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  • Undisclosed sources

By a ruling of 18 July 2013 (case file number SK 18/09) the Constitutional Tribunal challenged art. 20 paragraph 3 of the Law on Personal Income Tax, which defines the way income from undisclosed sources is established. The Constitutional Tribunal found that there had been a breach of art. 2 in connection with art. 64 paragraph 1 of the Constitution and that the provisions regarding undisclosed sources of income have serious legislative defects with regard to their construction and content. The legislature introduced a particularly restrictive institution for the taxation of undisclosed income, which it regulated in three terse regulations that have proved in the main to be imprecise and ambiguous. It may therefore be ventured that because this institution was to a significant extent only formalised in practice, these provisions in reality create only a framework for it.
The tribunals ruling concerns the wording of the regulations as they applied until 31 December 2006. However, the article that was challenged has a similar construction after that date, which therefore means that the ruling should also refer to the regulations that applied in the years following on whose grounds the tax authorities issued defective administrative decisions. It is necessary in view of the above to consider whether the tax authorities can impose tax on earnings from undisclosed sources by reference to the wording of the provisions in force after 31 December 2006. If a regulation is to be constructed that will enable the tax authorities to continue to be able to classify certain earnings as originating from undisclosed sources a very exact and wide-ranging examination of the facts as they obtained after that date is required.  


  • Pensions

The Constitutional Tribunal (13 November 2012; case file number K 2/2012) ruled that art. 28 of the Law of 16 December 2010 Amending the Law on Public Finances and Certain other Laws in connection with art. 103a of the Law of 17 December 1998 on Retirement and other Pensions provided by the Social Insurance Fund where it is applied to individuals who became entitled to a pension before 1 January 2011 with no requirement to terminate their employment contracts, is inconsistent with the principle of the protection of citizens trust in the state and its laws arising from art. 2 of the Constitution of the Republic of Poland. This ruling constituted the grounds for applying to the pensions institution for proceedings to be reopened. In practice, as a result of the reopening of administrative proceedings, the social security institution (Zakład Ubezpieczeń Społecznych) indicated that the necessity to pay the suspended pension is applied exclusively from the date the ruling of the Constitutional Tribunal of 13 November 2012 was published in the Journal of Laws, that is, from 22 November 2012. The failure of the social security institution to understand that the regulations were unconstitutional and its issuing of detrimental decisions made it necessary to appeal against them. It was the opinion of the ordinary courts that as the resolution contained in the decision was based on the provisions of art. 103a of the Law of 17 December 1998 on Retirement and other Pensions provided by the Social Insurance Fund, which was judged unconstitutional, it could not have formed the grounds for ceasing to pay a pension to an applicant from 1 October 2011 (so ruled the Lublin Court of Appeal on 29 May 2013, III AUa 378/13). It was the appeal courts opinion that a different understanding of the consequences of the Constitutional Tribunals decision regarding the unconstitutional regulations would have breached the principle of the state under the rule of law enshrined in art. 2 of the Constitution of the Republic of Poland.


  • VAT

The right to deduct input tax or, as specified by the Law on the Tax on Goods and Services of 11 March 2004 (Journal of Laws no. 54, item 535), the right to reduce the sum of the output tax due by the sum of the input tax, is a fundamental right enjoyed by taxpayers that results from the very construal of the tax on goods and services as a tax on added value. The practical essence of this construction is that the tax paid by VAT payers when buying goods and services that are used in taxable activities will not be incurred by them as actual costs. Taxpayers right to deduct input tax is in no way a privilege but instead represents a fundamental and basic entitlement resulting from the very construal of tax on goods and services as a tax on added value. In so far as the goods and services are used to perform taxable activities, taxpayers enjoy the right in accordance with art. 86 paragraph 1 of the Law on the Tax on Goods and Services to reduce the sum of output tax due by the sum of the input tax.
The tax authorities often question the legitimacy of deducting input tax by referring to errors of documentation or fictional transactions. In the assessment of the Supreme Court of Administration in Warsaw, it is not sufficient in the matter of demonstrating a failure on the part of taxpayers to exercise due commercial diligence (which, had it been exercised, would have allowed them to avoid the mutually agreed and fraudulent use or lending of a business name perpetrated by the lender of a business name and the user of that name) to say that it is common knowledge that these kinds of situations often occur in the scrap metal trade. It is necessary to unambiguously identify the concrete actions taxpayers have failed to give due care and attention to and which, if they had been performed or taken into account, would have allowed them to determine that the invoices under suspicion had originated from an entity created or lent in a form of identity fraud as a device for the purposes of the transactions, while the actual supplier of the goods received was another entity (the user of the entity created or lent in this way) (so ruled the Supreme Court of Administration on 12 March 2013; I FSK 260/12). As a consequence of the above ? given that there are no applicable findings regarding the due diligence of the applicant in the scope set out above ? it must also be recognised that it is justified to raise the objection that, in finding that the applicant cannot exercise the right to reduce the sum of output tax due by the sum of input tax when purchasing goods and services with reference to the disputed invoices when no grounds exist to deny the applicant that right, there has been a breach of the substantive law (art. 86 of the Law on the Tax on Goods and Services) involving its incorrect application.


  • Organised part of an enterprise

According to art. 6 paragraph 1 of the Law on the Tax on Goods and Services of 11 March 2004 (Journal of Laws, 2004, no. 54, item 535 as amended) the provisions of the law are not applied to transactions involving the acquisition of an enterprise or an organised part thereof. This means that transactions involving the acquisition of an enterprise or an organised part thereof are not subject to goods and services tax. Defining the concept of an enterprise and of an organized part thereof is an important factor in establishing, based on the Law on the Tax on Goods and Services, the tax position of an acquisition transaction. An organized part of an enterprise is an organisationally and financially separate unit within an existing enterprise that is made up of tangible and non-tangible assets, including obligations, and that is charged with undertaking specific economic tasks that it could also perform as an independent enterprise (art. 2 sub-paragraph 27e of the Law on the Tax on Goods and Services).
The lack of a legal definition of an organised part of an enterprise has meant that the tax authorities have interpreted the term in a variety of ways. This generates the risk for taxpayers acquiring an organized part of an enterprise that a given transaction will not be recognised as the acquisition of an organized part of an enterprise. The dominant view in the case law is that an organized part of an enterprise does not have to include all of the elements defining an enterprise for it to be regarded as existing independently. On 28 April 2011 the District Administrative Court in Warsaw (Wojewódzki S
ąd Administracyjny w Warszawie) indicated in sygn. akt III SA/Wa 1767/10 (case file III SA/Wa 1767/10) that ? where one of these elements is absent ? specific assets that are functionally integrated with each other can constitute an organized part of an enterprise. The independent discharge of its economic tasks is sufficient for a given set of tangible and non-tangible assets to be an organized part of an enterprise within the terms of the Law on the Tax on Goods and Services (ruling of the Supreme Court of Administration of 27 September 2011, sygn. akt I FSK 1383/10). The formulation contained in art. 6 paragraph 1 of the Law on the Tax on Goods and Services, in accordance with which the provisions of the law are not applied to acquisitions of enterprises or ? to 30 November 2008 ? to a plant (a branch) presenting its balance sheet independently and, from 1 December 2008, to an organized part of an enterprise must, from the perspective of art. 19 of EU Directive 2006/112, be understood functionally and not only verbally, that is, by conducting an analysis of whether the given set of assets that has been acquired (an enterprise or an organized part of an enterprise) allows the independent economic activity which it serves to be conducted (so ruled the Supreme Court of Administration in Warsaw on 5 April 2012, sygn. akt I FSK 1001/11)