The Inaction of Tax Authorities in Fiscal Criminal Proceedings
In April, 2008, a Polish company filed an amended corporate-income-tax return for 2007, reporting income of more than a hundred and seventy thousand złoty and tax owed of thirty-two thousand. More than eleven years later, in September, 2019, the chief of the customs and tax office issued a decision finding that the company had understated its revenue and overstated its costs for that period. He recalculated the tax obligation himself. Why revisit an entrepreneur’s tax filings after eleven years? Because before the five-year statute of limitations expired, he had initiated fiscal criminal proceedings against the company—which suspended the limitation period—and then, for nine years, did absolutely nothing.
Polish tax authorities have five years, counted from the end of the calendar year in which the tax payment was due, to pursue collection. After that, the tax obligation expires. To extend this collection window, however, tax offices exploit a provision in Article 70, Paragraph 6, Point 1 of the Polish Tax Code, which states: “The running of the statute of limitations on a tax obligation does not begin, and if begun is suspended, from the day of initiating proceedings for a fiscal crime or offense of which the taxpayer has been notified, if the suspicion of committing the crime or offense is connected with the non-performance of that obligation.”
One limited-liability company filed an amended corporate-income-tax declaration in April, 2008, for the 2007 tax year. More than eleven years later, in September, 2019, the chief of the customs and tax office deemed the company’s filings erroneous and determined the amount of its corporate-income-tax obligation for 2007 himself. The company appealed his decision, but in December, 2020, the director of the tax-administration chamber, acting as the second-level authority, upheld it. The director noted that in November, 2010, an investigation had been initiated regarding a fiscal crime—specifically, that the entrepreneur had made false statements in the amended declaration about income earned in 2007, thereby exposing the State Treasury to losses in corporate income tax of at least sixty-five thousand złoty. The company was informed about the investigation—and thus about the suspension of the statute of limitations on its income-tax obligation—in November, 2012, two years after the investigation began.
A consequence of the audit conducted at the company was also the determination of its V.A.T. obligation for 2007. Officials found that the entrepreneur had improperly applied the margin scheme for V.A.T. taxation. In accounting for sales transactions involving used vehicles, the company had been required to apply the standard V.A.T. rate, then twenty-two per cent. Where it could have used the margin scheme, it hadn’t.
In filing a complaint with the provincial administrative court, the company argued that officials had failed to notify it of the investigation’s conclusion or of the opportunity to review the case files. The company had also not been given the mandatory seven-day period to correct the disputed filings. That order, the company claimed, was never delivered. The entrepreneur further contended that the tax authority had failed to gather all necessary evidence, particularly witness testimony from the company’s president, employees, suppliers, and customers.
The Provincial Administrative Court in Gdańsk noted that when reviewing the legality of a tax decision in which officials invoked Article 70, Paragraph 6, Point 1 of the Tax Code, an administrative court is obligated to verify the correctness of the authority’s application of that provision—which requires justification. If there is suspicion of instrumental use of this rule, officials must present evidence and a chronology of criminal-procedural actions taken that would rebut that presumption. The Gdańsk court found that, in this case, officials had failed to meet these requirements. In overturning the decisions of both lower and appellate authorities, the court unequivocally condemned the actions taken against the entrepreneur:
“From the decision of the Director of the Customs and Tax Office dated August 17, 2011, it follows that the investigation into acts under Article 56, Paragraphs 1 and 2 of the Fiscal Penal Code, involving, among other things, exposure to loss of corporate income tax for the years 2007-2009, was suspended. Meanwhile, from a letter from the Customs and Tax Office dated February 3, 2020, it follows that this investigation has not yet been resumed (it remains suspended). This situation indicates instrumental invocation of Article 70, Paragraph 6, Point 1 of the Tax Code, because for nine years the authority took no action in the fiscal criminal proceedings.” (Provincial Administrative Court in Gdańsk, August 22, 2021, Case No. I SA/Gd 205/21.)
This is another ruling condemning tactics employed by tax authorities against entrepreneurs—the artificial initiation of fiscal criminal proceedings solely to buy time for their own investigations and audits. Significantly, as the Gdańsk court held, when officials invoke the suspension of the statute of limitations due to the initiation of criminal proceedings against entrepreneurs, courts are obligated to examine whether such actions constitute an abuse of authority, as occurred in this case. An abuse that entrepreneurs need not accept.
The timeline is worth considering in full: April, 2008, the company files its amended return. November, 2010, a criminal investigation opens. August, 2011—less than a year later—that investigation is suspended. November, 2012, the company is finally notified. September, 2019, more than eight years after the investigation was suspended, officials issue their tax decision. February, 2020, in response to a court inquiry, officials confirm that the investigation remains suspended—it was never resumed. Nine years of inaction, yet the statute of limitations stayed frozen the entire time.
One might wonder what, precisely, an “investigation” means when no investigating occurs. The Gdańsk court’s language—”instrumental invocation,” “no action”—carries the weight of judicial restraint barely containing exasperation. The provision in the Tax Code was meant to prevent taxpayers from running out the clock on legitimate criminal investigations. Instead, it has become a mechanism for authorities to stop the clock themselves, indefinitely, through the mere gesture of opening a case file and then walking away from it. The company in question might have committed tax fraud—or it might not have. What’s certain is that for nine years no one bothered to find out, yet the possibility remained sufficient to suspend the company’s legal protections against endless government pursuit.
Polish courts are now requiring that authorities prove they didn’t abuse this power—that the criminal proceedings were genuine rather than theatrical. It’s a burden that should, perhaps, have been obvious from the start: if you’re going to claim extraordinary authority to override statutory deadlines, you should probably use that time to do something.
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.
