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Expectations of fewer delays in value-added tax refunds are high in Poland following a couple of Supreme Administrative Court rulings.
The rulings confirmed taxpayers’ rights not only to challenge extensions of refund deadlines beyond the customary 60-day period, but also to question the widespread practice of open-ended tax investigations where no concrete refund deadlines are given at all.
Handed down within a month of each other, the rulings are expected to push tax authorities to act more efficiently, Andrzej Zubik, Warsaw-based senior manager specializing in tax dispute resolution at PricewaterhouseCoopers Poland, told Bloomberg BNA in a Dec. 12 telephone interview.
“The implication is that the tax authorities should work much faster,” he said. A VAT refund “should not take a year or two years, it should take a reasonable time.”
Przemyslaw Powierza, a Poznan-based tax partner and adviser, RSM Poland, called the rulings “very important.” Powierza said the rulings send a signal to all executive authorities, “just to emphasize the role of the judiciary and its readiness to defend taxpayers.”
The rulings are expected to shape decision-making of lower-level courts, increasing the likelihood of future legal challenges being successful.
“They are the Supreme Administrative Court verdicts, there is no court over that,” Zubik said. “It’s the highest court in administration cases in Poland. And I believe they will influence the verdicts of the lower courts as well.”
He expects this to to have “a very big and positive impact” on Polish entrepreneurs, “especially when we are talking about audits focused on VAT refunds.”
Although they address slightly different aspects of delays in VAT refunds, both rulings are significant, local tax practitioners said.
The first ruling in case number I FPS 2/16 was handed down on Oct. 24. Taking the form of a judicial decision, it was the initiative of the Supreme Administrative Court, and it confirmed the right of taxpayers to complain against decisions by Polish tax authorities to extend deadlines for VAT refunds, even if the decision is made as part of a formal tax audit to verity a VAT refund, Daniel Gawlas, tax lawyer, Kancelaria Prawa Podatkowego GAWLAS in Warsaw, told Bloomberg BNA in a Dec. 13 e-mail.
Previously, complaints against the decision to extend deadlines for VAT refunds were lost in advance, according to Gawlas.
“It was enough for the tax authorities to present in the decision that they have any doubts as to the settlement of the taxpayer or its contractors, and the court dismissed the complaint automatically, claiming that it is the prerogative of the tax office resulting from the activities of the administrative discretion,” he said.
Zubik added that he can now expect that the decision “will specify a specific date and not just say that we will extend the deadline for making refund until the tax audit is closed.”
“The second implication is that I can appeal against this extension. I can file the appeal and say there is no need to continue because you have checked everything in my books, and everything seems to be alright,” he said.
The second ruling came exactly a month later, on Nov. 24, consisting, in fact, of three responses to three separate complaints—case numbers I FSK 1360/16, I FSK 1361/16 and I FSK 1362/16—brought by an unidentified Polish distributor of Red Bull, Nutella and Tchibo coffee, among other fast-moving consumer goods.
It upheld the plaintiff’s right to go to court if he concludes that a tax audit conducted to verify the legitimacy of a VAT refund claim is taking too long, Gawlas, who represents the distributor, said. And it returned the case to the Voivodeship Administrative Court in Lublin, east Poland, which previously rejected the distributor’s complaints, ruling that “taxpayers do not have a right to complaints against excessive length of tax audit,” Gawlas said.
“The detailed instructions are: court in Lublin has to consider these cases, because complaints against excessive length of tax control carried out to verify a VAT refund belongs to his jurisdiction (and every other voivodeship administrative court in Poland),” he added.
According to Gawlas, the court will take between four and five months to issue a new judgment.
Zubik agreed with Gawlas’s assessment of the ruling’s significance.
“It is significant in that although there was no strict deadline for the tax audit in many situations, now the court says that you can claim the lengthy proceedings in the tax audits to the court,” he said. “More or less if you decide that you think that the tax authority is inactive in your case, they are not working properly, you can file a complaint with the court and demand that the tax audit is finished, or at least the court obliges them to finish the tax audit within a specific period of time.”
