1. Checking activities
The checking activities are undertaken by the tax authority ex officio. In this regard, the tax authority may undertake checking activities aimed at:
- submitting declarations,
- payment of declared taxes, including those collected by payers and collectors,
2. confirmation of the formal correctness of the documents listed in items 1,
3. determination of the facts to the extent necessary to confirm compliance with the presented documents.
4. verification of expenses incurred by taxpayers and taxable income obtained or non-taxable income – to the extent necessary to disclose the tax base on account of revenues that are not covered by disclosed sources or originating from undisclosed sources.
5. verification of data and documents presented by taxpayers making tax registration.
6. verification of data and documents presented by entities submitting the simplified registration declaration referred to in Art. 16b paragraph. 1 of the Act of 6 December 2008 on excise duty (Journal of Laws of 2019, items 864, 1123, 1495, 1501, 1520 and 1556).
It should be borne in mind that the transfer pricing tax documentation is informative, and therefore it is a description of the facts concerning the execution of transactions between related parties. In our opinion, point 3 above authorizes the tax authority to apply to the taxpayer pursuant to Art. 11s paragraph. 1 uCIT (Article 23 of paragraph 1 of the uPIT) to present the DPCT within 7 days. The tax authority may also ask the taxpayer to provide all evidence confirming the entries made in the DPCT. In particular, the tax authority may require certified and translated copies of foreign-language documents, and documented DPCT related to the transaction.
It should be noted that checking activities are often of the so-called cross-checking, i.e. verification of accounting entries due to the control of another taxpayer. Such investigations may, in certain circumstances, result in a request to submit a DPCT.
2. Tax audit
Tax inspection is undertaken ex officio by the tax authorities. The purpose of a tax audit is to check whether the inspected taxpayers (payers or collectors) comply with their obligations under the tax law.
The initiation of the inspection procedure authorizes the tax authority to apply to the taxpayer pursuant to art. 11s paragraph. 1 uCIT (Article 23 of paragraph 1 of the uPIT) to present the DPCT within 7 days. The tax authority may also ask the taxpayer for a Polish translation of the DPCT drawn up in a foreign language. If the taxpayer does not comply with the summons, the authority may commission this translation at the taxpayer’s expense.
It should be noted that a control report is prepared from the control activities, which should include, among others:
- indication of the controlled,
- indication of the controlling persons,
- determination of the subject and scope of the inspection,
- determination of the place and time of the inspection,
- description of the factual findings made,
- documentation of the evidence taken,
- legal assessment of the case under review,
- instruction on the right to submit reservations or explanations and the right to correct the declaration,
- information on the obligation to notify the tax authority by the inspected party of any change in its address within 6 months from the date of completion of the tax inspection, if irregularities were found in the course of the tax inspection, and the consequences of failure to comply with this obligation.
In the description of the arrangements made, the protocol states the facts concerning the execution of transactions between related entities. If the actual state determined by the tax authority differs from that presented by the taxpayer in the tax documentation and confirmed by other evidence, then there is a high probability of initiating tax proceedings determining the income (loss) in the appropriate amount, in the opinion of the authority.
3. Tax proceedings in the first instance
Tax proceedings constitute the form of control proceedings, when the authority, applying for the previously identified irregularities, conducts proceedings aimed at issuing a decision which will determine the tax liability in the correct amount, thus negating the amount of tax declared by the taxpayer. In the case of transfer pricing, tax proceedings are initiated ex officio by the tax authority, which serves the party with the decision to initiate the proceedings.
The tax authority conducts transfer pricing proceedings based on the provisions of uCIT and the applicable provisions of the Regulations of the Minister of Finance on transfer pricing. . Pursuant to these regulations, the tax authority examines whether the taxpayer’s income was obtained on the basis of the market value of the subject of the transaction, properly recorded and assigned to the parties to the transaction.
If the taxpayer submits a DPCT together with the determination of the market value of the subject of the transaction based on the comparable uncontrolled price method, the resale price method, the reasonable margin (“cost plus”) method, the net transaction margin or profit distribution, provided that the reliability and objectivity of the presented data do not raises reasonable doubts, the tax authority determines the market value of the transaction using the method previously adopted by the taxpayer, unless the use of another method is obviously more appropriate. It should be emphasized that one of the overriding principles of tax proceedings is the principle of writing. This means that all matters are dealt with in writing. The tax authority is required to draw up a concise report on each action in the proceedings that is essential for the resolution of the case, unless the activity was otherwise recorded in writing. The protocols are drawn up in particular from hearings, inspections and expert opinions carried out with the participation of an employee of the tax authority.
