Binding rate information and individual tax interpretation – comparative analysis

WIS and individual interpretation are completely separate legal institutions, although on first They seem very similar to each other. This article is intended to present these differences two construction. The legal and comparative analysis of the binding fee information institution (hereinafter also referred to as WIS) and the individual interpretation was carried out by presenting their construction and the legal basis for their functioning.

The purpose of the analysis is to assist the taxpayer in selecting an appropriate application to the tax authority in case of doubt. By familiarising yourself with the characteristics of the WIS and individual interpretation, the taxpayer will be able to choose the form of support in applying complex tax rules.

Concepts of individual interpretation and binding rate information

Interpretation of tax law is an institution in Polish law from above 20 years. During this time, it evolved and changed to adapt to the dynamic development of legislative practice and changes in the conditions in which society operated. The provisions dedicated to this institution are under Article 14b Act dated 29 August 1997 Tax Ordinance (Journal of Laws of 2021, items 1540, 1598, hereinafter referred to as: Tax Ordinance, OP).

The main objective of that institution is to assist taxpayers in identifying the scope of their tax obligations by clarifying or subsuming the letter of the law to the facts in case of doubt of the application of the relevant tax legislation in certain situations.

Tax law is one from the most complex areas of law, including the complexity of regulations and the frequency of changes, repealing regulations, introducing new or modifying existing institutions. Individual interpretations are mainly intended to provide certainty of the application of tax law by entities subject to it.

The institution of individual interpretation is regulated in Tax Ordinance In 2003. Importantly, ‘then, in particular, the law directly regulates the tax consequences of applying an individual interpretation. It was pointed out that this application ‘may not harm’ the addressee, but does not exempt him from the obligation to pay tax’ 1 .

The disadvantage was the inability to ask for an interpretation regarding future events, because only the interpretations in which the applicant presented the facts were acceptable; in addition, the interpretations were dispersed – the heads of tax and customs offices, the mayors, mayors and presidents of cities were concerned.[2].

In view of such a large number of entities that were entitled to the right of written interpretation of tax law, it was difficult to obtain uniformity and a common interpretation line of tax law.

Major changes occurred at the beginning 2005, when the provisions on individual interpretations were written almost from scratch. These rules have ‘created new procedures for the interpretation (including appeal procedure) and the nature and effects of the act.

Above all, however, they introduced extremely far-reaching and unfortunate changes in the scope of protection given by the interpretation" 3 .

The validity of these provisions led to criticism from the Constitutional Court, which stated that "it is not so much a fragmentary amendment or repeal of the selected provisions that a comprehensive reform of the whole institution, including the elimination of its current normative shape from legal trade" 4 .

Another significant amendment to the rules on individual interpretation took place in 2007. The most important changes are:

• • centralisation of individual interpretations,
• • the possibility of issuing individual interpretations on future events,
• • clarification of the rules on the effects of applying an individual interpretation,
• • formalising the proposal,
• • formalising the content with a view to considering the applicant's position to be correct or incorrect.

Further significant changes took place in 2016 and 2017. They consisted, inter alia, of the provision on the possibility of applying the general interpretation in the factual state at which the request for an individual interpretation is made, the appointment of a three-month period for the authorities to issue the interpretation, the limitation of the scope of the cases which may be interpreted, the exclusion of protection following the interpretation in the event of a tax avoidance action and the appointment of the Director of Tax Administration as the body responsible for the interpretation. Amendment of regulations with 2019 introduces changes particularly relevant for foreign or cross-border entities. According to added to Article 14b(3a) and (3b) Tax Ordinance, an entity requesting an interpretation of an individual tax legislation shall indicate as appropriate:

• • the country or territory of residence of the natural person,
• • data identifying a legal person or an organisational unit without legal personality, or
• • countries/territory where cross-border effects have occurred or may occur.

Binding rate information is a completely separate legal institution, although similar in formal matters to an individual interpretation. It is a new instrument for protecting the taxpayer in the application of the correct VAT rate.

