Initiation of criminal-tax proceedings as an act that reconciles the principle of trust in tax authorities – NSA resolution of 24 May 2021 And FPS 1/21 and its consequences for taxpayers

Chief Administrative Court 24 May 2021 it has adopted a resolution which addresses a problem so important to taxpayers that it is initiating a tax investigation during the period of the impending expiry of the limitation period of the tax obligation. The purpose of this work is to approximate this resolution on the possibility of an assessment within the limits of a court case of the conditions of application by tax authorities when issuing a tax decision Article 70(6)(1) ori dic Article 70c Act of 29 August 1997 In the course of these considerations, one of the most important cases is the reference to the principle of conduct in a way that gives confidence to tax authorities.

To date, the existing practice of tax authorities has been to initiate a tax investigation during the period of the impending expiry of the limitation period for the tax obligation. This allowed the tax proceedings to continue as the time limit for tax limitation was suspended.

This occurred at the same time as faking the conduct of criminal proceedings. The initiation of criminal tax proceedings thus gave rise to doubts as to whether such proceedings were not contrary to the principle of acting in a way that would give confidence to tax authorities.

Principle of trust in the functioning of tax authorities The basis for the efficient functioning of cooperation on the taxpayer-tax authority

The principle of trust in tax authorities is one the general principles of tax proceedings. These principles form a model of tax proceedings and determine how they are conducted. According to Article 121(1) PO tax proceedings should be conducted in a way that gives confidence to tax authorities. Included in Article 120-129 a catalogue of general principles shall apply at all stages of the tax procedure. It concerns both tax proceedings, tax checks and checking activities.

The general rules are addressed to the tax authorities and impose a number of obligations on them, which should be carried out when dealing with the taxpayer. The taxpayer is therefore entitled to require the tax authorities to respect these rules and, in the event of failure to comply with them, to raise the charges of their infringement in its remedies. In the end, this could lead to a repeal of the decision due to a breach of those rules.

It is worth noting what is rightly stated in the doctrine that “general principles can be used to bridge possible gaps in the rules governing a particular type of procedure. They are also a binding guideline for the application of all provisions of the procedure.

Therefore, if there is doubt on how to apply a specific standard of procedure, the principle or general principles of tax proceedings should be taken into account in the interpretation process.’ [1] . This quote is particularly timely on the basis of this issue.

Consistent with Article 2 The Constitution of the Republic of Poland the principle of a democratic rule of law, the emanation of which under the provisions of the Tax Ordinance is precisely the principle of trust (protection of legitimate expectations) expressed in Article 121(1) The PO should be carefully followed by tax authorities in their dealings with taxpayers.

“It is considered to be a kind of buckle that binds all the general principles of conduct, for it is the widest in scope. It orders the tax authorities to do so in order to give them confidence. First, the principle should guide the interpretation of substantive tax law. It also applies during the tax investigation.

Competent authorities should conduct their proceedings objectively and impartially. This principle should also result from the principle of balance between the taxpayer and the tax authority" [2] .

The case law of the administrative courts shows that this principle was largely disregarded by the tax authorities at the time of the impending limitation period of the tax obligation.

Limitation of the tax obligation and suspension of the limitation period

According to Article 70(1) OP tax liability expires 5 years from the end of the calendar year in which the tax payment deadline expired.

If, according to the tax authorities, the taxpayer failed to comply with its obligations to calculate the tax at the correct amount, within the time limit indicated by Article 70(1) The OP must be issued and served with a final decision determining the amount of that tax.

The expiry of the limitation period closes the way for tax authorities to modify what the taxpayer has declared. The practice of tax authorities shows that this term, seemingly quite long, is not sufficient to effectively carry out and complete the tax proceedings, which are usually preceded by tax control or checking.

The tax authorities are late examining the tax returns made by taxpayers, which, consequently, means that it is sometimes only after a few years that they take action to examine the correctness of the tax declared by the taxpayer. However, the limitation period for a tax liability runs throughout this period.

Tax authorities aware that they may not complete the proceedings in the envisaged by Article 70(1) The deadline OPs shall be allowed to suspend the limitation period.

