The Statute of Limitations on Mortgage-Secured Tax Obligations

Polish Courts and the Expanding Doctrine of Manifest Unconstitutionality

How the Kielce Administrative Court’s 2023 Ruling Reshapes the Position of Taxpayers Whose Property Has Been Encumbered by a Compulsory Mortgage

Article 70 § 8 of the Polish Tax Ordinance has long occupied a position of singular notoriety within the architecture of Polish tax law. The provision stipulates that tax obligations secured by a mortgage or a Treasury lien are not subject to the statute of limitations—though, once the ordinary limitation period has elapsed, enforcement may proceed only against the encumbered asset. In practical terms, this means that a taxpayer whose real property has been subjected to a compulsory fiscal mortgage may face indefinite exposure to collection of tax arrears, unconstrained by any temporal boundary. A taxpayer who owns no real property, by contrast, benefits from the standard five-year limitation period. The asymmetry is as striking as it is difficult to justify.

This disparity—characterized by numerous commentators as de facto discrimination on the basis of asset ownership—has now attracted yet another forceful rebuke from the judiciary. The judgment of the Voivodeship Administrative Court in Kielce of 18 May 2023 (case no. I SA/Ke 130/23) represents the latest and arguably most consequential contribution to an increasingly consolidated line of authority holding that Article 70 § 8 of the Tax Ordinance is manifestly unconstitutional and, as such, must be disapplied.

The Facts: An Unremarkable Case with Remarkable Implications

The dispute arose from a taxpayer’s outstanding personal income tax liability for the 2007 fiscal year, amounting to approximately PLN 21,500 in principal together with accrued interest. The taxpayer’s agricultural land had been encumbered by a compulsory mortgage registered in April 2011. The tax authorities denied the taxpayer’s application for an installment payment arrangement, and on the question of limitation, adopted a strictly formalist position: because Article 70 § 8 of the Tax Ordinance remained in force as a matter of positive law, the tax obligation could not have been extinguished by the passage of time.

The Kielce Administrative Court set aside the decisions of both instances, applying a pro-constitutional interpretation of the contested provision. The court directed the tax authorities to reconsider the matter on the footing that a security interest over the taxpayer’s assets in the form of a mortgage does not preclude the running—or the completion—of the limitation period applicable to the underlying tax obligation.

The Constitutional Foundation: The 2013 Constitutional Tribunal Judgment in SK 40/12

The doctrinal framework for the entire controversy traces its origin to the judgment of the Constitutional Tribunal of 8 October 2013, case no. SK 40/12. In that decision, the Tribunal declared Article 70 § 6 of the Tax Ordinance—the direct legislative predecessor of the current Article 70 § 8—incompatible with Article 64(2) of the Constitution of the Republic of Poland, which enshrines the principle of equal protection of property rights.

The Tribunal’s reasoning identified two discrete constitutional infirmities in the impugned provision. First, the blanket exclusion of limitation for an entire category of tax obligations was held to be disproportionate. Second, and more fundamentally, the criterion upon which the exclusion rested—the form of security obtained by the Treasury—was condemned as arbitrary. In substance, the distinction turned on whether the taxpayer happened to own immovable property capable of being encumbered, a factor bearing no rational relationship to the purposes of limitation doctrine.

Critically, the Tribunal did not confine its observations to the provision formally under review. In the concluding portion of the SK 40/12 judgment, the Tribunal stated in terms that the identical constitutional objections applied with equal force to the then-operative Article 70 § 8, and expressly called upon the legislature to undertake the “urgent elimination” of that provision from the legal order. More than a decade later, the legislature has not acted.

The Doctrine of Manifest Unconstitutionality: Bridging the Gap Between Constitutional Adjudication and Judicial Practice

The central jurisprudential difficulty confronting courts in cases of this kind is straightforward to state, if not to resolve: may a court of general jurisdiction or an administrative court decline to apply a statutory provision whose unconstitutionality has not been formally declared by the Constitutional Tribunal? The orthodox position, firmly rooted in Article 188 of the Constitution, reserves the power to pronounce on the constitutionality of legislation exclusively to the Tribunal. Ordinary courts are not empowered to act as “negative legislators.”

The answer to this dilemma has taken the form of what Polish jurisprudence terms the doctrine of oczywista niekonstytucyjność—manifest unconstitutionality. Both the Kielce Administrative Court and, before it, the Supreme Court in its landmark judgment of 17 March 2016 (case no. V CSK 377/15), have held that in exceptional circumstances—specifically, where the Tribunal has already declared unconstitutional a provision identical in its normative content—a court may decline to apply the successor provision in the case before it, without the necessity of initiating the preliminary reference procedure to the Tribunal.

The Supreme Court’s formulation of the principle is instructive. As Justice Katner wrote for the panel: “Incompatibility with the Constitution attaches to a defined legal norm expressed by a provision, not to editorial units whose function is merely organizational within the legislative act in which they appear.” The renumbering of a paragraph, in other words, does not restore constitutional validity to a norm that has been found wanting.

