The Tax Ordinance allows taxpayers to apply for tax relief measures. Examples include an extension of the deadline for tax payment, payment of taxes by instalments, or full or partial cancellation of a tax underpayment.
All these measures are available to taxpayers (withholding agents or tax collectors) upon application. A tax relief procedure is a typical example of a procedure initiated only upon application by a taxpayer. This means that even if a tax authority knows that a taxpayer has found themselves in a difficult financial or personal situation, it has no statutory power to initiate such a procedure without the taxpayer's application.
A tax relief measure may only be granted if it is justified by the applicant's valid interest or valid public interest. In the application, the taxpayer must describe their circumstances and provide evidence to substantiate their difficult situation and support the application. Additionally, if tax relief is granted to a enterprises, it will be considered as state aid, in which case specific procedures and relief limits apply.
However, the expressions taxpayer's valid interest and valid public interest are not defined in the Tax Ordinance. In legal writings, the term taxpayer's valid interest is interpreted as an extraordinary or fortuitous event beyond a taxpayer's control which prevents the taxpayer from meeting his tax liabilities. It follows that taxpayer's valid interest is a spectrum of economic and/or social circumstances which a taxpayer may use to support an application for a tax relief. As a rule, such circumstances must be extraordinary in nature and beyond the taxpayer's control. It is important to note that the reasons may be different for individuals and different for legal persons. In contrast, interpreting the public interest requirement one should consider respecting values shared by society or a local community, such as justice, security, citizens' trust in public authorities or the efficiency of public administration.
Notably, a tax authority will make a decision on any application according to the principle of 'administrative discretion'. This means that the authority is required to verify whether the taxpayer's valid interest requirement or the public interest requirement is met. However, even if it finds that one or both aforementioned conditions are met, it is not be required to grant the tax relief applied for.
In practical terms, the authority may grant or refuse to grant the relief applied for. Also, the authority has the discretion to grant relief other than that applied for. The taxpayer may appeal against the authority's decision to a higher [second-instance] authority and against that authority's determination to an administrative court.
If the relief applied for is granted, an extension fee must be paid. It is calculated according to the rules that apply to late-payment interest on relief amounts, and the current interest rate is 4%.
It needs to be noted that it is extremely difficult for a taxpayer to obtain any of the tax relief measures described above. This is because tax authorities apply a high level of scrutiny to applications to verify whether the statutory criteria for granting relief are met. A tax authority is most likely to grant the payment-by-instalments relief or a tax deadline extension. In contrast, a taxpayer's tax liability (tax underpayment) will only be cancelled in exceptional cases.
Tax relief grants affected by COVID-19
In response to the COVID-19 pandemic, the Polish government has put many restrictions in place. They have either hindered or prevented the conduct of business, resulting in taxpayers finding it very difficult to meet their tax liabilities.
Under such circumstances, tax relief measures seem the most natural form of supporting the business. They can be applied quickly and easily, with no legislative changes required. What is more, the formal requirements for applications have been relaxed, and the amounts beyond which financial support is classified as state aid have been increased. Also, no extension fee applies for any tax relief granted in connection with the COVID-19 pandemic.
As a result, the scrutiny given to applications for tax relief measures justified by the taxpayers' difficulty in conducting business due to the COVID-19 pandemic is less strict. This approach is adopted particularly in the case of applications for tax payment extensions or payment by instalments, because these forms of tax relief do not mean that the taxpayer will not pay the tax due at all, but rather that they will pay the tax but at a later date. Applications for such relieves are reviewed only as far as absolutely essential to confirm that the taxpayer's financial standing has deteriorated. In other words, tax authorities assume that the present situation of taxpayers is poor and that the relief applied for may be granted because the taxpayer's valid interest and valid public interest requirements are met.
What will follow?
In our view, the relaxation by tax authorities of their rules for reviewing applications for tax relief measures is obviously a right decision. Temporary legislative solutions such as relaxing state aid regulations or waiving tax deadline extension fees should also be appreciated.
However, as the restrictions on the conduct of business are lifted, tax authorities are likely to gradually resume their standard policy of granting tax relief measures in only exceptional circumstances.
Manager in the Tax Litigation Team at KPMG in Poland
Supervisor in the Tax Litigation Team at KPMG in Poland