According to Article 70(6) The period of limitation of the tax liability shall not start and the start of the tax liability shall be suspended from:

• 1) initiating proceedings in respect of a fiscal criminal offence or a fiscal misdemeanour notified to the taxable person, where the suspicion of a criminal offence involves the non-execution of that obligation;
• 2) to bring an action before the administrative court on a decision relating to that obligation;
• 3) to request the general court to establish the existence or non-existence of a legal or legal relationship;
• 4) the provision of the security referred to in Article 33d(2), or the provision of security orders under administrative enforcement rules;
• 5) the notification of entry to the security in the cases specified in Article 32a(3) and Article 35(2) Act of 17 June 1966 on enforcement in administration (Journal of Laws of 2020, item 1427, as amended);

1. submission by the Head of National Tax Administration, at the request of the party referred to in Article 119h(2), to the opinion of the Council on the prevention of tax avoidance, hereinafter referred to as ‘the Council’, on the appropriateness of the application Article 119a or measures limiting contractual benefits.

Interesting under this Article is the provision of Article 70(6)(1) OP. Initiation of a carno-carb procedure causes the limitation period to be suspended. The tax authorities therefore knew that the one the action by the financial investigation authority, i.e.

the provision of a decision to initiate proceedings in the case of alleged criminal tax offence, resulted in the fact that the tax case could continue without worrying about the impending limitation period. It is worth noting that it is an additional requirement for authorities to notify the initiation of a criminal tax proceeding.

What is particularly important if, in proceedings or tax checks, the taxpayer has appointed a proxy, the notice should be served on that proxy. The Supreme Administrative Court has spoken about this.

In the resolution of the day 18 March 2019 The NSA stated that "to ensure that the obligation resulting from Article 70c Act of 29 August 1997 Tax Ordinance (Journal of Laws of 2015, item 613 as amended, Further: Tax Ordinance) the notice referred to in that provision must be served on the proxy established in the review or tax proceedings, even if the notification is made by the tax authority to which no proceedings involving the agent of the party are pending’ [3] .

Such content of the provisions of the Tax Ordinance and the Tax Penal Code gave rise to the practice of instrumental treatment of the standard from Article 70(6)(1) OP.

The instrumental treatment of these provisions was to involve initiating a carnoscar tax proceeding shortly before the deadline for the tax obligation and then taking apparent procedural action (in extreme cases no significant procedural action taken) pending the completion of the tax procedure.

Only the conclusion of the tax procedure and the final decision setting out the tax obligation was an impulse for the authorities conducting the investigations to start real procedural proceedings.

In the possession of decisions and materials from tax proceedings, the financial investigation authority initiated actions aimed at questioning the suspected person in order to ultimately refer the indictment to court.

Doubtful practice of tax authorities

The above mentioned actions led to doubts as to whether the criminal tax proceedings initiated in such a way, shortly before the expiry of the limitation period, were actually intended to detect and bring to justice the perpetrator of such a prohibited act.

It was noted, on the basis of an own analysis of the activities of tax authorities and criminal proceedings, that the intention was not always to achieve the objectives of criminal proceedings described in Article 297(1) k.p.k., but only achieve effect in the form of a limitation period.

In so doing, the tax authority conducting the proceedings essentially gained unlimited time to bring the case to a final decision.

This is because according to Article 70(7)(1) The PO, the limitation period after suspension shall continue from the day following the date of final termination of the proceedings in respect of a fiscal criminal offence or a fiscal misdemeanour.

As mentioned earlier, the carnoscarb proceedings actually started only after the criminal proceedings were included in the file of the final tax decisions concerning the act concerned. Such proceedings by tax authorities gave rise to opposition by taxpayers.

They began to demonstrate that this practice was compatible with the fundamental principles of a democratic rule of law.