The court was careful to frame this as an exception to the general rule, not a repudiation of it. The Tribunal’s exclusive jurisdiction over constitutional review was “emphatically confirmed.” Yet, the court reasoned, “one cannot reduce the matter to pure formalism and elevate it above a rational understanding of the law as a coherent system.” Where the unconstitutionality of a provision is obvious—and where that assessment finds additional support in a prior Tribunal judgment striking down a provision of identical wording—the court is entitled, indeed arguably obligated, to refuse application of the impugned norm on the basis of Article 178(1) of the Constitution, which requires judges to decide cases in accordance with the Constitution and statutes.

Two Lines of Authority—and the Ascendancy of the Pro-Constitutional Approach

It bears emphasis that the jurisprudence on this question has not achieved unanimity. The tax authorities have consistently maintained that so long as Article 70 § 8 has not been formally invalidated by the Constitutional Tribunal, it remains binding—invoking the presumption of constitutionality that attaches to enacted legislation. This position is not without formal merit, yet—as the Kielce proceedings demonstrate—it increasingly fails to withstand judicial scrutiny.

Practical Implications for Taxpayers

The Kielce judgment carries several significant practical consequences that merit close examination.

First, taxpayers whose real property has been encumbered by a compulsory mortgage securing tax arrears should undertake an immediate review of whether their obligations have been extinguished by the operation of the general limitation rules—that is, upon the expiry of five years from the end of the calendar year in which the tax fell due (Article 70 § 1 of the Tax Ordinance). The mere existence of a mortgage does not foreclose the assertion of a limitation defense. It should be noted, however, that the computation of the limitation period may be affected by intervening events, including the effective service of an enforcement title or the application of enforcement measures—such as the seizure of a bank account—which interrupt the running of limitation under Article 70 § 4 of the Tax Ordinance.

Second, it is essential to appreciate the qualitative distinction between the effect of limitation under tax law and its counterpart in civil law. Under the Polish Civil Code, the expiry of a limitation period gives rise to a defense (zarzut) that the debtor may raise, but the underlying obligation subsists. Under tax law, by contrast, limitation produces the extinction (wygaśnięcie) of the tax obligation itself—its complete annihilation as a matter of law. The consequence for the mortgage is equally definitive: the extinguishment of the secured obligation deprives the mortgage of its legal basis, triggering its lapse under Article 94 of the Land Register and Mortgage Act. The mortgage should accordingly be deleted from the land register.

Third, taxpayers should assert the limitation defense actively and persistently—in tax proceedings proper, in enforcement proceedings, and in any related administrative processes. The jurisprudence confirms that administrative courts are prepared to give effect to this argument. A refusal by the tax authority creates the procedural foundation for a complaint to the administrative court and, subsequently, for a cassation appeal to the Supreme Administrative Court.

Fourth—and this is perhaps the point deserving greatest emphasis—the pro-constitutional argument is not confined in its utility to the judicial stage. A properly constructed application for a declaration that a tax obligation has been extinguished by limitation, predicated on the disapplication of Article 70 § 8, may compel the tax authority to engage substantively with the constitutional question. Even where the authority declines to accept the argument, the resulting decision furnishes the material for a successful judicial challenge. Practitioners should also consider whether the circumstances of a given case might support an application for the revocation or modification of a final tax decision or for the reopening of tax proceedings.

The Position of Purchasers of Mortgage-Encumbered Property

The implications of this doctrinal development are of particular significance for persons who have acquired real property encumbered by a compulsory mortgage securing the tax obligations of a prior owner—that is to say, for in rem debtors. The Supreme Court’s 2016 judgment confirmed in unequivocal terms that the extinction of a tax obligation by operation of limitation entails the lapse of the mortgage that secured it. An in rem debtor bears no liability for an obligation that has ceased to exist, notwithstanding that the mortgage may continue to appear in the land register as a matter of form. This analysis intersects with the broader question of asset protection—including protection against the seizure of assets by the tax authority on the basis of obligations that have, in substance, been extinguished.

Conclusion

The judgment of the Voivodeship Administrative Court in Kielce of 18 May 2023 does not represent a doctrinal revolution. It is, rather, the disciplined continuation of a line of authority that has been developing for more than a decade and that now poses an increasingly serious challenge to the continued application of Article 70 § 8 of the Tax Ordinance. What is remarkable is not the court’s reasoning—which follows established precedent with commendable clarity—but the legislature’s continued inaction. More than ten years after the Constitutional Tribunal’s explicit call for the “urgent elimination” of the impugned norm, the provision remains on the statute book, an artifact of legislative inertia that the judiciary has been compelled to address by other means.

For taxpayers, the practical lesson is clear. Defense against enforcement proceedings directed at mortgage-encumbered property demands an active procedural posture and a willingness to engage the constitutional dimension of the dispute. It is not sufficient to await a concession from the tax authorities that the obligation has been extinguished. The limitation defense must be raised expressly, and—should the authority decline to accept it—the matter must be brought before the courts. The principle of resolving doubts in favor of the taxpayer, together with the increasingly consolidated judicial consensus, provide taxpayers with effective instruments for the vindication of their rights.

Robert Nogacki

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.