The rules of engagement
Over the past few months a new trend in Polish law-making has gained momentum. It has become fashionable to sympathize with taxpayers. Some go as far as describing this phenomenon as "spoiling".
This newly adopted lenience in treating taxpayers was inspired, allegedly, by the May 1, 2004 accession into the elite circle of EU member states. Ever since, ideas of revolutionary significance have been gradually brought to life through the amendment of various tax laws.
Taxpayer-friendly provisions can be found in the amended Tax Ordinance. More specifically, Article 14 thereof, regulating the issue of binding tax rulings, provides ample opportunity for the taxpayer to celebrate and rejoice in a world devoid of the erstwhile sources of complaints about tax authorities handling the rulings process.
The recent good news is that private rulings issued by the tax authorities at the request of an individual taxpayer in respect to a specific tax matter are binding on the authorities, regardless of whether the taxpayer has chosen to follow the formal interpretation expressed therein.
Furthermore, if the authorities fail to issue a tax ruling within the statutory deadlines (normally three months from the date of filing the request), the taxpayer's viewpoint on the tax matter at hand-as presented in his formal request for a ruling-will become binding on the Tax Man.
Opportunity windows
For those seeking to explore the far reaches of entrepreneurship, this opens a window of opportunity to unconventional tax planning. Consider the following: (1) organizing a brainstorming session for resourceful tax consultants to come up with tax optimization ideas; (2) dressing up their outpourings of brilliance to meet the requirements of a tax ruling request; (3) filing as many formal requests as possible in the hopes that some will get stuck in a drawer and forgotten for longer than three months.
Despite appearances, the tax code has not left the Tax Man completely defenseless. Binding tax rulings (including those that have become binding as a result of failure on the part of the tax authorities to respond to a taxpayer's request for a ruling) can be appealed or amended only in two situations: (1) at the taxpayer's request in the course of respective appeals proceedings, or (2) ex officio, if the ruling is recognized by the tax authorities to be in gross violation of the current or amended legislation.
Although contemporary tax systems are dynamic in nature, dramatic changes are relatively rare. This offers fertile ground for tax absurdities such as taxpayers being bound by outdated tax rulings because the interpretations contained therein are not in gross violation of the legislation in force. Considering that taxpayers can choose whether to comply with the ruling, it is rather common sense that those with favorable rulings will do so for as long as possible.
The final effect of the well-intended legislative change seems too much like "spoiling" the taxpayer.
Choosing to comply
Reading through the amended Tax Ordinance, it looks as if the only means available for bringing binding tax rulings in line with the existing legislation is to revise them after every legislative change. Consider the practical implications of having to re-issue thousands of rulings binding on individual taxpayers in respect to specific tax matters. The task of tracking and following through with the amendment of every single ruling may pose too big a technical challenge with very little value added for the tax office.
Despite potential complications of the aforementioned changes, the overall balance is highly positive. In all fairness to the legislators, their noble intention and the corresponding effort made to strengthen taxpayer rights are commendable. However, whispers in the tax community have become louder, saying that the Tax Man is deeply disturbed and appears highly unhappy with the changes.
As all things in nature aspiring for eternal harmony, the balance of power may change. In today's world the key question is how strong a fashion statement the Tax Man can make to tilt the scales in his favor.
Donka Darpatova is a senior tax manager in the Warsaw office of Ernst & Young.
This newly adopted lenience in treating taxpayers was inspired, allegedly, by the May 1, 2004 accession into the elite circle of EU member states. Ever since, ideas of revolutionary significance have been gradually brought to life through the amendment of various tax laws.
Taxpayer-friendly provisions can be found in the amended Tax Ordinance. More specifically, Article 14 thereof, regulating the issue of binding tax rulings, provides ample opportunity for the taxpayer to celebrate and rejoice in a world devoid of the erstwhile sources of complaints about tax authorities handling the rulings process.
The recent good news is that private rulings issued by the tax authorities at the request of an individual taxpayer in respect to a specific tax matter are binding on the authorities, regardless of whether the taxpayer has chosen to follow the formal interpretation expressed therein.
Furthermore, if the authorities fail to issue a tax ruling within the statutory deadlines (normally three months from the date of filing the request), the taxpayer's viewpoint on the tax matter at hand-as presented in his formal request for a ruling-will become binding on the Tax Man.
Opportunity windows
For those seeking to explore the far reaches of entrepreneurship, this opens a window of opportunity to unconventional tax planning. Consider the following: (1) organizing a brainstorming session for resourceful tax consultants to come up with tax optimization ideas; (2) dressing up their outpourings of brilliance to meet the requirements of a tax ruling request; (3) filing as many formal requests as possible in the hopes that some will get stuck in a drawer and forgotten for longer than three months.
Despite appearances, the tax code has not left the Tax Man completely defenseless. Binding tax rulings (including those that have become binding as a result of failure on the part of the tax authorities to respond to a taxpayer's request for a ruling) can be appealed or amended only in two situations: (1) at the taxpayer's request in the course of respective appeals proceedings, or (2) ex officio, if the ruling is recognized by the tax authorities to be in gross violation of the current or amended legislation.
Although contemporary tax systems are dynamic in nature, dramatic changes are relatively rare. This offers fertile ground for tax absurdities such as taxpayers being bound by outdated tax rulings because the interpretations contained therein are not in gross violation of the legislation in force. Considering that taxpayers can choose whether to comply with the ruling, it is rather common sense that those with favorable rulings will do so for as long as possible.
The final effect of the well-intended legislative change seems too much like "spoiling" the taxpayer.
Choosing to comply
Reading through the amended Tax Ordinance, it looks as if the only means available for bringing binding tax rulings in line with the existing legislation is to revise them after every legislative change. Consider the practical implications of having to re-issue thousands of rulings binding on individual taxpayers in respect to specific tax matters. The task of tracking and following through with the amendment of every single ruling may pose too big a technical challenge with very little value added for the tax office.
Despite potential complications of the aforementioned changes, the overall balance is highly positive. In all fairness to the legislators, their noble intention and the corresponding effort made to strengthen taxpayer rights are commendable. However, whispers in the tax community have become louder, saying that the Tax Man is deeply disturbed and appears highly unhappy with the changes.
As all things in nature aspiring for eternal harmony, the balance of power may change. In today's world the key question is how strong a fashion statement the Tax Man can make to tilt the scales in his favor.
Donka Darpatova is a senior tax manager in the Warsaw office of Ernst & Young.
