Wroclaw stages last stand in battle over city-owed VAT
Wroclaw is anxiously awaiting a Supreme Administrative Court decision (NSA) scheduled for Nov. 10 on whether it will have to pay millions of zloty in VAT tax to the central government.
The NSA, which is to make a decision on a case brought by the city over its unpaid VAT taxes for 1996, was supposed to make a decision last Friday, but postponed it for two weeks as the court pours through more evidence.
Wroclaw has asked the court to look at what types of transactions it has to pay VAT taxes on, and the case specifically brings up the issue of real-estate transactions or rentals. The city would like the court to exempt it from paying VAT on real estate, as the city owns a great deal of land.
"Because the process is multi-faceted, these additional arguments have to be considered by the whole court," said Andrzej Grzelak, a judge at the local branch of the NSA. "This is an atypical situation and that's why the ruling will be announced later."
Wroclaw has been fighting the court's 1996 decision, which said that cities should pay VAT on transactions just like any commercial entity. Wroclaw has refused to pay any VAT until the court rules on the issue, and as of 1996 the city owed zl. 10 million ($2.5 million) in payments plus zl. 12.3 million ($3.08 million) in interest. Because it is not sure what exactly it owes VAT on, the city has not yet determined how much is due from 1997-1999.
The case also has significant consequences for other cities across the country, as the court's decision is hoped to better define to what degree a city is an economic entity and therefore what level of taxes it must pay on commercial transactions. At the same time, many cities also have hefty back VAT bills that they will have to pay once the issue is settled.
"If there is a positive decision for Wroclaw, for sure it will be a positive decision for Swieradow and other cities," said Wojciech Kudera, mayor of Swieradow, a spa town in Lower Silesia.
As of the beginning of December, Swieradow is due to pay slightly more than zl. 500,000 in back VAT. That is 8.4% of the city's 1999 annual budget of zl. 6 million ($1.5 million).
Wroclaw's case is proving to be a rallying cry for some cities that do not think that public entities such as themselves should have to pay VAT at all. However, Wroclaw is very much an exception in that very few cities actually refuse to pay the tax, said Danuta Mroz, the legal adviser to the Wroclaw tax office, which is handling the case.
"Only the city of Wroclaw is so stubborn and is maintaining that it is not a VAT payer," she said.
While many thought the issue had been settled with the court's decision in 1996, Wroclaw has gone to the mat because it is involved in so many pricey real estate transactions and owns a great deal of land, Mroz said. For example, earlier this year the city sold a large parcel of land to hypermarket Metro for zl. 50 million ($12.5 million).
Wroclaw Mayor Bogdan Zdrojewski said that he was prepared to shell out the zl. 22.3 million owed if the city loses the case. "We will pay," he said. "We will have to pay just like all other cities."
He said that the city saved money by not paying VAT from 1993-1995, which it invested in improving infrastructure such as roads. When the court ruled in 1996 that cities had to pay VAT, it did not force them to make back payments.
Zdrojewski said that in 1996, the last time the city submitted audits for how much VAT it owes, officials estimated that Wroclaw had saved 15-20% by not paying the tax.
Kudera, Swieradow's mayor, said that he had little hope that the court would decide in Wroclaw's favor. He said that national budget pressure would be too great for the NSA to make a ruling that could serve as a precedent for other cities.
"However, I am cheering them on and crossing my fingers for them," he said. "I hope the decision will be positive."