WIS provisions apply from the end 2019, However, first Rate information entered into force only In July 2020. The definition and scope of WIS institutions are directly covered In the Act dated 11 March 2004 on tax on goods and services (Journal of Laws of 2021, item 685, as amended, hereinafter referred to as: VAT Act).

Prior to the entry into force of the rules on binding fee information, the only possibility of obtaining assistance in the correct classification of the application of the VAT rate was to obtain a classification opinion issued by the Statistical Office in Łódź Classification Centre. This opinion was of the nature of support in choosing the appropriate rate, but was not a binding document providing protection for the application of a specific VAT rate.

Currently, the competent authority for issuing the WIS is the Director of Tax Information, as is the case for issuing individual tax rulings. Each individual information shall be issued in respect of the goods, services or groups of services/goods together one the taxable activity. The subject matter of the information must always be a given fact.

The most important value of binding rate information is to grant protection against the negative effects of VAT classifications or services. It is worth noting that the document containing binding information confers protection not only to those for whom it is addressed but also to other entities in the same situation.

That is why we have a database available on the main website of the Director of Tax Information with all the binding fee information. We can use the search engine to find WIS, according to product, type of activity or by keywords[5].

Legal basis for the functioning of the institutions

Issues relating to individual interpretations are regulated primarily in Tax Ordinance under Article 14b-14s. In addition, they shall be subject to:

• provisions Article 120, Article 121(1), Article 125, Article 126, Article 129, Article 130, Article 135, Article 140, Article 143, Article 165(3b), Article 165a, Article 168, Article 169(1-2)(4), Article 170, Article 171, Article 208, Article 213 (to supplement or correct a complaint to an administrative court), Article 214, Article 215(1)(3) and Chapters 3a, 5, 6, 7, 10, 14, 16 and 23 Chapter IV Tax Ordinance (Journal of Laws of 2021, items 1540, 1598);
• Regulation of the Minister of Finance, Funds and Regional Policy on an application for an individual interpretation (Journal of Laws of 2020, items 1325, 1423, 2122, 2123, 2320);
• Regulation of the Minister of Finance, Funds and Regional Policy on a common request for an individual interpretation (Journal of Laws of 2020, items 1325, 1423, 2122, 2123, 2320).

The definition and scope of the WIS institution is directly covered by the VAT Act under Article 42a:

„Binding rate information, hereinafter referred to as the ‘WIS’, is a decision issued for the purposes of taxing the supply of goods, imports of goods, intra-Community acquisitions of goods or the provision of services which includes:

1) a description of the goods or services subject to the VIS;

2) Classification of goods by heading, heading, subheading or CN code or by division, group, class, category, subcategory or item of the Polish Classification of Products and Services either by section, division, group or class of the Polish Classification of Construction Objects or by service by division, group, class, category, subcategory or item of the Polish Classification of Products and Services necessary for:

• (a) determining the rate of the tax applicable to the goods or services,
• (b) the application of the provisions of the Act and the implementing rules adopted on its basis - in the case in question under Article 42b(4);
• 3) the tax rate applicable to the goods or services’.

In addition, there are additional legal rules governing the VIS:

• • Chapter IV Tax Ordinance (excluding chapters 17, 18, 19 and 20);
• • Regulation of the Minister of Finance, Investment Development on the model application for binding rate information (Journal of Laws of 2019, item 2109);
• • Regulation of the Minister of Finance, Investment in Development on how to pay fees for issuing binding rate information (Journal of Laws of 2019, item 1945).

Scope and subject matter of applications for a VIS or an individual interpretation

Many taxpayers may have doubts as to the scope of the proposal for binding rate information or the scope of the request for an individual interpretation. Therefore, on 29 April 2021 on the National Tax Information website 6 The Communication "The Binding Rate Information (CIS) and the Individual Interpretation – Basic Differences" was published. It explains in detail what these differences are two Legal institutions[7].

