The Burden of Proof in GAAR Proceedings
Who Must Demonstrate the Purpose of a Transaction?
An Analysis of Eight Judgments of the Supreme Administrative Court of Poland, August 22, 2023 (Case Nos. III FSK 354/23 through III FSK 495/23)
Introduction
On August 22, 2023, the Supreme Administrative Court of Poland (Naczelny Sąd Administracyjny, hereinafter “SAC”) delivered eight judgments in Cases III FSK 354/23 through III FSK 495/23—a consolidated series arising from a single factual matrix involving a sale-and-leaseback transaction of telecommunications infrastructure executed in 2009 by a major telecommunications operator. While these decisions have attracted considerable attention for their treatment of the retrospective application of Poland’s General Anti-Avoidance Rule (“GAAR”) to transactions predating the clause’s entry into force on July 15, 2016, they are arguably of greater doctrinal significance for a question that lies at the very foundation of anti-avoidance enforcement: upon whom does the burden of proof rest in GAAR proceedings, and by what standard should the significance of non-tax purposes asserted by a taxpayer be evaluated?
These rulings carry immediate practical implications for any enterprise whose organizational structures or transactions may be subjected to scrutiny by the Head of the National Revenue Administration (Szef Krajowej Administracji Skarbowej, hereinafter “Head of NRA”). They establish the evidentiary standards that the revenue authority must satisfy before depriving a taxpayer of a tax benefit and—of equal consequence—delineate the boundaries that an administrative court may not transgress when reviewing a GAAR determination.
The Factual Background: Anatomy of a Dispute over Telecommunications Infrastructure
At the turn of 2008 and 2009, the taxpayer—a telecommunications company then operating under the name T. S.A.—sold its telecommunications infrastructure to a wholly owned subsidiary, T. Sp. z o.o., and simultaneously entered into a leaseback arrangement for the same assets. The transaction resulted in a reduction of the real property tax base: the value of the structures as recorded by the subsidiary was lower than the value that the parent company had previously reported as the basis for computing its real property tax liability.
The Head of NRA initiated GAAR proceedings, asserting that the sole purpose of the transaction was the obtainment of a tax benefit. The taxpayer countered that the transaction served a legitimate economic objective: safeguarding the group’s assets against the adverse consequences of a threatened functional separation, which the President of the Office of Electronic Communications (Prezes Urzędu Komunikacji Elektronicznej, hereinafter “President of UKE”) was then actively considering imposing. The proceedings encompassed real property tax obligations for the 2016–2018 fiscal years owed to the municipal authorities of several cities—Kraków, Olsztyn, Gdańsk, and Ruda Śląska—giving rise to eight separate administrative decisions and, ultimately, eight judgments before the SAC.
The Burden of Proof in GAAR Proceedings: A Landmark Doctrinal Pronouncement
The Revenue Authority Cannot Shift the Burden of Proof to the Taxpayer
Among the most consequential aspects of the judgments under analysis is the SAC’s disposition of the Head of NRA’s contention that it is the taxpayer who bears the burden of demonstrating that the economic or business purposes invoked are “more than insignificant” within the meaning of Article 119d of the Tax Ordinance (Ordynacja podatkowa). The revenue authority read this provision as establishing a procedural directive—a rule allocating the burden of persuasion—pursuant to which it falls upon the taxpayer to convince the tax authority that the non-tax purpose identified is of sufficient weight.
The SAC unequivocally rejected this construction. As stated in the reasoning of all eight judgments: “The Supreme Administrative Court found no rule allocating the burden of proof [in Article 119d]; accordingly, the assertion contained in the authority’s cassation appeal finds no support in the text of Article 119d of the Tax Ordinance.” The Court emphasized that the provision is drafted in a manner that places the accent on objective assessment: the legislature employs the passive constructions “shall be deemed” (uznaje się) and “shall be considered” (należy uznać) twice in varying formulations—linguistic choices that, in the SAC’s analysis, signal the requirement of an objectivized evaluation rather than a shifting of the onus probandi onto the taxpayer.
