Preconditions for Prejudgment Security Over Business Assets
When May Tax Authorities Encumber a Taxpayer’s Property?
Prejudgment security over business assets represents one of the most consequential instruments available to fiscal authorities under Polish law. This mechanism permits tax administrators to effectively immobilize a taxpayer’s assets prior to the issuance of any final determination of tax liability—at a procedural stage, that is, when the very legitimacy of the underlying claim remains unresolved. As the Voivodeship Administrative Court in Łódź demonstrated in its judgment of October 6, 2021 (case no. I SA/Łd 544/21), the statutory preconditions for imposing prejudgment security over business assets are rigorously circumscribed by law, and failure to satisfy these requirements compels judicial annulment of the administrative decision. The fisc, it bears emphasizing, may not proceed arbitrarily—not even when purportedly safeguarding the interests of the public treasury.
The Nature and Purpose of Prejudgment Tax Security
The institution of prejudgment security over tax obligations, codified in Article 33 of the Tax Ordinance Act (Ordynacja podatkowa), empowers fiscal authorities to encumber a taxpayer’s assets before the tax payment deadline and, indeed, before the issuance of any assessment decision. The legislative rationale is straightforward: protection of the public creditor’s interests by forestalling circumstances in which a taxpayer might dissipate assets prior to the conclusion of tax proceedings, thereby rendering enforcement of liabilities impossible or materially impaired.
Such security may be imposed during customs and fiscal audits, tax audits, or tax proceedings proper. The instrument is thus fundamentally preventive in character—the authority acts preemptively rather than awaiting the proceeding’s conclusion. This very preventive quality, however, constitutes the primary source of controversy: an entrepreneur may find access to operating capital foreclosed before any wrongdoing has been established.
The Voivodeship Administrative Court in Łódź, invoking the Constitutional Tribunal’s judgment of October 8, 2013 (case no. SK 40/12), underscored that security proceedings—notwithstanding their characteristic urgency—do not relieve the administrative authority of its obligation to observe the procedural rules and statutory provisions that govern such proceedings.
Statutory Preconditions for Prejudgment Security Over Business Assets
Pursuant to Article 33 § 1 of the Tax Ordinance Act, prejudgment security over a taxpayer’s assets is permissible only where there exists a well-founded apprehension that the tax obligation will not be discharged. The statute identifies two illustrative circumstances evidencing such apprehension.
The first arises where the taxpayer persistently fails to satisfy enforceable public-law obligations. This contemplates not isolated delays or transient liquidity difficulties, but rather systematic, chronic non-payment of tax liabilities, social security contributions, or other public levies. The qualifier “persistently” (trwale) proves dispositive—it denotes an entrenched behavioral pattern rather than an isolated incident.
The second statutory ground involves the taxpayer’s engagement in asset-disposition transactions that may impede or frustrate enforcement. This encompasses conduct indicative of attempted asset flight—sale of real property, transfer of funds to third-party accounts, donations to family members, or other transactions designed to place assets beyond the reach of potential execution. While the catalogue of such circumstances remains non-exhaustive, the critical point is that the burden of demonstrating their existence rests squarely with the tax authority.
As the Supreme Administrative Court emphasized in its judgment of May 26, 2015 (case no. I FSK 538/14), the precondition for issuing a security decision obtains where the tax authority demonstrates that, in light of the approximate tax liability amount—inclusive of any accrued interest—the taxpayer’s assets are in such condition, or may through the taxpayer’s actions be rendered in such condition, that absence of security could deprive the public creditor of satisfaction of the taxpayer’s obligations.
The Approximate Liability Determination: An Estimate Requiring Rigor
Article 33 § 4 of the Tax Ordinance Act obligates the authority to specify in the security decision both an approximate amount of the tax liability and the quantum of interest accrued thereon. The term “approximate” might suggest that the authority enjoys unfettered discretion—that it may fix the amount impressionistically, deferring precise calculations to the assessment stage. Judicial precedent consistently rejects such an interpretation.
The Supreme Administrative Court, in its judgment of March 9, 2021 (case no. I FSK 891/18), clarified that although the liability amount at the security stage possesses an estimative character, in determining its approximate magnitude the tax authority must take into account all legal and factual elements of the case known to it at that juncture, such that the tax assessment for security purposes approximates as closely as practicable the actual amount of tax due.