Thus, the scope of the application for binding rate information may concern the provisions on rates of duty on goods and services or the qualification of goods or services for the purposes of applying the provisions on customs duty on goods containing such classification. The subject matter of the application for a VIS may be:

• one, the goods described in detail, or
• one, the service described in detail, or
• one, a detailed description of the complex benefit, i.e. goods or services which, in the applicant’s assessment, consist together of one VAT taxable activity.

The application for binding rate information shall be submitted on the official WIS-W form, together with the possible WIS-W/A form annexed. Similarly, an application for an individual interpretation shall be made on the official ORD-IN form together with the possible ORD-IN/A form as an annex.

In the case of an application for an individual interpretation, the purpose of the application is to clarify the provisions of tax law, with certain exceptions. The application may not concern:

• the provisions of the rate tax on goods and services, and
• the provisions of tax law governing the jurisdiction, powers and obligations of the tax authorities and designed to prevent tax avoidance which relate to abuse of tax law, the pursuit of actual economic activity or the taking of false or uneconomic actions.

The subject matter of the proposal may alternatively be the fact or future event. It is worth drawing up an application for an individual interpretation to draw attention to a precise, precise description of the facts so that the tax authority, when subsuming the facts or future events, has no doubt about it. Otherwise, the applicant will be called upon to remedy the formal deficiencies. In the absence of formal deficiencies, the procedure will end with the refusal of tax authorities to interpret it.

The case-law lines of the WSA and the NSA concerning the WIS and the personal interpretation

The jurisprudence line on the WIS is quite poor at this point due to the "freshness" normative of the institution. It is also worth noting that in the middle of this year there has been information that has been released so far four judgments of provincial administrative courts in WIS cases. Each time the court dismisses the taxpayer’s action, considering the classification of the WIS as correct[8]. Example of judgment dated 8 April 2021:

„The subject matter of the application for a WIS should be one goods or one the service, as well as the subject matter of the decision taken as a result of such a request, should also be one goods or one service. This means that one an application for a WIS may include more goods or services but only if, in the assessment of the applicant together, they consist of one taxable activity, i.e. when it is one complex operation’ 9 .

First, we may notice a difference from the request for an individual interpretation, in which the taxpayer can describe a more complex factual/future situation and ask a few questions about the interpretation of the individual provisions.

It is worth remembering that any additional question in the request for individual interpretation is treated separately in terms of the obligation to pay — 40 PLN For every question asked.

However, in the case of a WIS, as the case law suggests, the taxpayer may apply for qualifications one services or one goods, except only compound benefits which are treated separately do not constitute individual taxable activities.

However, it is worth noting that from 2021 WIS are issued for a limited period of time. According to Article 42 ha VAT Act, binding rate information and amending decisions are valid during the period 5 years from the date of issue.

For example, the caselaw in the case of an individual interpretation refers to the refusal to initiate an individual interpretation procedure, to leave the request for an individual interpretation without examination, to the protective effects of the interpretation in the event of a discrepancy in the facts described in the application and the actual absence of a question in the application or to the absence of an obligation for the tax authorities to examine any of the attached evidence to the application, which complements or confirms the facts cited by the applicant:

This is a rule of law and not a factual condition to be interpreted as tax authorities are not entitled to establish and verify the facts of the applicant’s individual interpretation [...]. By ‘exhaustive presentation of the facts or future occurrence’, as referred to under Article 14b(3) O.p., it should be understood that a description of the fact or future event is present, which refers to all circumstances relevant to substantive tax law which may be applicable in the present situation. 10

The case law shows us how important it is exhaustive description of the facts. After first where a description of the facts set out in the proposal is incomplete, the taxable person shall be at risk of extending the period for replying to his doubts and ultimately refusing to give an individual interpretation of tax law.

Another important aspect is to state in the proposal a factual fact that, if the taxable person hides the essential elements of the facts, the individual interpretation in his case will not have any protective effect.