This situation prompted the Ombudsman of Small and Medium Enterprises to make a request to the Supreme Administrative Court to adopt a resolution to clarify the legal provisions which had led to disagreements in the case law of the administrative courts, i.e.

to clarify: ‘In light of the Article 1(2) Act of 25 July 2002 Law on the system of administrative courts (Journal of Laws of 2017, item 2188 as amended), hereinafter referred to as “PrUSA”, and Article 134(1) PostAdmU, the assessment of the initiation of tax criminal proceedings from the point of view of triggering only an effect in the form of an extension of the tax procedure preceding the tax decision and in order not to initiate or suspend the limitation period of the tax obligation within the meaning of Article 70(6)(1) and Article 70c Act of 29 August 1997 Tax Ordinance (Journal of Laws of 2020, item 1325 ), hereafter referred to as ‘Tax Ordinance’, is within the limits of the judicial review of the legality of that decision?’.

It is worth noting that the proposal of the Ombudsman for Small and Medium-sized Enterprises from the justification of the resolution of the NSA(7w) on 18 March 2019, And FPS 3/18, ONSA and WSA 2019, No 4, item 55: „the divergingness in the case law in the same or similar facts in which the same provisions of law were applied and interpreted helps to preserve the negative instrumental practice of initiating fiscal criminal proceedings during review and tax proceedings.

From the cases examined by him (ed. by the MIA), it appears that usually tax authorities, in addition to the initiation of tax criminal proceedings, do not show any further activity in this proceeding. They shall not take any action to detect or punish the perpetrator of a fiscal criminal offence or a fiscal misdemeanour." [4] .

Analysis by the Ombudsman for Small and Medium Businesses confirm the practice that can be encountered by conducting cases before tax authorities.

Divergence in judicial jurisprudence prompts tax authorities to act in such a way that they cannot in any way be regarded as complying with the principles of the functioning of the democratic rule of law.

The interpretation of the rules as beneficial to tax authorities as possible, as well as differences in the case law, gave the Supreme Administrative Court a summary to issue a resolution.

NSA Resolution of the Day 24 May 2021 And FPS 1/21

According to Article 15(1)(2) Act of 30 August 2002 Law on proceedings before administrative courts (hereinafter PPSA) The Supreme Administrative Court shall adopt resolutions to clarify the legal provisions the application of which has caused discrepancies in the case-law of the administrative courts.

The Supreme Administrative Court shall adopt resolutions in the composition seven Judges, the whole House or in full membership [5] . The proposal submitted by the Ombudsman for Small and Medium Enterprises proved to be effective and the Supreme Administrative Court adopted a resolution .

This resolution indicates the existence of two opposing case-law lines. The jurisprudence line, which is beneficial for taxpayers, began to develop recently and gradually begins to displace the old jurisprudence line.

The dispute in the case-law on the issue on which the seven-member composition of the Supreme Administrative Court was based lasted in principle until the date of the resolution [6] . This fact shows how important a problem the Supreme Administrative Court faced.

Judgments entering the two jurisprudence lines were issued practically until the last moment before the resolution was issued.

For example, the judgments issued by the Provincial Administrative Court in Łódź from 10 February 2021 I SA/Łed 580/20 entering an adverse line for taxpayers and 30 November 2020 I SA/Łed 395/20 entering a new case law line.

An example of these judgments shows that the problem of different interpretations of the provisions of the law in force may be very unfavourable to taxpayers. Before issuing a resolution in similar facts, the different rulings could issue completely different judgments.

A favourable judgment for the taxpayer was dependent on the appointment of a judge in support one from the jurisprudence lines. Tax jurisprudence teaches that this is nothing unusual.

In such cases, it is necessary to rapidly harmonise the line of case law, which is due to resolutions adopted on the basis of Article 15(1)(2) ori dic Article 264(2) PPSA.

In the explanatory memorandum of the resolution, the Supreme Administrative Court described in detail the issue of overlap two the nature of the law, resulting in the initiation of a criminal tax proceeding by obtaining information from tax authorities.

When adopting the separateness of criminal proceedings, the Chief Administrative Court allowed the possibility to assess the judicial legality of decisions on the appropriateness of the application of the provisions in the course of the judicial procedure Article 70(6)(1) ori dic Article 70c OP.