This qualification carries fundamental practical significance. The magnitude of the approximate liability directly affects the propriety of imposing security—analysis of its admissibility requires comparison of the taxpayer’s financial position against the anticipated liability quantum. Should the authority overstate the liability, it may conclude that security is warranted when, under a correct calculation, the taxpayer’s assets would amply suffice to satisfy the obligation.
The Factual Matrix Before the Łódź Court
In August 2020, the head of the customs and fiscal office initiated an audit concerning VAT settlements of an entrepreneur operating in the courier services sector. During the first half of 2020, the enterprise’s bank account had received deposits exceeding PLN 19 million, principally from courier company A Sp. z o.o. (approximately PLN 15 million) and from a collaborating entrepreneur, T.M. (approximately PLN 4 million). Meanwhile, the entrepreneur’s JPK_VAT filings for that period disclosed aggregate gross sales of barely PLN 636,000.
The disparity between account inflows and declared sales prompted the authority to conclude that the enterprise had concealed revenues in the millions. The head of the office determined an approximate VAT liability exceeding PLN 3.5 million and simultaneously issued a decision securing that amount, together with interest—a total exceeding PLN 3.7 million—against the enterprise’s assets.
The entrepreneur explained that his business involved intermediation in courier parcel delivery. His collaboration with A Sp. z o.o. operated as follows: he received parcels from consignors (merchandise vendors), dispatched them through the courier company, and subsequently settled the transaction. When recipients paid cash on delivery, the funds flowed first to A, then to the entrepreneur’s account, whereupon he remitted the merchandise price to the original consignor, retaining only his intermediation commission.
Under this business model, the preponderant share of funds flowing through the bank account did not constitute the entrepreneur’s revenue—these were cash-on-delivery amounts owed to parcel consignors. The entrepreneur’s actual revenue consisted solely of the commission, which he had properly declared and subjected to tax. This model was known to the authorities from prior audits, and witness testimony—from employees and counterparties alike—corroborated this operational structure.
The Tax Authority’s Position
The Director of the Tax Administration Chamber upheld the security decision. The stated justification referenced findings from the customs and fiscal audit: examination of accounting documentation, analysis of the taxpayer’s financial condition, and verification of sales revenue completeness. The authority further noted that the entrepreneur had failed to appear for examination as a party and had not submitted bank statements for accounts used in the business.
In his PIT-36L return for 2019, the entrepreneur had reported a loss of merely PLN 523, whereas in the first half of 2020 his account had received deposits exceeding PLN 19 million. This disproportion, in the authority’s view, justified suspicion that the enterprise had failed to declare the entirety of its revenues.
Significantly, the Director asserted that “the very manner of conducting business activity may constitute grounds for imposing security” and that the audit findings “undermine the presumption of the taxpayer’s reliability.” The authority declined to admit evidence proffered by the entrepreneur during the appellate proceeding, maintaining that matters pertaining to tax assessment would be resolved in separate assessment proceedings.
The Łódź Court’s Ruling: Anatomy of a Defective Decision
The Voivodeship Administrative Court in Łódź annulled the challenged decision, identifying fundamental legal violations by the tax authorities. The judgment furnishes an instructive illustration of impermissible administrative conduct—even where available data suggest irregularities.
The primary and most consequential error lay in the defective determination of the approximate liability. The court highlighted an internal contradiction in the authority’s reasoning: on one hand, the Director of the Tax Administration Chamber expressly stated that the character of the entrepreneur’s activity as a courier enterprise was not in dispute; on the other, the authority treated all account inflows as undeclared sales.
As the court observed: “Given that the character of the Complainant’s activity is not disputed, it remains unclear on what basis the Director concluded that the merchandise in the parcels belonged to the Complainant and that the cash-on-delivery amounts constituted the value of sales effected by him.” The authority failed to explain why it disregarded the specificity of courier-intermediation activity, in which a substantial portion of financial flows does not constitute the intermediary’s revenue but rather funds requiring remittance to third parties.
The second violation consisted in disregarding the arguments and evidence adduced by the entrepreneur. In his appeal and subsequent procedural submissions, the taxpayer elaborated in detail upon his business model, attaching annotated waybills, cash-on-delivery documentation, contracts with A Sp. z o.o., and detailed service terms. He moved for admission of documentary evidence supporting his position. The appellate authority refused, confining itself to the assertion that these matters would be resolved in assessment proceedings.