The practical ramifications of this holding are far-reaching. It establishes that in GAAR proceedings, it is the revenue authority—not the taxpayer—that bears the risk of non-persuasion regarding the prerequisites for the clause’s application. The taxpayer identifies the purposes underlying its actions, but the authority must objectivize the evaluation and affirmatively demonstrate that the asserted economic or business purposes are “insignificant.” Put differently, the fiscus may not content itself with asserting that a tax purpose predominated; it must establish why the non-tax purpose invoked by the taxpayer warrants disqualification as immaterial.
The Objective Standard of Evaluating Purpose: The True Meaning of Article 119d
Article 119d of the Tax Ordinance (in its pre-2019 formulation, applicable to the cases at hand) provided that a transaction “shall be deemed to have been undertaken primarily for the purpose of obtaining a tax benefit when the remaining economic or business purposes of the transaction, as indicated by the taxpayer, are to be considered insignificant.” The SAC’s construction of this provision yielded several doctrinal innovations of considerable importance.
First, the Court characterized the taxpayer’s act of “indicating” a purpose as an inherently procedural act—one that, by its very nature, may occur only at the stage of tax proceedings directed toward the application of the GAAR. This construction entails that a taxpayer cannot be required to have articulated non-tax motivations prior to the commencement of GAAR proceedings. As the SAC stated expressis verbis: “Before the introduction of the general anti-avoidance rule into the Polish legal order, there existed no normatively motivated need for the taxpayer to emphasize the non-tax motivation of its actions.”
Second, the SAC dismissed the authority’s contention that the company’s explanations regarding the purposes of the transaction lacked credibility because they had “changed over time and depending on the addressee of the information.” The Court held that the determinative purposes are those communicated to the authority conducting the GAAR proceedings (i.e., the Head of NRA), rather than explanations previously furnished to other authorities in different procedural contexts. Article 119d, the Court reasoned, mandates an objective assessment of the weight of purposes “indicated”—not “at any point ever indicated”—by the taxpayer.
Third—and this holding carries particular significance for practitioners—the SAC determined that the authority attributed excessive importance to variations in phrasing employed by the company over the course of several years of litigation. Prevention of functional separation and mitigation of its adverse consequences, the Court held, “should not be understood as two distinct purposes, but rather as a single economic or business motive other than a tax purpose.” This pronouncement offers meaningful guidance to taxpayers: semantic nuances in describing the objectives of one’s actions ought not to be exploited by the authority to impeach a taxpayer’s credibility.
The “More Than Insignificant” Threshold: What Suffices to Preclude GAAR Application
In the line of authority under discussion, the SAC corrected an erroneous proposition advanced by the Voivodship Administrative Court (Wojewódzki Sąd Administracyjny, hereinafter “VAC”), which had stated in its reasoning that a purpose capable of precluding GAAR application must be an economic or business purpose “at least equivalent” to the tax purpose. The SAC expressly cautioned that such a proposition finds no basis in the statute as it stood prior to the end of 2018.
Under Article 119d of the Tax Ordinance, the circumstance that precludes GAAR application is the existence of even a single economic or business purpose that must be regarded as more than “insignificant”. This is a distinction of considerable moment. There is no requirement that the non-tax purpose counterbalance the tax purpose, or even that the two be comparable in magnitude. It suffices that the non-tax purpose exceeds the threshold of insignificance—in other words, that it is material to a degree greater than the minimal.
In practical terms, this means that an entrepreneur who undertakes a restructuring motivated in part by tax considerations and in part by genuine business needs need not fear the application of the GAAR, provided the non-tax purpose is authentic and at least “more than insignificant.” The GAAR was designed to combat purely artificial arrangements devoid of any meaningful economic rationale—not to impugn bona fide business decisions in which a tax benefit happens to coexist with a legitimate commercial objective.
The Limits of Judicial Review: The Administrative Court Is Not a “Third Instance”
Of comparable doctrinal significance to the burden-of-proof holding is the SAC’s ruling on the permissible scope of judicial review in GAAR cases. The VAC in Warsaw not only questioned the evidentiary assessment undertaken by the Head of NRA but proceeded further still: it assumed the fact-finding function itself, determining that the non-tax purpose invoked by the company “was not an insignificant purpose” and that it was “at least equivalent” to the tax purpose.