The Supreme Administrative Court rightly points out that "it is difficult to imagine in a democratic legal state that administrative courts investigating the legality of public administration activities exclude from their assessment the elements of such activities only because it is the result of the activities of this administration undertaken in a different form of law than tax law".

For procedural practice, the most important issue raised in the resolution of the Supreme Administrative Court is that the tax authorities in their decisions have to demonstrate that the initiation of the carnoscarb procedure was not apparent.

If the tax authority applies Article 70(6)(1) ori dic Article 70c The OP should explain in its decision to the taxpayer that the action based on these provisions was not of an apparent nature. In particular, when such activities are carried out shortly before the deadline for the limitation of the tax obligation.

‘In cases of doubt, in particular where the time when the proceedings for a fiscal criminal offence or a fiscal misdemeanour are initiated is close to the date of limitation of the tax obligation, the clarification of this issue should be reflected in the justification of the tax decision, according to the Article 210(4) Tax Ordinance.

This information is necessary to ensure that the tax proceedings are conducted in a way that gives confidence to the tax authorities, in accordance with Article 121(1) This bill.

On the other hand, its inclusion will then enable an assessment to be made of the regularity of its application by the administrative court controlling the file issued by the tax authority.’

This passage of the statement of reasons for the resolution will be particularly relevant to the procedural practice.

The tax authorities will show (and this is already the case in cases where the contested decisions have been abrogated due to the suspected instrumental use of the criminal tax procedure) that the case which is examined by the administrative court does not meet the criterion of ‘questionable’.

It will therefore be necessary to follow the jurisprudence of the Chief Administrative Court, which may clarify this wording.

Impact of the NSA resolution on the jurisprudence of administrative courts

Resolution of the Supreme Administrative Court of 24 May 2021 produced an immediate effect in the case law of administrative courts. The courts began to forcefully repeal the decisions contested by taxpayers.

These rulings focused on the issue raised by the Supreme Administrative Court concerning the clarification in the explanatory memorandum of the tax decision as to why the criminal proceedings were initiated so late (close to the limitation period of the tax obligation).

Since the actions are not dealt with by administrative courts until some time after the date of the decision of the second instance body, the decisions brought by taxable persons before the resolution of the Supreme Administrative Court did not have such justifications.

The practice teaches that the tax authorities were limited only to indicating when the carnoscarb proceeding was initiated and when the party (or proxy) was notified of this fact.

On the basis of these elements, it was assumed that the limitation period was suspended and therefore the continued success of the tax proceeding was acceptable. Administrative courts considered this insufficient.

An example of how this obligation should be fulfilled is provided by the judgment of the Provincial Administrative Court in Gliwice of 14 September 2021 I SA/Gl 564/21, in which it is pointed out that ‘in cases of doubt, in particular where the moment of the initiation of the proceedings in respect of a fiscal criminal offence or a fiscal misdemeanour is close to the date of limitation of the tax obligation, the clarification of this issue should be reflected in the justification of the tax decision, according to Article 210(4) Tax Ordinance.

It is necessary to refer already at the stage of the tax procedure to the circumstances relating to the initiation of the tax investigation in the context of the achievement of its objectives and not only in the context of the activities undertaken in the tax procedure.

Therefore, as early as the tax investigation stage, it should be subject to the conditions under which the authority was based in initiating the investigation into the commission of a fiscal criminal offence and what actions were taken in the course of that investigation.

In turn, the mere initiation of an investigation for a criminal-carb offence in a few months does not show that there has been no instrumental use of that institution as it does not explain any grounds for the initiation of such a proceeding.’ [7] .

Similarly, the obligations of tax authorities are defined by the Provincial Administrative Court in Kielce in its judgment of 26 August 2021 I SA/Ke 176/21. „Where there may be a suspicion of instrumental use of the institution of suspension of the limitation period, the justification for the application by the tax authority Article 70(6)(1) The Tax Ordinance requires the presentation, in the decision taken, of the relevant evidence and the chronology of the criminal-procedural action indicating that, in the case in question, the initiation of a criminal-carb proceeding was not merely ‘instrumental’ and was justified in terms of suspicion of a criminal offence committed by a taxable person whose tax proceedings (tax control) concern, including the claim that the initiation of an in-rem investigation, gave rise to its conversion into an ad personam procedure to a taxable person, taking into account the grounds for the planting of his guilt in the offence’ [8] .

