The Tax Office That Cried Wolf
Seven Years, Two Witnesses, and Nothing to Show for It
In the autumn of 2021, a provincial administrative court in the northeastern Polish city of Olsztyn sat down to examine what, on its face, looked like a straightforward VAT dispute. A construction entrepreneur—identified in the ruling only as B.W.—had been accused of trafficking in fictitious invoices worth some three hundred thousand złotys. The tax authority, a regional customs-and-revenue office, had spent years building a case against him. And yet, when the judges opened the case file, they discovered something remarkable: the authority had almost no evidence. In seven years of investigation, the sum total of its criminal-tax proceedings amounted to the testimony of two witnesses—both of whom were questioned only after the statute of limitations had already expired.
The case, decided on October 7, 2021, would become a striking illustration of a practice that Poland’s Ombudsman for Small and Medium-Sized Enterprises has called a “systemic pathology”: the instrumental use of criminal tax proceedings not to investigate crime but to buy time—suspending the clock on tax obligations that would otherwise vanish into the legal ether of limitation.
The Invoice Chain
The story begins in 2014, when B.W.’s construction firm was engaged as a subcontractor on a large exhibition-center project. The work was substantial—eight invoices totaling nearly three million złotys in net value—and, by all outward appearances, legitimate.
The trouble started with a customs-and-revenue inspection that turned up what the authority considered irregularities in B.W.’s VAT filings. Two charges emerged. First, the authority alleged that B.W. had issued a single invoice—worth two hundred and ninety-seven thousand złotys—for aluminum-façade installation work that he had not actually performed. Second, it denied him the right to deduct some two hundred and eighty thousand złotys in input VAT from eleven invoices purporting to document purchases of construction services from a firm called M.M., which, the authority contended, had never done the work.
The theory was familiar enough in Polish tax enforcement: M.M.’s invoices were empty shells—paper transactions with no underlying economic reality—and B.W. had used them to offset his VAT liability. The authority invoked the specter of a VAT carousel, that notorious species of cross-border fraud in which invoices circulate through a chain of companies, each one claiming deductions on goods or services that exist only on paper.
The Clock and the Stratagem
Under Polish law, the tax authority has five years from the end of the calendar year in which a tax obligation fell due to assess and collect it. For B.W.’s 2014 VAT liabilities, this meant the clock ran out on December 31, 2019—a date that would prove to be the fulcrum of the entire case.
There is, however, a loophole. Article 70, paragraph 6, point 1, of Poland’s Tax Ordinance provides that the limitation period is suspended from the moment criminal fiscal proceedings are initiated, provided the taxpayer is notified and the suspected offense relates to the obligation in question. It is a provision with an obvious and intended purpose: to prevent criminals from running out the clock while under active investigation. In practice, though, it has become something else entirely—a bureaucratic escape hatch, deployed not to catch tax cheats but to give sluggish authorities more time to build cases they should have built years earlier.
B.W.’s case followed the pattern with almost textbook precision. The full chronology, as reconstructed by the court in Olsztyn, reads like a timeline of institutional lethargy:
On April 15, 2019, the authority issued its authorization to conduct the customs-and-revenue inspection—a little over eight months before the statute of limitations would expire. On November 14, an internal memorandum recorded the initiation of preparatory criminal proceedings. Five days later, on November 19, the authority notified B.W.’s counsel that the limitation clock had been stopped. The notification was served on December 4—twenty-seven days before the deadline.
Then came the detail that the court would later describe as particularly damning. On November 29, 2019, the authority sent an internal letter to its criminal-investigations unit, forwarding copies of documents from the tax proceedings and noting—almost in passing—that the inspection was expected to conclude by January 15, 2020. The authority, in other words, already knew when it would finish its work. The criminal proceedings, initiated a fortnight earlier, had nothing to do with uncovering crime. They were a mechanism for stopping the clock.
What followed was thirteen months of near-total inactivity. The inspection was converted into formal tax proceedings in February 2020. A book-examination protocol was drawn up in June. But on the criminal side—the proceedings whose very existence justified the suspension of the limitation period—the authority managed exactly two acts: the questioning of two witnesses, on September 3 and 4, 2020. B.W. himself was not summoned as a suspect until November 13, 2020—a full year after the proceedings were launched. The first-instance tax assessment was issued in December 2020; the second-instance decision, in May 2021.
The File That Wasn’t There
When B.W. challenged the decision before the administrative court, the authority mounted an ambitious defense. In its response to the complaint, it claimed to have undertaken a series of investigative steps: requesting information about B.W.’s outstanding tax liabilities, obtaining evidence of criminal conduct, filing a motion for asset disclosure, summoning B.W. twice for questioning, and—on January 2, 2020—formally presenting him with charges, thereby transitioning the proceedings from the in rem phase (investigation of an offense) to the ad personam phase (investigation of a suspect).
The court checked the file. None of it was there.
