Piotr Wadas

The government is planning one of the most significant reforms of the Tax Ordinance in years, according to an updated draft amendment published on 4 August. Some of the most important changes concern the statute of limitations.

According to the Ministry of Finance, the aim of the changes is to reduce the burden on taxpayers and shorten the period of uncertainty. However, our analysis indicates that, particularly in the area of the statute of limitations, some of the solutions may work to the detriment of taxpayers and lead to an extension of their liability, even after the expiry of the current limitation periods.

Statute of limitations – what are the positives in the draft?

Let us start with the positive changes to the statute of limitations. In our opinion, these undoubtedly include:

• Repeal of the possibility of suspending the limitation period as a result of the initiation of criminal tax proceedings

Currently, Article 70 § 6(1) of the Tax Ordinance provides that the limitation period for a tax liability is suspended upon the initiation of criminal tax proceedings. In practice, this mechanism has been used instrumentally – especially just before the expiry of the 5-year limitation period – to prolong proceedings. The draft amendment provides for the abolition of this regulation, which is intended to eliminate the possibility of its abuse by tax authorities.

• Change in the rules regarding the non-expiry of liabilities secured by a mortgage or pledge

Until now, the above-mentioned liabilities never expired in terms of their enforceability against the collateral. The draft provides for a departure from this rule by introducing a new institution of suspension of the limitation period – for a maximum period of 5 years. After this period, enforcement will only be possible from the subject of the established mortgage or pledge.

Statute of limitations – where are the pitfalls?

As we have previously indicated, although some of the changes to the statute of limitations should be viewed positively, the draft also provides for solutions that may work to the detriment of taxpayers. In particular, these are:

• Repeal of Article 44(2) of the Fiscal Penal Code (k.k.s.)

Currently, this provision prevents the punishment of a perpetrator of a fiscal offence if the tax liability has become time-barred. After its removal, the court will be able to impose a penalty and order the payment of the equivalent of the reduced amount due even after the tax has become time-barred. As a result, even though the tax authorities will no longer be able to enforce this amount (due to the planned repeal of Article 70 § 6(1) of the Tax Ordinance), the taxpayer may still be held criminally liable for the expired liability.

• Extension of the limitation period by 12 months in certain cases

The draft provides for an extension of the limitation period by one year in situations where:

• the taxpayer submits a correction favourable to them within less than 12 months before the expiry of the 5-year limitation period, or
• the tax authorities identify income from undisclosed sources (in this respect, the 5-year period is to be counted from the end of the year following the year in which the tax obligation arose).

• Introduction of a new ground for suspending the limitation period

The limitation period is to be suspended as a result of the initiation of proceedings concerning the application of the anti-tax avoidance rule (GAAR) – but for no longer than two years. After that time, if the proceedings are not completed, the limitation period will continue to run.

As a result, in our opinion, in the area of limitation periods, the draft may bring taxpayers as many risks as benefits.

Changes in other areas

In addition, the draft also includes other changes that may be of significant importance to taxpayers in their daily relations with tax authorities. The most important of these include:

• the possibility of remitting tax before the payment deadline (currently only after the liability has been converted into a tax arrears),
• extending the tax office’s powers to independently correct tax returns as part of its verification activities by raising the threshold for such corrections from PLN 5,000 to PLN 10,000,
• the elimination of the obligation to submit a separate application for a refund when it results from a submitted correction of a tax return,
• the removal of the obligation to report domestic tax schemes.

What does this mean in practice?

If the planned amendment comes into force in its current form, it will introduce both significant simplifications and serious risks. On the one hand, it could potentially shorten the period of uncertainty in many proceedings with tax authorities and simplify the formalities relating to relations with the authorities. On the other hand, however, the new grounds for extending or suspending the limitation period and the repeal of Article 44(2) of the Penal Fiscal Code may increase the scope of taxpayers’ liability, even after the expiry of the current 5-year limitation period for liabilities.

It is worth analysing today what impact the planned changes may have on your business and preparing accordingly. We will keep you informed about the progress of legislative work and any changes to the draft.