Administrative Dilatoriness and the Right to Interest on Tax Overpayments
Causation, Contribution, and the Limits of Fiscal Immunity
Abstract: This article examines a consequential ruling by the Provincial Administrative Court in Poznań addressing the accrual of statutory interest on tax overpayments where the underlying assessment decision is annulled due to the expiration of the limitation period. The court held that deliberate delay by tax authorities in initiating assessment proceedings constitutes “contribution to the emergence of grounds for annulment” within the meaning of Article 78(3)(1) of the Tax Ordinance, thereby entitling the taxpayer to interest calculated from the date the overpayment arose rather than merely from the date of the annulment decision. This ruling illuminates the compensatory function of overpayment interest and establishes important constraints on administrative dilatoriness.
I. Introduction
The relationship between administrative delay, statutory limitation periods, and taxpayer remedies presents a recurring challenge in tax jurisprudence. When a tax authority initiates assessment proceedings so tardily that the resulting decision cannot achieve finality before the limitation period expires, a fundamental question of allocative justice arises: who should bear the economic consequences of the authority’s dilatoriness?
The Provincial Administrative Court (Wojewódzki Sąd Administracyjny) in Poznań recently confronted this question in a ruling of considerable practical significance. In its judgment of February 24, 2023 (Case No. I SA/Po 822/22), the court held that a tax authority’s failure to initiate proceedings in a timely manner—thereby rendering impossible the issuance of a final assessment before limitation—constitutes contribution to the grounds for annulment sufficient to trigger full interest entitlement under Article 78 of the Tax Ordinance (Ordynacja podatkowa).
This article analyzes the statutory framework governing interest on tax overpayments, examines the factual circumstances and competing interpretations advanced in the Poznań litigation, and evaluates the doctrinal implications of the court’s causation analysis.
II. The Statutory Framework: Interest on Tax Overpayments
A. The Overpayment Regime
Polish tax law establishes a comprehensive regime for the treatment of tax overpayments. Article 72 of the Tax Ordinance defines an overpayment as arising where tax has been paid in excess of the amount due, paid when not legally owing, or collected by a withholding agent in an amount exceeding the proper liability. Overpayments, together with accrued interest, are applied first against outstanding tax arrears; absent such arrears, they must be refunded to the taxpayer.
The statutory interest entitlement serves a compensatory function, providing restitution for the taxpayer’s loss of use of funds improperly held by the fiscal authority. The rate of interest and the period over which it accrues thus bear directly on the adequacy of the remedy.
B. The Differential Accrual Rules of Article 78
Article 78 of the Tax Ordinance establishes differentiated rules for interest accrual depending on whether the tax authority contributed to the circumstances necessitating the refund. The baseline rule, set forth in Article 78(1), provides that interest accrues from the date the overpayment arose. However, Article 78(3)(1) introduces a significant qualification: where a decision determining tax liability is amended or annulled, interest accrues from the date the overpayment arose only if the tax authority “contributed to the emergence of the grounds for amendment or annulment” of the decision.
If the authority did not so contribute, interest accrues merely from the date of the amending or annulling decision—a potentially significant reduction in the taxpayer’s recovery. The statute thus creates an incentive structure designed to encourage diligent administrative conduct while limiting fiscal exposure for annulments attributable to circumstances beyond the authority’s control.
C. The Interpretive Question
The critical interpretive question concerns the meaning of “contribution to the emergence of grounds” for annulment. The statute does not speak of contribution to the annulment itself, but rather to the emergence of the grounds therefor. This distinction, as the Poznań court emphasized, carries significant analytical weight: the inquiry focuses not on the proximate cause of annulment but on the antecedent conditions that rendered annulment necessary.
III. Factual Background: The Poznań Litigation
A. The Assessment Proceedings
The dispute arose from real property tax (podatek od nieruchomości) assessments for the 2015 tax year. The taxpayer, a joint-stock company (spółka akcyjna), received an assessment decision from the City Mayor (Prezydent Miasta) on November 27, 2020—a mere month before the expiration of the five-year limitation period for the 2015 liability.
