Prejudgment Security Over Taxpayer Assets Must Rest on Justified Grounds
Prejudgment security over taxpayer assets presents an instrument of dual character: on one hand, it safeguards the Treasury’s interests against debtor asset flight; on the other, it may deprive an entrepreneur of the very resources necessary for ongoing operations and satisfaction of current obligations. Where, precisely, does the boundary lie between justified security and arbitrary fiscal action? This question occupied administrative courts at both instances in a matter concluded by the Supreme Administrative Court’s judgment of March 26, 2021 (case no. II FSK 1669/20)—and the tribunals arrived at diametrically opposed conclusions.
The Core Dispute: What Constitutes Grounds for Prejudgment Security?
Under Article 33 § 1 of the Tax Ordinance Act (Ordynacja podatkowa), prejudgment security over taxpayer assets may be imposed where there exists a well-founded apprehension that the tax obligation will not be discharged. The legislature identified two illustrative circumstances evidencing such apprehension: persistent non-payment of enforceable public-law obligations, and engagement in asset-disposition transactions that may impede or frustrate enforcement.
This catalogue, however, remains non-exhaustive, as indicated by the statutory phrase “in particular” (w szczególności). It is precisely this open-ended formulation that gave rise to a fundamental interpretive dispute: does unreliable maintenance of tax records, standing alone, justify the imposition of security—even where the taxpayer has already ceased business operations and undertakes no actions aimed at asset dissipation?
The Factual Matrix: A Retiree, Fictitious Invoices, and a Shuttered Enterprise
The taxpayer had conducted business in the carpentry sector from January 2006 through May 2017. A tax audit revealed serious irregularities: in 2016, she had issued 22 VAT invoices to counterparties that she failed to record in her ledgers or account for in her personal income tax returns. Additionally, her VAT sales register included four invoices that did not reflect actual economic transactions—so-called empty invoices—along with four invoices understating the amounts of services rendered.
In February 2019—nearly two years after the business closure—the head of the tax office determined an approximate personal income tax liability for 2016, together with interest, and imposed security over her assets. The aggregate anticipated liabilities (encompassing VAT for 2015-2017 and personal income tax for other years) exceeded PLN 145,000.
The difficulty lay in the fact that the taxpayer possessed no assets amenable to security. She owned no real property, savings, or valuable movables—only a light trailer manufactured in 1996. Her sole source of income consisted of pension and disability benefits totaling approximately PLN 14,000 annually, or barely PLN 1,200 per month.
The Poznań Voivodeship Administrative Court: Absence of Assets Negates Grounds for Security
The Voivodeship Administrative Court in Poznań, in its judgment of February 27, 2020 (case no. I SA/Po 631/19), ruled in favor of the taxpayer and annulled the decisions of both administrative instances. In so doing, the court articulated a significant interpretive thesis: the precondition of well-founded apprehension of non-discharge obtains where the authority demonstrates that the taxpayer’s assets—in the context of the approximate liability amount—are in such condition, or through the taxpayer’s actions may be rendered in such condition, that absence of security could deprive the public creditor of satisfaction.
In the court’s assessment, the established circumstances failed to satisfy this standard. The taxpayer had ceased business operations more than two-and-a-half years before the appellate authority’s tax decision; accordingly, no risk existed that new liabilities would arise. More significantly, the record disclosed no evidence that she was disposing of assets to impede enforcement. Given that the source of the arrears was a business enterprise that no longer existed, and that the taxpayer—an elderly and infirm individual—subsisted solely on a modest pension, no grounds existed for concluding that the preconditions of Article 33 § 1 of the Tax Ordinance Act had been satisfied.
The court further noted an internal contradiction in the authorities’ conduct: since earlier security proceedings concerning VAT had revealed an absence of funds in the taxpayer’s bank account, invocation of this circumstance as justification for additional security evidenced the absence rather than the presence of statutory preconditions.
The Supreme Administrative Court: Tax Unreliability Itself Justifies Apprehension
The Supreme Administrative Court, in its judgment of March 26, 2021 (case no. II FSK 1669/20), reversed the voivodeship court’s decision and dismissed the taxpayer’s complaint, advancing a fundamentally different construction of the preconditions for prejudgment security over taxpayer assets.
The Supreme Administrative Court deemed the lower court’s position defective and inconsistent with both the institution of security and established jurisprudence. Notably, the cassation court observed that the voivodeship court had correctly interpreted the statutory text and identified circumstances warranting security—yet thereafter, disregarding those circumstances, concentrated upon facts immaterial to the disposition.
In the jurisprudence of administrative courts, the Supreme Administrative Court recalled, no doubt attaches to the permissibility of issuing security decisions where a taxpayer maintains unreliable commercial books or understates taxable income, provided these facts engender a well-founded apprehension of non-discharge. A circumstance evidencing the possibility of impeding or frustrating enforcement—and thus constituting a precondition for security—is the obligor’s evasion of duty through non-disclosure of obligations arising by operation of law or through unreliable maintenance of tax records. The issuance and acceptance of empty invoices, and their utilization in VAT settlements over an extended period, entitles authorities to conclude that a factual basis for a security decision has materialized.