Indeed, the body of interpretation assumes that the individual interpretation protects the applicant only to the extent that the actual state corresponds to the actual (future event) presented in the request for interpretation.

The material divergence of the factual circumstances described in the request for interpretation and the actual interpretation makes the interpretation unusable on the basis of the actual state. This fact was properly raised by the applicant.

It should be added that the risk of adverse effects of this discrepancy is borne by the applicant. It is not a matter for the Interpretative Body to assess the suitability of interpretation for the applicant. It may also request the interpretation of provisions which do not raise any interpretational doubt.

Furthermore, the inadequacy of interpretation does not make it impossible or unobjected[11].

A description of a factual fact which is true is a condition necessary to obtain the protective power of an individual interpretation received by a taxable person. An explanation of the tax rules is given at the request of the person concerned, so the effects of the lack of protection of such a document are borne solely by the taxable person. It is in the legal and factual interest of the party to present to the constituent body and the actual facts.

An entity requesting an interpretation shall be obliged to exhaustive to present the facts of the case in such a way that the applicant can take a position in relation to the situation presented, and the tax authority gives an unambiguous answer on that basis.

This means that the factual situation taken into account for the interpretation cannot be ‘explained’ with the documents attached to the application. The taxpayer in this proceeding should not, and all the more reason why, prove that the actual state of affairs presented by him has authority and confirmation in a particular evidence.

At the same time, it may not require the tax authority, on the basis of the evidence submitted by the taxpayer or by the person sought of its own motion, to establish the facts, supplement them, or to assess the conformity of the description of the facts in the application with the reality (where the taxpayer's request relates to the states which have or have already occurred)[12].

The submission of the application is a voluntary manifestation of the taxpayer's will and therefore the tax authority is not obliged to determine the facts itself. On the other hand, are not obliged to prove the facts described in the application. On the basis of these findings, the practice developed in such a way that the tax authority, when preparing an individual interpretation, does not take into account any additional information other than those contained in the application or Annex thereto.

Comparison of title institutions – summary

As can be seen, therefore, the tax law sets out different procedures for obtaining the WIS and rulings individually. The scope of the two institutions is also different.

It needs to be stressed that, in the event of a request for binding rate information, the documents annexed to the application are examined in the course of the proceedings. In addition, the authority may ask for a sample of the goods.

In the case of an application for an individual interpretation, the applicant is obliged to describe exhaustive the actual situation or future event. The documents annexed to the application shall not be examined and assessed in the context of the interpretation procedure. Another is the scope of the protection received.

The addressee of the WIS during its period of validity does not enjoy protection such as in the case of an individual interpretation, but benefits from the ‘binding’ of the WIS of the tax authorities towards him, in respect of the goods, the service, the comprehensive provision made after the date on which the WIS was delivered.

However, in the event of a change or repeal of the WIS, the addressee is entitled to apply it before the change or repeal until the end of the VAT accounting period applicable after the tax period in which the decision to amend or repeal the WIS was served[13]. The situation of the addressee of an individual interpretation is different.

We can no longer talk about any "relationship" or, rather, not having negative effects on the course of proceedings as interpreted in so far as the actual state of the case in question is consistent with the description of the facts/event of the future presented in the proposal.

Both institutions may also benefit from entities that are not recipients of the WIS or individual interpretation, in such a situation we are faced with a truncated scope. In the case of the WIS, legal protection for taxable persons who are not addressees of the WIS is limited to protection from the level of individual interpretation, i.e.

the rate applied by it will not be "binding" for tax authorities and may be challenged by them.

However, in the case of an individual interpretation, an entity other than the addressee of an individual interpretation may benefit from protection by applying the established interpretation practice of the KAS authorities during the settlement period.[14].

ambiguities in the application of VAT rates are recommended to be resolved by submitting a request for binding rate information rather than an individual tax interpretation. The Authority examines not only tax rules, but also other regulations that may affect the VAT rate for a given service or commodity.

