Shooting the messenger
For many expatriates, this essentially means halving their tax bill. As you can imagine, the prospect of significant and unexpected tax savings prompted more response from interested readers than any other column which I have recently published.
Now this is where it unfortunately gets unpleasant, and where it provides a cautionary tale for tax advisors as well as a reminder that one should never get too excited too soon about positive developments.
The WBJ article stirred the international business community. However, the real debate was unleashed when my colleague Marcin Eckert, who made the technical discovery (and who I name checked for his technical brilliance in my original article), was interviewed about this in Gazeta Wyborcza, where he said substantially the same thing, but in Polish to a large Polish audience. The effect was immediate.
Over the next few days, the papers carried comments from our competitors, saying that it wouldn't work. Now, call me an old cynic, but if the papers asked me for my opinion regarding an interpretation of my competitors that was different to my own understanding, and more beneficial to taxpayers (also known as clients), I would have one of only three responses - (1) What have I missed? (2) What have they missed? (3) - if (1), how can I make it look like (2) to cover myself when my clients ask me why I hadn't told them about this idea?
Now, arguably, we could have discussed this with them before going to press, to make sure that they weren't going to criticize us. But if you develop something different in your industry, do you always phone your main competition before announcing it so that they have time to see what you're doing? I don't think so.
Within a couple more days, the Ministry of Finance had published a response saying that it doesn't work. Now, that's not actually all that surprising, as it is their job to interpret the law and to explain how it does and doesn't work, so as to ensure the consistency of interpretation. However, what I did find a bit more surprising, was that rather than detail the technical aspects involved, the Ministry spokesman chose to write the letter as a personal attack on Mr. Eckert for having expressed the view, rather than explaining the technical basis for their opinion.
Now, it's easy to criticize people for having an opinion that is different to yours, but if the difference is of a technical nature, it is more usual to argue over the technical matter at hand, rather than to make a case based on the opinion of other tax advisors. Quote: "The conclusions... presented by Mr. Eckert are so inaccurate that no other tax advisors support them."
Now, consider for a moment who writes the law - i.e. gets the first chance to decide what it's going to say. That's right, it's the government - not the advisors. So if it doesn't work or is unclear, is it really the fault of the person who's read it and who has pointed out the inconsistencies?
Practicing tax in Poland is a wild and challenging profession precisely because we're dealing with a rapidly changing environment, with new laws being passed all the time, particularly as EU Accession is drawing nearer and nearer and many laws are being changed in line with EU legislation. It would be a brilliant government and set of ministries that were able to pass every single legislative change word perfect first time round.
But consider where we are left now. The law says one thing. And it's clear what the law says (in as much as it is possible for a law to be clearly ambiguous). The Ministry has published a letter saying unpleasant things about someone who has expressed a view. So what, as a tax payer, should you do? Follow the law? Or know that if you do, whoever audits your tax return will be following a contrary view to that expressed by the Ministry? Are any of you out there hungry for a juicy fight through the courts over this? I don't think so. It's unlikely that you have enough years to spare, or would be interested in taking a case to court in which you wouldn't be awarded costs, and for which your legal costs to fight all the way would be far higher than your individual income tax liability difference would ever be - even if you were earning millions.
So, it will be a brave tax advisor who ever dares to express an opinion against the mainstream again, no matter how clear the law is.
And it will be a brave employer who chooses to follow and thus withhold tax at the lower rate when paying people in January, even if the law says that they are able to do so.
Learning to think out of the box and to be brave is all part of a long learning process. Hopefully, 2004 will provide more opportunities for taking short cuts towards accelerating this process.
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
Now this is where it unfortunately gets unpleasant, and where it provides a cautionary tale for tax advisors as well as a reminder that one should never get too excited too soon about positive developments.
The WBJ article stirred the international business community. However, the real debate was unleashed when my colleague Marcin Eckert, who made the technical discovery (and who I name checked for his technical brilliance in my original article), was interviewed about this in Gazeta Wyborcza, where he said substantially the same thing, but in Polish to a large Polish audience. The effect was immediate.
Over the next few days, the papers carried comments from our competitors, saying that it wouldn't work. Now, call me an old cynic, but if the papers asked me for my opinion regarding an interpretation of my competitors that was different to my own understanding, and more beneficial to taxpayers (also known as clients), I would have one of only three responses - (1) What have I missed? (2) What have they missed? (3) - if (1), how can I make it look like (2) to cover myself when my clients ask me why I hadn't told them about this idea?
Now, arguably, we could have discussed this with them before going to press, to make sure that they weren't going to criticize us. But if you develop something different in your industry, do you always phone your main competition before announcing it so that they have time to see what you're doing? I don't think so.
Within a couple more days, the Ministry of Finance had published a response saying that it doesn't work. Now, that's not actually all that surprising, as it is their job to interpret the law and to explain how it does and doesn't work, so as to ensure the consistency of interpretation. However, what I did find a bit more surprising, was that rather than detail the technical aspects involved, the Ministry spokesman chose to write the letter as a personal attack on Mr. Eckert for having expressed the view, rather than explaining the technical basis for their opinion.
Now, it's easy to criticize people for having an opinion that is different to yours, but if the difference is of a technical nature, it is more usual to argue over the technical matter at hand, rather than to make a case based on the opinion of other tax advisors. Quote: "The conclusions... presented by Mr. Eckert are so inaccurate that no other tax advisors support them."
Now, consider for a moment who writes the law - i.e. gets the first chance to decide what it's going to say. That's right, it's the government - not the advisors. So if it doesn't work or is unclear, is it really the fault of the person who's read it and who has pointed out the inconsistencies?
Practicing tax in Poland is a wild and challenging profession precisely because we're dealing with a rapidly changing environment, with new laws being passed all the time, particularly as EU Accession is drawing nearer and nearer and many laws are being changed in line with EU legislation. It would be a brilliant government and set of ministries that were able to pass every single legislative change word perfect first time round.
But consider where we are left now. The law says one thing. And it's clear what the law says (in as much as it is possible for a law to be clearly ambiguous). The Ministry has published a letter saying unpleasant things about someone who has expressed a view. So what, as a tax payer, should you do? Follow the law? Or know that if you do, whoever audits your tax return will be following a contrary view to that expressed by the Ministry? Are any of you out there hungry for a juicy fight through the courts over this? I don't think so. It's unlikely that you have enough years to spare, or would be interested in taking a case to court in which you wouldn't be awarded costs, and for which your legal costs to fight all the way would be far higher than your individual income tax liability difference would ever be - even if you were earning millions.
So, it will be a brave tax advisor who ever dares to express an opinion against the mainstream again, no matter how clear the law is.
And it will be a brave employer who chooses to follow and thus withhold tax at the lower rate when paying people in January, even if the law says that they are able to do so.
Learning to think out of the box and to be brave is all part of a long learning process. Hopefully, 2004 will provide more opportunities for taking short cuts towards accelerating this process.
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