The company filed an administrative appeal (odwołanie). On December 29, 2021, the Local Government Board of Appeal (Samorządowe Kolegium Odwoławcze, hereinafter “SKO”) annulled the first-instance decision and terminated the proceedings, citing the intervening expiration of the limitation period. The limitation period had run its course during the pendency of the appeal, rendering substantive adjudication impossible.
B. The Interest Dispute
In February 2022, the company demanded immediate refund of the overpaid tax together with interest calculated from the date the overpayment arose—December 9, 2020. The tax authority refunded the principal amount and paid interest, but only for the period commencing December 29, 2021 (the date of the SKO decision) through the date of payment. The authority refused to pay interest for the period from December 9, 2020, through December 28, 2021—a span exceeding one year.
The authority’s position rested on Article 78(3)(1): because, in its view, it had not contributed to the emergence of the grounds for annulment, interest was payable only from the date of the annulling decision.
C. The Administrative Appeal
The SKO upheld the first-instance determination. In its reasoning, the appellate body emphasized that the annulment resulted from the expiration of the limitation period—an objective circumstance beyond the tax authority’s control. The SKO found no procedural deficiencies in the conduct of the first-instance proceedings; indeed, the authority had gathered evidence appropriately while respecting the taxpayer’s procedural rights. The SKO further noted that the company itself had contributed to delay by failing to provide requested documentation within initially specified timeframes.
The SKO concluded that the grounds for annulment arose exclusively from two circumstances: the company’s decision to appeal and the passage of time resulting in limitation. Neither circumstance, in the SKO’s analysis, was attributable to the tax authority.
IV. The Taxpayer’s Challenge
A. The Dilatoriness Argument
Before the Provincial Administrative Court, the company advanced a fundamentally different characterization of the causal sequence. The company emphasized that the tax authority had delayed initiation of the assessment proceedings, commencing them only weeks before the limitation period’s expiration despite having five years within which to act.
This tardiness, the company argued, made it structurally impossible to issue an assessment decision that could achieve finality before limitation. The authority should have anticipated that the taxpayer might exercise the statutory right to appeal an unfavorable decision. By initiating proceedings so late that no time remained for appellate review, the authority ensured that any appeal would necessarily extend beyond the limitation period.
B. Supporting Evidence
The company bolstered its position with a post-audit report (wystąpienie pokontrolne) from the Supreme Audit Office (Najwyższa Izba Kontroli), which had found culpable dilatoriness on the part of the City Mayor in belatedly initiating tax proceedings concerning advertising structures and billboards, and in conducting such proceedings sluggishly, resulting in terminations due to limitation. This external finding of systemic administrative delay corroborated the company’s characterization of the authority’s conduct in the instant case.
V. The Court’s Analysis
A. The Governing Precedent
The Provincial Administrative Court commenced its analysis by reference to an established line of Supreme Administrative Court (Naczelny Sąd Administracyjny) precedent addressing the interpretation of Article 78(3)(1). In judgments dated September 8, 2020 (Case No. II FSK 1363/18), November 17, 2021 (Case No. III FSK 4181/21), February 3, 2022 (Case No. III FSK 2695/21), and November 29, 2022 (Case No. III FSK 2161/21), the Supreme Administrative Court had consistently held that the statutory language refers to contribution to the “emergence of grounds” for annulment, not to the annulment itself.
This distinction proves dispositive. The relevant inquiry concerns not the immediate basis for annulment (here, limitation) but rather the antecedent conduct that brought about the circumstances necessitating annulment. Actions or omissions by tax authorities that lead to limitation must be evaluated from the perspective of contribution to annulment.
B. Predictability and Administrative Foresight
The court acknowledged the SKO’s observation that the passage of time constituting limitation represents an objective circumstance independent of the tax authority’s volition. Limitation, as a temporal phenomenon, occurs regardless of administrative action or inaction.
However, the court immediately qualified this concession: while limitation itself is an objective occurrence, it is also an entirely foreseeable one. The tax authority knows with certainty when the limitation period will expire. Until that moment, the authority possesses full legal authority to pursue the tax claim, including through assessment proceedings. But the authority must also recognize that delaying the initiation of proceedings dramatically increases the probability that no final decision will issue before limitation intervenes.