Previously, “it was impossible to appeal such a situation earlier” due to “specific provisions of the court procedure,” Zubik explained. And the provisions said “that you can challenge inactivity of the tax administration only in those cases when a decision should be issued. Here, if you have a tax audit, this is closed only with the delivery of the post-audit protocol. This is not a decision. If you don’t agree with the protocol, they will [and only then] initiate a separate proceeding and issue a decision saying that you cannot receive a VAT refund for instance.”
The vigilance of Polish tax authorities makes sense in light of the massive scale of VAT fraud that plagues Poland. Earlier this year, the Warsaw-based CASE, Center for Social and Economic Research, estimated that Poland’s VAT gap was 38.9 billion zloty ($9.32 billion) in 2014. But a heightened vigilance must not result in VAT refunds being withheld for months or even years, local tax practitioners said.
The case of the Polish distributor, which has been based in the Lublin region for the past 15 years and supplies medium-sized retail chains and wholesalers in Poland, Lithuania, Latvia, Romania and the Czech Republic, is a case in point and far from rare.
Its three complaints to the administrative court concern VAT declarations for December 2014, January 2015 and April 2015, which together claim a VAT refund of 778,020 zloty. In addition to these, it is also waiting for refunds for the 2015 months of May, June, July, August and October.
Altogether, Polish tax authorities are withholding more than two million zloty in VAT refunds, which has put the company in such financial dire straits that, in order to stave off bankruptcy, it was forced to dismiss 75 percent of its staff and begin talks with banks to postpone repayment of loans, according to Gawlas. “The danger of the company going bankrupt is still active and real,” he said.
To be sure, whether the court rulings result in faster VAT refunds is yet to be seen.
“If the tax authorities follow the letter of those verdicts and, let’s say, also the spirit of those verdicts, then I believe that a situation where a taxpayer cannot receive a VAT refund for a couple of years will be no longer a rule when VAT fraud is suspected but rather a very exceptional situation,” Zubik said. “But let’s see. I hope that they will not think about finding some different type of solution to extend those periods for another several months.”
Maria Kukawska, a Warsaw-based tax adviser and partner at Stone & Feather Tax Advisory, is less optimistic. “After Jan. 1, the tax office will be entitled to lengthen the procedure due to checks of the whole chain of sales of a particular batch of goods,” she told Bloomberg BNA in a Dec. 9 e-mail. “In cases where goods were sold and re-sold many times before export, this will lengthen the VAT refund procedure.”
Tax authorities already conduct checks on entire supply chains, but only now “the law will clearly say they may check the VAT settlements for the whole chain of sales,” Kukawska said.
According to Powierza, this may again result in delays in refunds “for months, if not years,” and consequently trigger more lawsuits.
“There is an amendment saying, that the local tax authority may suspend the VAT refund until all previous and following contractors of a particular taxpayer will be controlled,” he said. “Thus I believe this would be the situation that will cause [new] claims of taxpayers and rise a question of VAT neutrality in such circumstances again.”
As a precaution, Gawlas advises extreme attention to verifying trading partners. “Be prepared to prove that all your transactions were real, and you exercised due diligence in verifying your contractors,” he said. “You should obtain from your contractor registration documents such as NIP/VAT UE, KRS, REGON. If possible, VAT declaration for last month or quarter, references and opinions confirming current activities of your contractor.”
After that, Gawlas said, “you should check if these registration numbers are current in the date of your transaction. In full version of verification, you should even meet with the company’s management and see headquarters and warehouses. Only with such evidence you can be sure that your VAT settlement will not be disputed and even if [it is], you will be able quickly to prove that you acted in good faith.”
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The Oct. 24 ruling of the Supreme Administrative Court is available, in Polish, at http://orzeczenia.nsa.gov.pl/doc/90613E3060.
The Nov. 24 responses of the Supreme Administrative Court are available, in Polish, at http://orzeczenia.nsa.gov.pl/doc/A045534263, http://orzeczenia.nsa.gov.pl/doc/73D214AAFB and http://orzeczenia.nsa.gov.pl/doc/5CED67E38E .
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