The WIS therefore provides more effective protection than tax interpretations, which are then easily called into question, since the application for an individual interpretation is informed by the tax office competent for the place of residence or for the conduct of business, and there is nothing to prevent tax control from being initiated against the taxpayer.

The grounds for excluding the binding power of the WIS and the protective interpretation of the individual are very similar. The VIS shall lose its binding power in the case of:

• when the applicant has made a false declaration that, on the date on which the application for a WIS was lodged, no tax proceedings, tax checks or customs-tax checks are being carried out and that, in this respect, the matter has not been settled on its substance in the decision or decision of the tax authority,
• the goods, the service, the provision of a comprehensive service covered by the VIS are part of the activities covered by the decision taken in connection with the occurrence of fraud.

The protective power of an individual tax ruling shall expire in the case of:

• where the applicant has made a false statement that, on the date of the request for interpretation, the elements of the facts covered by the request for interpretation are not the subject of an ongoing tax procedure, tax control, customs and tax control or where, in this respect, the matter has been settled on its substance in the decision or order of the tax authority or in the tax agreement in question under Article 20zb Tax Ordinance,
• the fact or future event subject to an individual interpretation is part of the activity subject to a decision issued:
• with Article 119 Tax Ordinance,
• in relation to the fraud in question under Article 5(5) VAT Act, or
• by means of contractual advantage mitigation measures.

In the event of a request for an individual interpretation, it should be remembered that its protective power is limited to a particular factual or future event. Therefore, due attention should be paid to the exhaustive a description of the actual or future event and a detailed description of its position on the case. This is primarily in the interests of the taxpayer, as the authorities rarely call for a description of these circumstances to be completed.

However, the assessment of whether the taxpayer described everything exhaustive, is carried out at the stage of the tax audit involving the transaction for which the interpretation was issued, which is carried out by another authority. In such cases, there is essentially a charge that the tax authority did not have sufficient knowledge of the event, which affected the content of the interpretation.

It needs to be stressed that, for both institutions, it is possible to change the content or repeal the decision given.

In the case of Binding Rate Information, the Head of the KAS shall, of his own motion, amend or repeal the issued WIS if he finds it incorrect or non-compliance with legal provisions as a result of, for example, a change in the Combined Nomenclature.

However, in the case of an individual interpretation, the Head of the KAS may, of its own motion, modify the content of the interpretation, revoke the interpretation. Initiating changes in the content of the WIS and interpretation may also come from the taxpayer’s initiative by using the appeal path.

Where a WIS is issued, an administrative decision shall be taken specifying the individual tax rates. The appeal body against issued WIS is the Director of National Tax Information. Binding Rate Information issued shall be subject to appeal which must be lodged within the time limit 14 days after receiving the WIS.

However, an individual interpretation cannot be appealed. Where an interpretation is refused, this shall be done by way of a provision. Such refusal shall be subject to a complaint to be lodged within the time limit 7 days from the date of notification of this provision to the Director of the CIS.

In conclusion, it can be concluded that receiving decisions on binding rates from tax authorities implies many advantages for the taxpayer, ranging from protection in respect of the VAT rate contested by the trader to the possibility of applying a lower rate, without any concern as to whether there is circumvention or avoidance of taxation.

On the other hand, the individual interpretation given by the tax authorities gives a fairly truncated protection, which is effective under certain conditions, and can also be an incentive to initiate controls with the taxpayer.

According to the author, the institution of an individual tax interpretation could be supplemented by the possibility for private entities, e.g. doctors of law or tax advisors, to interpret tax legislation in parallel.

Provided that opinions or memoranda could provide similar protection as an individual interpretation and would have a protective function under tax law.

It is very possible that this would relieve state institutions and at the same time encourage taxpayers to submit the proposals discussed in this article and, consequently, to trust in tax authorities.

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