The SAC held that the VAC had exceeded the boundaries of its cognizance. The court of first instance ought to have confined itself to reviewing the legality of the administrative decision and assessing the legal correctness of the authority’s position—it ought not to have assumed the role of the tax authority by making independent factual findings as to the weight of the purposes motivating the taxpayer. As the SAC stated: “The Voivodship Administrative Court’s analysis concerning the significance of the ‘anti-regulatory’ purpose invoked by the taxpayer should not have appeared in the judgment’s reasoning, as it falls outside the scope of the legality review of the contested decision.”
This holding carries a dual significance. On the one hand, it protects taxpayers against the prospect of an administrative court independently—without the benefit of a full evidentiary proceeding—adjudicating the abusiveness of a transaction. On the other hand, it means that following the annulment of a GAAR determination, the matter is remanded to the authority, which must reassess—in light of the court’s guidance—the materiality of the non-tax purposes. Critically, the authority may not revert to its original position that the tax purpose was the taxpayer’s sole motivation.
Evidentiary Deficiencies in the Authority’s Reasoning: The Limits of Permissible Fact-Finding
A close reading of the judgments under analysis reveals a pattern of recurring deficiencies in the manner in which the Head of NRA conducted the GAAR proceedings—deficiencies that may serve as instructive reference points for future disputes.
Disregard or discrediting of taxpayer arguments. The SAC endorsed the VAC’s finding that the Head of NRA “ignored or discredited the arguments of the appellant presented consistently throughout the entire proceeding, while attributing decisive significance to evidence that might support the thesis he had advanced.” Such conduct, the courts held, constitutes a violation of the principle of free—but not arbitrary—evaluation of evidence under Article 191 of the Tax Ordinance.
Reliance on speculation. The authority asserted that the company would not have submitted to a functional separation order, and that the “anti-regulatory” purpose of the transaction was therefore pretextual. The SAC characterized this as “pure speculation” and “an assertion that goes too far,” devoid of support in the evidentiary record. The revenue authority, the Court made clear, may not construct hypotheses regarding a taxpayer’s hypothetical conduct in circumstances that never materialized.
Internal contradiction. The courts identified a paradox in the authority’s reasoning: on the one hand, the Head of NRA maintained that a company with publicly held shares concealed its tax purpose out of reputational considerations; on the other, the same authority contended that the very same company would have ostentatiously defied a regulatory order. Such deficiencies in reasoning fundamentally undermine the credibility of the authority’s findings and may warrant the annulment of the GAAR determination.
Selective treatment of third-party evidence. The authority invoked a letter from the President of UKE dated January 17, 2020, as evidence that the transaction could not have served as an effective instrument of protection against functional separation. The SAC observed, however, that the authority had omitted a passage from the very same letter in which the President of UKE acknowledged that the company’s actions “could have adversely affected the regulation of the President of UKE.” Selective citation of evidentiary sources, the Court held, constitutes a procedural violation.
Real Property Tax: The Annual Assessment Period as a Temporal Barrier
In the cases pertaining to the 2016 fiscal year (III FSK 489/23, III FSK 492/23, III FSK 493/23, III FSK 495/23), the SAC resolved an additional intertemporal question: whether the GAAR could encompass real property tax obligations for the months of August through December 2016, given that the clause entered into force on July 15, 2016.
The Head of NRA argued that the real property tax obligation “updates” with each successive month of the fiscal year, and that accordingly the tax benefit for the months following July 15, 2016, fell within the GAAR’s reach. The SAC rejected this contention, holding that the real property tax is a tax with an annual assessment period. The tax obligation crystallizes at the commencement of the year and is ascertainable in its entirety from the moment the annual declaration is filed by January 31. Monthly installments represent merely the temporally distributed payment of an already-existing obligation, not discrete obligations arising de novo each month.
Consequently, the tax benefit for 2016 arose at the beginning of that year—prior to the GAAR’s entry into force—and could not be subjected to a determination issued under Article 119a of the Tax Ordinance. This holding carries significant implications also in the context of the statute of limitations for tax obligations and for all taxes characterized by annual assessment periods.
Practical Implications for Enterprises
The series of eight SAC judgments of August 22, 2023, establishes the procedural framework within which GAAR proceedings ought to be conducted—from the perspective of the revenue authority and the taxpayer alike. The principal practical conclusions may be summarized as follows.
