Tax Authorities Lose in Court Due to Their Own Inaction
Polish tax authorities have five years to collect what they’re owed. It’s a generous window—long enough, one might think, to gather evidence and build a case. Yet when that half-decade passes and the authorities find themselves empty-handed, often through their own inertia, they’ve developed a convenient workaround: they launch criminal proceedings against the entrepreneur in question. Until recently, the mere act of initiating such proceedings was enough to stop the clock on the statute of limitations. Everything changed in May, 2021, when Poland’s Supreme Administrative Court—the highest authority on such matters—decisively rejected this instrumental approach.
A director of one of Poland’s tax chambers learned this the hard way in August, 2021, when the Provincial Administrative Court in Rzeszów overturned his decision, citing that landmark Supreme Court ruling. As the court’s opinion noted, the tax official had ticked all the formal boxes for suspending the statute of limitations—a criminal investigation had been opened, the entrepreneur had been notified—but he had “overlooked those questions and circumstances that should have been considered in assessing whether the initiation of fiscal criminal proceedings was instrumental and served merely to halt the running of the statute of limitations.” (Case No. I SA/Rz 412/21, decided August 5, 2021.)
The case involved a company that had sold textiles, clothing, and automotive parts through the TAX FREE system in mid-2015—a program allowing non-European Union buyers to reclaim value-added tax on purchases they took out of the E.U. The director of the tax chamber, acting as the second-level appellate authority, had challenged the company’s right to deduct V.A.T. from its purchase invoices and to apply the preferential zero-per-cent tax rate to its TAX FREE sales.
The accusations were severe: the tax director claimed that evidence gathered by the local tax-office chief suggested the entrepreneur had knowingly participated in tax fraud, issuing false invoices in a chain of fictitious goods transactions. The company had also allegedly forged Hungarian customs stamps on TAX FREE invoices to confirm that goods had been exported outside the E.U.—documentation that would allow buyers to claim V.A.T. refunds while the company applied the zero-per-cent rate.
The appellate official acknowledged that the statute of limitations on the disputed tax settlements would expire on December 31, 2020. However, the entrepreneur had been informed by the local tax chief that, before that deadline, on February 26, 2020, the statute of limitations had been suspended due to the initiation of a criminal investigation into alleged V.A.T. fraud using false invoices.
The timing was striking. The company challenged the tax authority’s decision, arguing that officials had wrongly assumed it knew that goods listed on the invoices it had issued were never actually exported. The authorities had presumed bad faith from the outset, the company contended, and it refused to bear the consequences of its business partners’ actions when no one had proved it had failed to exercise proper due diligence as a responsible merchant.
More pointedly, the company charged that the criminal proceedings had been initiated solely to suspend the statute of limitations in the pending tax case. The audit of the disputed 2015 transactions had been conducted in 2016, yet the criminal investigation wasn’t launched until 2020, as the deadline approached. The lower-level tax authority had issued its decision in February, 2018; the appellate authority didn’t act until April, 2021. Most tellingly, the 2020 investigation covered only May and June of 2015—precisely the periods whose statute of limitations was expiring that year. Other periods went untouched. And, crucially, since the criminal proceedings had been initiated nothing had happened—nothing beyond the formal notification sent to the entrepreneur and his attorney.
The tax director’s response to the company’s complaint fell back on a narrow reading of the law: under Article 76, Paragraph 6, Point 1 of Poland’s Tax Code, suspending the statute of limitations required only that the taxpayer or attorney be notified before the deadline expired. That had been done.
The Provincial Administrative Court in Rzeszów wasn’t persuaded. In overturning the tax director’s decision, the court invoked a resolution issued by a seven-judge panel of the Supreme Administrative Court on May 24, 2021. That landmark opinion established that while administrative review should focus primarily on whether the formal prerequisites for initiating criminal proceedings had been met—whether there was genuine suspicion of a crime and a connection between those proceedings and the taxpayer’s failure to meet his obligations—courts couldn’t ignore the question of whether, given the specifics of a case, the criminal proceedings were merely a façade, serving only to stop the statute-of-limitations clock.