Settlement of a case requiring evidence proceedings should take place without undue delay, but not later than within a month, and for a particularly complicated case – not later than within 2 months. With the above-mentioned deadlines specified in tax regulations, the deadlines specified in the Law of Entrepreneurs should also be taken into account. It was indicated there that the total time of the entrepreneur’s control in a calendar year may not exceed for:
- micro-entrepreneurs – 12 working days,
- small entrepreneurs – 18 working days,
- medium-sized enterprises – 24 business days,
- other entrepreneurs – 48 business days.
The last element of the tax procedure is the issuance of a decision determining the tax arrears (reducing the loss), which, according to Polish tax law, is due from the date of delivery of such a decision. Thus, the tax authority may issue a decision determining the size of the tax liability, as well as a decision to discontinue the proceedings. The decision issued by the first instance authority may be appealed against to the second instance tax authority.
The consequence of this is the obligation to pay a specific tax, regardless of the fact that an appeal is lodged with the body of the second instance or whether such a decision is later repealed. In the event of non-payment, the taxpayer must take into account the costs of enforcement, the costs of which are claimed in parallel with the tax arrears.
4. Tax proceedings in the second instance
Tax proceedings in the second instance, the so-called appeal proceedings are initiated by a taxpayer who received an unfavorable decision in tax proceedings in the first instance. The appeal against the decision of the body of first instance is lodged through this body within 14 days from the date of delivery of the appealed decision. It should also be borne in mind that lodging an appeal to the body of the second instance in due time does not suspend the execution of the decision of the body of the first instance.
The body of first instance which issued the decision under appeal has 14 days to issue a decision revoking the previously issued decision (self-control procedure) or to transfer the case to the appeal body. An appeal against a decision brought by the authority should contain objections against the decision, define the essence and scope of the request being the subject of the appeal and indicate the evidence justifying the request.
Failure to meet the requirements set out in the provisions of the Tax Ordinance regarding the content or deadline of the appeal results in the issuance of a decision closing the appeal procedure by the second instance authority. Such a decision is final for the proceedings in the second instance, however, it is permissible to lodge a complaint with the Provincial Administrative Court.
If the taxpayer meets the formal requirements, the second instance authority reconsiders the case. In the proceedings of the body of the second instance, the same rules of procedure apply as in the case of cases before the first instance.
In the course of the proceedings, the body of the second instance may conduct additional, supplementary evidentiary proceedings, or revoke the appealed decision and refer the case to the body of the first instance for re-examination.
Our experience shows that in complicated cases, the second instance often extends the period of issuing a decision, without being obliged to consider it within a specified time limit.
Both in the course of the proceedings before the first and second instance, the taxpayer may submit any evidence to support his statements, however, the essential evidentiary activities of the authority should be considered in the proceedings before the first instance.
In the course of tax proceedings in the second instance, the tax authority may issue the following rulings:
- a decision upholding the decision of the authority of first instance,
- a decision revoking the decision of the first instance authority in whole or in part and deciding in this respect as to the merits of the case,
- a decision revoking the decision of the first instance authority in whole or in part and discontinuing the proceedings in the case,
- decision discontinuing the appeal procedure,
- a decision repealing in its entirety the decision of the body of first instance, pursuant to which the case is referred for reconsideration by this body.
The taxpayer has the right to lodge a complaint against the Provincial Administrative Court against the issued decision of the second instance authority within 30 days from the date of delivery of the decision.
From 1 June 2017, a complaint about the inactivity of the authority or the excessive length of the proceedings may be filed at any time, upon prior submission of a reminder regarding the action of the authority that conducted the case.
5. Court proceedings before the Provincial Administrative Court
Receipt of the decision of the second instance authority, with which the taxpayer does not agree, authorizes him to lodge a complaint with the Provincial Administrative Court (WSA) within 30 days from the date of delivery of the decision.
The judgment issued by the Provincial Administrative Court decides whether the decisions of the first and second instance authorities were issued in accordance with the law, both in terms of procedure, in particular, evidence proceedings and the correct application of the law. Therefore, the PAC does not conduct evidence proceedings, but only examines whether the authorities have properly conducted the proceedings and verifies the correctness of interpretation and application of the provisions constituting the basis for the assessment of tax arrears.
The ruling of the Provincial Administrative Court may overrule the decisions of the tax authorities or dismiss the complaint, declaring that they do not violate the applicable law. In the event of a negative ruling by the Provincial Administrative Court, the taxpayer has the right to appeal to the Supreme Administrative Court in Warsaw. . .
6. Court proceedings before the Supreme Administrative Court
In the event of a negative ruling by the Provincial Administrative Court, the taxpayer has the right to lodge a complaint with the Supreme Administrative Court, which must be prepared by a professional attorney. The judgment of the Supreme Administrative Court is the final decision taken by the Court in Poland.
In the event of a negative judgment of the Supreme Administrative Court, it is possible to appeal it to the European Court of Justice to a limited extent, if it is possible to prove that the provisions of Polish law are inconsistent with European provisions that have been incorporated into the Polish legal system.