No record of a summons. No asset-disclosure motion. No document confirming the presentation of charges. No transcript of B.W.’s alleged interrogation as a suspect. Nothing—save the two witness-examination protocols from September 2020. The court noted, with characteristic judicial restraint, that even the fact that B.W.’s attorney had not denied the presentation of charges did not suffice to establish the point, because “the absence from the case file of relevant documents precludes a finding that the circumstance in question has been proven.”
This was not merely administrative inaction. It was inaction dressed up, for the benefit of the court, in the language of diligent prosecution.
The Landmark Ruling That Made It Possible
The Olsztyn judgment did not arrive in a vacuum. It was decided on October 7, 2021—barely five months after a landmark resolution by Poland’s Supreme Administrative Court that fundamentally reshaped the legal landscape.
For years, Polish administrative courts had been divided on a deceptively simple question: when a tax authority invokes criminal fiscal proceedings to suspend the limitation period, may the court examine whether those proceedings are genuine? One line of jurisprudence held that courts could check only the formal prerequisites—was the initiation order issued, was the taxpayer notified?—without inquiring into the substance. Another, newer line maintained that the court could and should assess whether the proceedings were a sham.
On May 24, 2021, a seven-judge panel of the Supreme Administrative Court resolved the dispute in a binding resolution (case No. I FPS 1/21), siding unequivocally with the broader standard of review. The resolution was prompted by a petition from the Ombudsman for Small and Medium-Sized Enterprises, who had analyzed a body of cases in which “tax authorities, beyond initiating criminal fiscal proceedings, display no further activity—they undertake no meaningful steps aimed at detecting the perpetrator of a fiscal offense or punishing him.”
The Supreme Administrative Court’s reasoning rested on three pillars. First, the initiation of criminal fiscal proceedings, insofar as it affects the running of the limitation period, constitutes an element of the hypothesis of a substantive norm of tax law—and as such falls squarely within the jurisdiction of administrative courts. Second, Polish criminal-procedural law provides no mechanism for challenging the initiation order: a taxpayer notified under Article 70c of the Tax Ordinance has no standing in the criminal proceedings and cannot appeal either the initiation or the discontinuance. If administrative courts were also to disclaim jurisdiction, an entire domain of state action would escape judicial review—a result incompatible with the constitutional right of access to a court under Article 45(1) of Poland’s Constitution. Third, the Court identified three markers of instrumentality: initiation in the absence of substantive or procedural grounds, temporal proximity to the limitation deadline, and—critically—the absence of any real investigative activity after initiation.
The Olsztyn case checked every box.
The Ruling
The court set aside the challenged decision and returned the case to the authority with instructions that amounted to a pointed rebuke:
“The case file contains only those documents relating to the criminal fiscal proceedings that have been identified in this judgment. It lacks any documents concerning the steps that the authority, in its response to the complaint, claimed to have taken during the preparatory proceedings, apart from the protocols of examination of two witnesses. … Should the case file not be supplemented with evidence precluding an instrumental initiation of criminal fiscal proceedings, the authority will be unable to reissue a decision determining the tax obligation.”
The court did not stop at Article 70, paragraph 6. It found that the instrumental initiation of criminal proceedings violated the principle of trust in tax authorities (Article 121, paragraph 1, of the Tax Ordinance) and the principle of legality (Article 120)—foundational norms of Polish tax procedure. The sluggishness of the tax authorities, in other words, was not a procedural technicality. It was a breach of the constitutional compact between state and citizen.
The court did, however, add one important qualification. It rejected B.W.’s argument that criminal fiscal proceedings should, as a rule, follow rather than precede the issuance of a tax assessment. The two types of proceedings operate under different legal regimes and may run in parallel. The strength of B.W.’s case lay not in the sequence of events but in the transparently sham character of the criminal investigation.
What It Means
The practice of instrumentally initiating criminal fiscal proceedings on the eve of a limitation deadline is not an aberration. It is, as the Ombudsman’s petition to the Supreme Administrative Court made clear, a widespread and entrenched habit of Polish tax administration. The consequences for entrepreneurs are severe. Frozen VAT refunds, denied deductions, and inflated assessments can destabilize a company’s cash flow and, in extreme cases, push it toward insolvency. The reputational damage—being associated, however obliquely, with criminal proceedings—compounds the financial harm.
Since the Supreme Administrative Court’s May 2021 resolution, however, taxpayers have a tested weapon. They can demand that the administrative court examine whether the initiation of criminal fiscal proceedings was genuine or merely a device for stopping the limitation clock. And if the authority cannot demonstrate real investigative activity—if, as in the Olsztyn case, the criminal file contains nothing but two belated witness examinations and a sheaf of unsubstantiated claims—the dispute with the tax authority ends with the annulment of the assessment and a finding that the obligations have lapsed.
Seven years, two witnesses, and no evidence. It is a strange ratio for a case that the state considered urgent enough to warrant suspending the statute of limitations. But then, urgency was never really the point.
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.