The burden of proof lies with the authority. Article 119d of the Tax Ordinance does not shift the burden of proof to the taxpayer. It is the authority that must demonstrate that the economic or business purposes identified by the taxpayer are “insignificant.” The taxpayer identifies its purposes, but is not required to prove their predominance over the tax objective.
A “more than insignificant” purpose suffices. To preclude the application of the GAAR, it is unnecessary to demonstrate a non-tax purpose that is “equivalent to” or “predominant over” the tax purpose. It suffices that even a single economic or business purpose exceeds the threshold of materiality.
Non-tax purposes may be articulated at the GAAR proceedings stage. The fact that a taxpayer did not articulate its non-tax motivation prior to the commencement of proceedings does not disqualify such arguments. Before 2016, no normative obligation to declare such purposes existed.
Semantic variations should not impeach credibility. Different formulations describing the same commercial motive (e.g., “prevention of separation” versus “mitigation of the consequences of separation”) cannot be treated as evidence of inconsistency in a taxpayer’s position.
Documentation of economic purpose is critical. Although the burden of proof rests with the authority, taxpayers are well advised to maintain contemporaneous documentation corroborating the commercial objectives of their transactions—internal analyses, correspondence with advisors, and corporate governance resolutions. It was precisely such documentation that formed the basis of the findings favorable to the company in the case at hand.
The authority may not rely on speculation. Constructing arguments upon hypotheses regarding how a taxpayer would have behaved under circumstances that never materialized constitutes a violation of the principles of evidentiary procedure and may result in the annulment of the GAAR determination.
Conclusion
The SAC’s judgments of August 22, 2023, in Cases III FSK 354/23 through III FSK 495/23 constitute the most comprehensive judicial pronouncement to date on the evidentiary standards governing GAAR proceedings in Poland. The central message is unambiguous: the general anti-avoidance rule is not an instrument for impugning every transaction that yields a tax benefit. Its application demands that the authority rigorously demonstrate that the taxpayer acted primarily for the purpose of obtaining such benefit—rather than, conversely, that the taxpayer bear the burden of proving its own innocence.
GAAR proceedings, while by their nature encroaching upon the autonomy of the taxpayer’s will, remain subject to the same evidentiary discipline as any other tax proceeding. The free evaluation of evidence does not connote arbitrary evaluation, and the statutory objective—the suppression of artificial arrangements—does not license speculation or the selective treatment of the evidentiary record. Enterprises that make decisions grounded in genuine economic rationale and document their motivations contemporaneously may proceed with greater confidence that, in the event of a dispute with the tax authority, the revenue authority will be unable to satisfy the prerequisites for the clause’s application.
Robert Nogacki – licensed legal counsel (radca prawny, WA-9026), Founder of Kancelaria Prawna Skarbiec.
There are lawyers who practice law. And there are those who deal with problems for which the law has no ready answer. For over twenty years, Kancelaria Skarbiec has worked at the intersection of tax law, corporate structures, and the deeply human reluctance to give the state more than the state is owed. We advise entrepreneurs from over a dozen countries – from those on the Forbes list to those whose bank account was just seized by the tax authority and who do not know what to do tomorrow morning.
One of the most frequently cited experts on tax law in Polish media – he writes for Rzeczpospolita, Dziennik Gazeta Prawna, and Parkiet not because it looks good on a résumé, but because certain things cannot be explained in a court filing and someone needs to say them out loud. Author of AI Decoding Satoshi Nakamoto: Artificial Intelligence on the Trail of Bitcoin’s Creator. Co-author of the award-winning book Bezpieczeństwo współczesnej firmy (Security of a Modern Company).
Kancelaria Skarbiec holds top positions in the tax law firm rankings of Dziennik Gazeta Prawna. Four-time winner of the European Medal, recipient of the title International Tax Planning Law Firm of the Year in Poland.
He specializes in tax disputes with fiscal authorities, international tax planning, crypto-asset regulation, and asset protection. Since 2006, he has led the WGI case – one of the longest-running criminal proceedings in the history of the Polish financial market – because there are things you do not leave half-done, even if they take two decades. He believes the law is too serious to be treated only seriously – and that the best legal advice is the kind that ensures the client never has to stand before a court.