The above judgments indicate that tax authorities will now be required to demonstrate that criminal proceedings are initiated and, consequently, to benefit from the provisions Article 70(6)(1) ori dic Article 70c The OP and the suspension of the limitation period were not instrumental.

In cases where taxpayers are currently in favour of judgments, it may be extremely difficult not to say impossible to demonstrate the lack of instrumentality. Since the Supreme Administrative Court has been in force for less than a year, it is too early to analyse the effects it has had on the practice of tax authorities.

This will certainly also affect the principles of carnoscarp proceedings. The authorities will not be able to stage procedural proceedings pending the completion of the tax investigation. It will be necessary to conduct the proceedings actively from the moment it is initiated.

All of this will be needed to protect yourself from the charge of instrumental initiating proceedings.

The apparent mass repeal of the contested decisions leads to the assumption that a large proportion of the tax rulings which are unfavourable to taxable persons will be changed and that the proceedings will be dismissed.

Such an effect is expected as the approval of actions that reconcile the principle of acting in a way that inspires confidence in tax authorities is incompatible with the principle of a democratic rule of law. However, it cannot be lost sight of the fact that tax authorities will not accept the repeal of decisions.

The cassation actions brought in such cases indicate that the Supreme Administrative Court will face the task of clarifying its position in the Resolution.

Summary

The subject of this paper is to bring cloud the resolution issued by the Supreme Administrative Court on 24 May 2021 concerting the possibility of assessment, within the limits of a court case, the prerequisites for the application of Article 70 section 6 point 1 of the Tax Ordinance by tax authorizations when issuing a tax decision.

So far, the existing practice of tax authorizations was to initiate penal-fiscal dealings in the period of the adoption expiri of the tax flexibility limitation period. This allowed for continuation of tax receipts, as the tax statutes of limits were suspended. This was done while pretending to conduct criminal dealings.

The initiative of penal-fiscal dealings in such a manner give rise to doubles as to whother such actions do not contradict the principal of conducting dealings in a manner inspiring trust in tax authorizations.

The Supreme Administrative Court stood that it is possible for administrative courses to examine the intention to initiate dealings, which led to numerical revocations of tax decisions in which the principal of trust was found to have been violated.

Unfavorable line: 18 June 2018 And FPS 1/18, ONSAiWSA from 2018 No 6, item 96, and in NSA judgments of e.g.: 25 February 2020, II FSK 673/18, 28 July 2020 II FSK 578/20; 19 August 2020, II FSK 1261/18; 8 September 2020, II FSK 1492/18; 10 September 2020 I FSK 153/18, I FSK 569/20 and also in the judgments of the WSA e.g. in Gorzów Wlk.: from 30 July 2020 I SA/Go 103/20, to 2 September 2020 I SA/Go 175/20; in Rzeszów: from 10 September 2020 I SA/Rz 235/20, to 5 November 2020 I SA/Rz 482/20; on 16 February 2021 I SA/Rz 833/20; in Gliwice from 28 September 2020 I SA/Gl 1/20 ; in Kielce with 11 February 2021 I SA/Ke 386/20),

Advantageline: NSA judgments: I FSK 42/20 and I FSK 128/20, with a separate opinion; and the NSA judgment of 5 November 2020, I FSK 1062/20 and WSA judgments: in Białystok with 5 August 2020 I SA/Bk 465/20; on 4 November 2020 I SA/Bk 490/20; in Łódź with 19 August 2020 I SA/Łed 45/20, to 30 November 2020 I SA/Łed 395/20; in Poznań with 10 November 2020 I SA/Po 481/20, to 15 December 2020 I SA/Po 440/20 and I SA/Po 299/20; in Kraków with 24 March 2021 I SA/Kr 1252/20)