The court articulated the governing principle with considerable clarity:
“The tax authority must be aware that delay in initiating tax proceedings leads, with a high degree of probability, to the impossibility of issuing a decision that will possess the attribute of finality. The tax authority has no direct influence over the passage of time or the taxpayer’s decision to file an appeal. These are, however, circumstances that the authority should take into account when conducting tax proceedings. It should accordingly assume that the taxpayer will exercise the right to appeal rather than forgo it, given that the decision’s resolution was unfavorable to the taxpayer.”
C. The Five-Year Window
The court emphasized a consideration frequently overlooked in administrative reasoning: the legislature provides a five-year limitation period precisely because it considers this interval adequate for the completion of assessment proceedings, including potential appellate review. The City Mayor had the entirety of this five-year period within which to assess the 2015 real property tax liability.
The failure to resolve the matter before limitation was therefore not a circumstance beyond the authority’s control. Whether the five-year period would be utilized effectively—culminating in a final assessment decision—or would expire fruitlessly—with proceedings terminated due to limitation—depended entirely on the authority’s conduct. The authority possessed the procedural tools necessary to adjudicate the matter before limitation; its failure to employ those tools cannot be visited upon the taxpayer who dutifully paid the tax as assessed.
D. Violation of Foundational Principles
The court characterized the authority’s conduct as violating two foundational principles of tax procedure: the principle of public confidence in tax authorities (zasada zaufania do organów podatkowych) codified in Article 121(1) of the Tax Ordinance, and the principle of expeditious proceedings (zasada szybkości postępowania) set forth in Article 125(1).
Drawing on prior jurisprudence, the court observed:
“Initiating proceedings immediately before the expiration of the limitation period, when the tax authority already possesses evidentiary material sufficient to resolve the matter, or failing to verify for nearly five years a declaration submitted by the taxpayer for reasons not attributable to that taxpayer, must be regarded as a violation of the principles of public confidence and expeditious proceedings.”
By issuing the assessment decision a mere month before the statutory limitation period expired, the City Mayor failed to comply with the legislative directive of diligent and timely administration.
VI. The Compensatory Function of Overpayment Interest
A. Constitutional Foundations
The court situated its analysis within the broader constitutional framework governing overpayment interest. The institution of statutory interest on tax overpayments serves a compensatory function, providing redress for the injury sustained when a taxpayer is deprived of the use of funds improperly extracted through deficient administrative proceedings.
The court invoked the Constitutional Tribunal’s judgment of July 21, 2010 (Case No. SK 21/08), which explained the rationale underlying overpayment interest:
“Since overpayment interest is intended—in the legislature’s sound judgment—to ameliorate the negative economic consequences associated with the taxpayer’s inability to dispose of amounts improperly paid, it is appropriate that such interest—fulfilling a compensatory function—should encompass both the principal amount and any default interest thereon from which the tax creditor improperly benefited.”
Overpayment interest thus constitutes compensation for lost profits (lucrum cessans). The deprivation of use is directly connected to the inability to deploy funds that, but for the ultimately invalid payment obligation, would have remained available for productive use.
B. Allocative Justice
The court’s reasoning reflects a fundamental principle of allocative justice: the taxpayer who complies in good faith with an assessment decision—paying the tax as determined by the authority—should not bear the economic consequences of administrative dilatoriness that renders the assessment unsustainable. The interpretation advanced by the SKO would produce precisely this inequitable result, transforming the limitation doctrine—designed to protect taxpayers from stale claims—into a mechanism for insulating authorities from the consequences of their own delay.
As the Supreme Administrative Court observed in its judgment of July 4, 2017 (Case No. II FSK 426/17): “It cannot be accepted that the taxpayer should bear the risk of improper application of law by tax authorities, and pursuant to Article 78(3)(1) of the Tax Ordinance, the rule is that overpayment interest accrues from the date the overpayment arose.”
