, a complaint or a complaint with an administrative court shall begin to run again from the date of notification. It should be stressed that the liability described above applies only to inheritances who accept the inheritance.

A taxpayer who effectively rejects the inheritance is not responsible for the inheritance's tax arrears. Not only information may be provided on the basis of decisions Article 103 O.p., but also a certificate of the amount of the inheritance's tax liability.

According to Article 306f the tax authority may, at the request of a person who is likely to be an heir, issue a certificate of the amount of the inheritance’s tax obligations known to that authority, under Article 98(1) and 2.

In the case of unfinished tax proceedings, the Authority shall indicate the approximate value of the undertaking.

6. Company in decline as successor

New to the legal implications of the tax obligation was the introduction on 25 November 2018 by law of 24 August 2018 about the management of a successiond enterprise of a natural person 45 (hereinafter: u.z.s.) a new category of legal successors, which are companies in decline. According to Article 3(16) o.p.

this term is defined in accordance with the wording set out in the abovementioned Act[46]. In the event of the death of an entrepreneur, such assets may be managed by an established succession administrator until the right to inheritance is settled.

The administrator may be a natural person appointed either during the life of the entrepreneur or during the 2 months after he died. The purpose of this amendment was to establish a legal instrument allowing the company to continue to operate when it was dismissed at the time when the succession was taken over by the circle of heirs, e.g.

because it belonged to minors. Prior to this amendment, the succession of undertakings of individuals could only take place in part. The heirs of the deceased entrepreneur were allowed to pass on the property of the company, equipment, goods or intangible rights.

At the time of death, the heir's name, NIP number or licence or license was deleted from the register. As you can see, it was not the inheritance of the company as such, but rather its assets. The legislator noted this problem, resulting in the introduction of the institution in question.

„It is characteristic that, to be accepted that there is an undertaking in decline, it is not necessary for an undertaking to be in the undertaking's assets within the meaning of Article 551 k.c., i.e. those that are shown to be adequately organised by a team of intangible and material components. Even if it does not correspond to the above definition, or if several undertakings are included in the inheritance, they will be covered by the concept of a “declining enterprise”’ 47 . Although the company in decline as such does not have a civil entity[48], This, however, will have legal personality with some taxes, since in this respect it will be an organisational unit without legal personality[49]. According to Article 97(1b) The successful manager will be responsible for performing duties, including making declarations and the exercise of tax rights, both property and non-material. However, the basic condition is that these activities should be linked to continued economic activity.

7. Summary

The above analysis concludes that the tax rules are adapted to take account of the possibility of a ‘transfer’ or, rather, the acquisition of tax rights and obligations normally attributable to one entity by a completely different entity when the original taxpayer ceases to exist or another form of separation/transformation.

This is not the only form of extending the tax obligation to other entities. As mentioned in the introduction, the liability of persons is also foreseen. third, which this exploration will be the subject of second parts of the article.

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[1] i.e. Journal of Laws of 2020, item 1325 as amended