The court categorically rejected this approach: “Such reasoning would leave the Taxpayer without any instrument to counter the Director’s thesis that he participated in a scheme of failing to declare to the tax authority the entirety of his business turnover, rendering the decision utterly arbitrary and impervious to review.”
The third—and perhaps most significant—deficiency was the failure to demonstrate the statutory preconditions for security. The court found it undisputed that the entrepreneur had not engaged in asset-disposition transactions capable of impeding or frustrating enforcement. Nor had the authority established that the taxpayer persistently failed to discharge enforceable public-law obligations.
“All of this supports the conclusion that the authorities failed to demonstrate the existence of the preconditions for security within the meaning of Article 33 § 1 of the Tax Ordinance Act,” the court concluded. The mere fact that an audit was underway, or that irregularities were suspected, does not suffice. The authority must demonstrate concrete circumstances evidencing a well-founded apprehension that the obligation will not be discharged.
The Boundary Between Asset Protection and Creditor Fraud
The Łódź court’s judgment resonates within the broader context of the relationship between the taxpayer’s right to asset protection and the authorities’ prerogatives to secure public-law claims. This boundary is delicate and demands careful delineation.
On one hand, an entrepreneur possesses the right—and prudence dictates the exercise thereof—to construct structures shielding assets from business and legal risks. A capital company separating personal from business assets, a family foundation safeguarding assets for succession purposes, diversification across jurisdictions—these are lawful instruments sanctioned by the legal order. The critical consideration, however, is that such structures must be established in peacetime, before any concrete threat materializes.
On the other hand, the law penalizes conduct prejudicial to creditors—asset transfers effected in the face of execution may be challenged as fraudulent conveyances, and the perpetrator may incur criminal liability under Article 300 of the Criminal Code. A foundation established the day before a prejudgment security order will protect nothing—indeed, it may expose the founder to additional charges.
The entrepreneur in the case under discussion undertook no actions aimed at asset dissipation. He conducted ordinary business operations, discharged obligations, and cooperated with the authority to the extent required by law. Precisely for this reason, the court held that no basis existed for imposing a security measure against him.
Practical Implications for Business Enterprises
The judgment of the Łódź Voivodeship Administrative Court yields several guideposts for entrepreneurs who may find themselves in analogous circumstances—or who seek to avoid them altogether.
First, business specificity matters and warrants documentation. An entrepreneur operating under a model in which a substantial portion of financial flows does not constitute revenue—an intermediary, agent, or commission merchant—should maintain documentation clearly demonstrating the character of such flows. Contracts with counterparties, service regulations, settlement procedures—all of these may prove critical in disputes with the fisc.
Second, appellate proceedings require active challenge to both the quantum of the approximate liability and the very existence of security preconditions. The authority is obligated to address presented arguments and evidence—it may not relegate the taxpayer to future assessment proceedings.
Third, security decisions are subject to plenary judicial review. An appeal to the voivodeship administrative court may result in annulment of a defective decision—as the present case demonstrates.
Fourth, and perhaps most importantly, timing possesses strategic significance. Protective structures—should an entrepreneur elect to implement them—must be established before any threat emerges. Actions undertaken in response to an already-initiated audit or proceeding will be scrutinized through the lens of potential voidability vis-à-vis creditors or, indeed, criminal liability.
Conclusion
The preconditions for prejudgment security over business assets are rigorously defined by the provisions of the Tax Ordinance Act and may not be applied arbitrarily. The authority must demonstrate a well-founded apprehension of non-discharge—by establishing that the taxpayer is dissipating assets or persistently failing to satisfy public-law obligations. It must also properly determine the approximate liability quantum, taking into account all known circumstances, including the taxpayer’s business specificity.
The judgment of the Voivodeship Administrative Court in Łódź (I SA/Łd 544/21) confirms that entrepreneurs are not defenseless against security decisions. Effective defense, however, requires familiarity with applicable law and jurisprudence, procedural diligence, and—in a broader perspective—a prudent approach to asset protection implemented at a time when no conflict yet looms on the horizon.
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.