VII. Doctrinal Implications
A. The Causation Standard
The Poznań judgment clarifies the causation standard applicable under Article 78(3)(1). “Contribution” to the emergence of grounds for annulment encompasses any action or omission that influences the outcome of tax proceedings—not merely errors appearing on the face of the annulled decision or procedural defects in the underlying proceedings. The initiation date of proceedings and the manner of their conduct, when they result in limitation before finality, constitute contribution to the grounds for annulment.
This interpretation aligns with the statutory text, which speaks of contribution to the “emergence of grounds” rather than to the annulment decision itself. The court’s analysis properly focuses on the causal chain leading to the circumstance (limitation) that necessitated annulment, rather than on the immediate legal basis for the annulling decision.
B. The Foreseeability Principle
The judgment establishes that foreseeability of the intervening circumstance is relevant to the contribution analysis. Limitation is not an unforeseeable event; its occurrence is certain, and its timing is precisely known in advance. An authority that initiates proceedings so late that limitation will predictably intervene before appellate review can be completed has contributed to the emergence of the grounds for annulment, notwithstanding that limitation itself is an “objective” occurrence.
This principle has broader implications for administrative planning. Tax authorities must calibrate the timing of their proceedings to account for the full procedural sequence, including potential appeals, that may precede the issuance of a final decision. Failure to do so exposes the authority to full interest liability.
C. The Evidentiary Dimension
The Poznań case also illustrates the evidentiary dimension of contribution disputes. The taxpayer’s submission of the Supreme Audit Office’s post-audit findings—documenting systemic dilatoriness by the same authority in comparable proceedings—proved significant to the court’s analysis. Taxpayers challenging interest determinations should consider whether external audit findings, statistical evidence of processing delays, or other documentation might corroborate allegations of administrative dilatoriness.
VIII. Practical Implications for Taxpayers
A. Reviewing Prior Refunds
The Poznań judgment provides occasion for taxpayers who have received overpayment refunds to review whether the accompanying interest was properly calculated. Where an assessment decision was annulled due to limitation following tardy initiation of proceedings, interest may be owing from the date the overpayment arose rather than merely from the annulment date. The differential can represent a substantial sum, particularly where significant time elapsed between overpayment and annulment.
B. Elements of a Contribution Claim
Taxpayers seeking full interest recovery should document the following elements: the date on which the limitation period commenced and the date on which it expired; the date on which the authority initiated assessment proceedings and the time remaining until limitation; evidence that the authority possessed or could have obtained the evidentiary material necessary for assessment substantially earlier; and the taxpayer’s own compliance with procedural obligations and absence of contribution to delay.
Where available, external findings of administrative dilatoriness—whether from audit bodies, ombudsman investigations, or prior judicial proceedings—may prove particularly persuasive.
C. Procedural Posture
Claims for additional interest following a deficient refund should be pursued through administrative channels in the first instance, with judicial review available before the Provincial Administrative Court. The established Supreme Administrative Court precedent, consistently applied by provincial courts, provides a favorable doctrinal foundation for such claims.
IX. Conclusion
The judgment of the Provincial Administrative Court in Poznań represents a significant contribution to the jurisprudence on overpayment interest under Article 78 of the Tax Ordinance. By holding that administrative dilatoriness leading to limitation constitutes contribution to the emergence of grounds for annulment, the court has reinforced the compensatory purpose of the overpayment interest regime and established meaningful constraints on administrative delay.
The ruling reflects sound policy considerations. The five-year limitation period represents the legislature’s judgment concerning the appropriate interval for tax administration. An authority that squanders this period through inaction, initiating proceedings only when limitation is imminent, should not escape the economic consequences of its dilatoriness by characterizing limitation as an “objective” circumstance beyond its control. The taxpayer who pays tax in good-faith reliance on an assessment decision is entitled to full compensation when that decision proves unsustainable—compensation measured from the date funds were improperly extracted, not merely from the date administrative error was formally acknowledged.
The Poznań judgment thus stands for a fundamental proposition: the risk of administrative dilatoriness lies with the dilatory authority, not with the compliant taxpayer. This allocation of risk provides appropriate incentives for timely administration while ensuring that taxpayers receive the full compensatory remedy to which the statutory scheme entitles them.
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.