“Particularly when the moment of initiating proceedings is close to the date when the tax obligation would expire,” the Supreme Court wrote, “clarification of this matter must be reflected in the reasoning of the tax decision…. Such information is necessary to guarantee the taxpayer that the tax proceedings are being conducted in a manner that inspires confidence in the tax authorities.” (Case No. I FPS 1/21.)
The Rzeszów court systematized the Supreme Court’s guidance into clear directives. Tax authorities must examine the formal conditions for suspending the statute of limitations through criminal proceedings and assess whether those proceedings were initiated merely to halt the clock. Officials are obligated to undertake this scrutiny when, for instance: the timing of the criminal case is suspiciously close to the limitation deadline; there’s an obvious absence of substantive or procedural grounds, or the presence of negative procedural prerequisites; there’s a lack of genuine activity by authorities after initiating the proceedings; or the level of investigative activity before launching the criminal case was notably low. The list, the court noted, was merely illustrative.
In applying these principles to the case at hand, the Rzeszów court found that the tax director had confined himself to checking formal boxes. He hadn’t investigated whether the proceedings were artificially initiated simply to stop the limitation clock from running.
“The Authority failed to meet the requirements set forth in the described resolution,” the court wrote, “in which the Supreme Administrative Court expressly listed, among exemplary circumstances that might indicate instrumental initiation of fiscal criminal proceedings, the ‘inaction’ in those criminal proceedings that the Complainant alleged…. On the contrary, in responding to the complaint, the Director of the Tax Chamber admitted that he had not conducted the complete and necessary analysis (preceded by essential evidentiary activities) of circumstances that would allow assessment of whether the initiation of fiscal criminal proceedings had, or had not, an instrumental character.” (Case No. I SA/Rz 412/21.)
Such tactics by officials must be deemed unacceptable. The statute of limitations on tax obligations is hardly stingy—authorities have a full five years, counted from the end of the calendar year in which the payment deadline passed, to pursue collection. Nearly a decade ago, on July 17, 2012, Poland’s Constitutional Tribunal emphasized that “the enforcement of tax debt and the accompanying uncertainty for the taxpayer regarding the status of his tax obligations cannot last for decades.” (Case No. P 30/11.) How does reality measure up, years after that ruling?
Last year, in a case involving a company against which tax authorities had conducted proceedings and audits for four years and eleven months, officials initiated fiscal criminal proceedings just thirty days before the statute of limitations expired—an attempt to suspend the deadline. A court objected, ruling that if no procedural actions were taken after initiating the proceedings, they must be considered artificially commenced. (Provincial Administrative Court in Łódź, August 19, 2020, Case No. I SA/Łd 45/20.)
In a ruling dated August 3, 2021, the Provincial Administrative Court in Gdańsk sided with an entrepreneur accused of issuing and purchasing false invoices. “The authorities,” the court wrote, “did not present appropriate evidence and a chronology of criminal procedural activities indicating that, in this case, the initiation of fiscal criminal proceedings did not have a merely ‘instrumental’ character.” (Case No. I SA/Gd 387/21.)
What matters most for entrepreneurs now is this: following the May 24, 2021, resolution by the seven-judge panel of the Supreme Administrative Court (Case No. I FPS 1/21), the trajectory of judicial precedent is clear and unambiguous. There’s no longer tolerance for artificially lodging accusations of fiscal offenses or crimes against entrepreneurs solely to buy authorities more time for their proceedings and audits.
As the Rzeszów court observed, “The position taken in the resolution of the seven-judge panel of the Supreme Administrative Court is binding, and if any panel of an administrative court hearing cases does not share this position, it must refer the emerging legal question to the appropriate panel for resolution…. It should also be noted that the resolution was adopted after considering a motion by the Ombudsman for Small and Medium-Sized Enterprises to issue a resolution clarifying legal provisions whose application had caused divergences in the case law of administrative courts.” (Case No. I SA/Rz 412/21.)
The message from Poland’s highest administrative court is unequivocal: the government’s power to pursue tax debts, however broad, is not without limits—and authorities who treat criminal proceedings as a mere bureaucratic tool to extend their own deadlines will find themselves on the losing side of the courtroom.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