The Supreme Administrative Court addressed directly the argument concerning cessation of business: one cannot maintain that, because the taxpayer concluded the activity in which she failed to maintain reliable tax documentation, this circumstance lacks significance. The fact of unreliable record-keeping demonstrates that the taxpayer discharged her tax obligations in an unreliable manner. This, in turn, signifies that apprehension is justified that she will likewise fail to discharge the obligation in respect of which the security decision was issued.
Financial Condition: Precondition or Irrelevant Circumstance?
The Supreme Administrative Court’s position on the taxpayer’s financial situation proves particularly illuminating. The cassation court held that facts concerning health status, age, or modest income may bear relevance in proceedings for tax relief, but not in security proceedings, where the determinative consideration is justified risk of non-discharge.
Paradoxically, the Supreme Administrative Court also indicated that a taxpayer’s financial and asset position—evidencing that she lacks appropriate assets to satisfy the tax voluntarily or through compulsion—may serve as an indicator of the “apprehension” warranting security. Since the taxpayer possessed no valuable assets, held no savings, had ceased business operations, and derived income solely from pension benefits, this circumstance—in the Supreme Administrative Court’s view—must be juxtaposed against the magnitude of anticipated liabilities. And that juxtaposition leads to the conclusion that the precondition for issuing a security decision over the projected obligation was indubitably satisfied.
Implications for Practice: Two Competing Conceptions of Security
The divergence between the voivodeship court and Supreme Administrative Court positions reveals a fundamental tension in the interpretation of prejudgment security over taxpayer assets.
Under the first conception—represented by the voivodeship court—security makes sense only where assets exist that may be secured and a genuine risk obtains that the taxpayer will undertake actions aimed at their dissipation. Security is designed to protect against “asset flight,” not to constitute an additional sanction against a taxpayer who, in any event, possesses nothing from which to pay.
Under the second conception—adopted by the Supreme Administrative Court—tax unreliability itself evidences the taxpayer’s posture toward fiscal obligations and justifies apprehension that the obligation will not be discharged. Absence of assets does not argue against security but rather for it—confirming that the risk of non-discharge is genuine.
This latter interpretation, as adopted by the higher court, presently shapes the jurisprudential line. This signifies that entrepreneurs in whose affairs irregularities in tax documentation have been identified must reckon with the possibility of security over their assets—even absent any conduct aimed at impeding enforcement.
Consequences for Business Enterprises
A security decision carries profoundly adverse consequences for its subject. The enforcement authority typically proceeds immediately to freeze funds in the bank account. This constitutes a drastic measure, particularly for an entrepreneur who thereby loses the capacity to satisfy current obligations to counterparties and employees. It may prove the final blow to an ongoing enterprise.
The Supreme Administrative Court’s judgment confirms that tax authorities enjoy broad discretionary latitude in evaluating security preconditions. Unreliable record-keeping, use of fictitious invoices, income understatement—all may constitute independent grounds for a security decision, regardless of whether the taxpayer actually undertakes actions aimed at asset dissipation.
This does not, however, render entrepreneurs defenseless. Security decisions remain subject to judicial review, and the authority must justify its position in a manner clear and comprehensible to the taxpayer. In disputes with the fisc, active challenge to both factual findings and their legal qualification proves essential. It bears noting, moreover, that security decisions possess a provisional and accessory character—their legal existence terminates upon service of the assessment decision.
Preventive Asset Protection: Acting Before It Is Too Late
The case under discussion illustrates a broader principle: asset protection—including protection against tax authorities—must be implemented preventively, at a time when no conflict yet looms on the horizon. Asset transfers effected in the face of an audit or tax proceeding may be challenged as fraudulent conveyances, and the perpetrator may incur criminal liability.
Protective structures—a capital company separating personal from business assets, a family foundation, asset diversification—must be established before any threat materializes. A foundation created the day before a prejudgment security order will protect nothing. The strongest fortification is one constructed in peacetime, while no one yet knocks at the gates.
Conclusion
The Supreme Administrative Court’s judgment of March 26, 2021 (II FSK 1669/20) confirms a broad construction of the preconditions for prejudgment security over taxpayer assets. Unreliable maintenance of tax documentation, issuance or acceptance of empty invoices, income understatement—all may justify apprehension of non-discharge, even where the taxpayer has already ceased operations and undertakes no actions aimed at asset dissipation.
For entrepreneurs, the lesson is manifest: reliability in tax documentation constitutes not merely a matter of avoiding criminal fiscal liability for tax fraud, but also protection against security over assets in the event of a dispute with the fisc. And those who deem issued decisions to lack foundation should respond promptly through available remedies—appeal to the higher administrative instance, followed by complaint to the administrative court.
Author: Skarbiec Tax Law Firm
Legal Basis: Articles 33 §§ 1-4, 121, and 187 § 1 of the Act of August 29, 1997—Tax Ordinance Act (Journal of Laws 2019, item 900, as amended)
Judgments:
- Supreme Administrative Court, March 26, 2021, case no. II FSK 1669/20
- Voivodeship Administrative Court in Poznań, February 27, 2020, case no. I SA/Po 631/19
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.
