The Inaction of Tax Authorities in Fiscal Criminal Proceedings

In April, 2008, a Polish company filed an amended corporate-income-tax return for 2007, reporting income of more than a hundred and seventy thousand złoty and tax owed of thirty-two thousand. More than eleven years later, in September, 2019, the chief of the customs and tax office issued a decision finding that the company had understated its revenue and overstated its costs for that period. He recalculated the tax obligation himself. Why revisit an entrepreneur’s tax filings after eleven years? Because before the five-year statute of limitations expired, he had initiated fiscal criminal proceedings against the company—which suspended the limitation period—and then, for nine years, did absolutely nothing.

Polish tax authorities have five years, counted from the end of the calendar year in which the tax payment was due, to pursue collection. After that, the tax obligation expires. To extend this collection window, however, tax offices exploit a provision in Article 70, Paragraph 6, Point 1 of the Polish Tax Code, which states: “The running of the statute of limitations on a tax obligation does not begin, and if begun is suspended, from the day of initiating proceedings for a fiscal crime or offense of which the taxpayer has been notified, if the suspicion of committing the crime or offense is connected with the non-performance of that obligation.”

One limited-liability company filed an amended corporate-income-tax declaration in April, 2008, for the 2007 tax year. More than eleven years later, in September, 2019, the chief of the customs and tax office deemed the company’s filings erroneous and determined the amount of its corporate-income-tax obligation for 2007 himself. The company appealed his decision, but in December, 2020, the director of the tax-administration chamber, acting as the second-level authority, upheld it. The director noted that in November, 2010, an investigation had been initiated regarding a fiscal crime—specifically, that the entrepreneur had made false statements in the amended declaration about income earned in 2007, thereby exposing the State Treasury to losses in corporate income tax of at least sixty-five thousand złoty. The company was informed about the investigation—and thus about the suspension of the statute of limitations on its income-tax obligation—in November, 2012, two years after the investigation began.

A consequence of the audit conducted at the company was also the determination of its V.A.T. obligation for 2007. Officials found that the entrepreneur had improperly applied the margin scheme for V.A.T. taxation. In accounting for sales transactions involving used vehicles, the company had been required to apply the standard V.A.T. rate, then twenty-two per cent. Where it could have used the margin scheme, it hadn’t.

In filing a complaint with the provincial administrative court, the company argued that officials had failed to notify it of the investigation’s conclusion or of the opportunity to review the case files. The company had also not been given the mandatory seven-day period to correct the disputed filings. That order, the company claimed, was never delivered. The entrepreneur further contended that the tax authority had failed to gather all necessary evidence, particularly witness testimony from the company’s president, employees, suppliers, and customers.

The Provincial Administrative Court in Gdańsk noted that when reviewing the legality of a tax decision in which officials invoked Article 70, Paragraph 6, Point 1 of the Tax Code, an administrative court is obligated to verify the correctness of the authority’s application of that provision—which requires justification. If there is suspicion of instrumental use of this rule, officials must present evidence and a chronology of criminal-procedural actions taken that would rebut that presumption. The Gdańsk court found that, in this case, officials had failed to meet these requirements. In overturning the decisions of both lower and appellate authorities, the court unequivocally condemned the actions taken against the entrepreneur:

“From the decision of the Director of the Customs and Tax Office dated August 17, 2011, it follows that the investigation into acts under Article 56, Paragraphs 1 and 2 of the Fiscal Penal Code, involving, among other things, exposure to loss of corporate income tax for the years 2007-2009, was suspended. Meanwhile, from a letter from the Customs and Tax Office dated February 3, 2020, it follows that this investigation has not yet been resumed (it remains suspended). This situation indicates instrumental invocation of Article 70, Paragraph 6, Point 1 of the Tax Code, because for nine years the authority took no action in the fiscal criminal proceedings.” (Provincial Administrative Court in Gdańsk, August 22, 2021, Case No. I SA/Gd 205/21.)

This is another ruling condemning tactics employed by tax authorities against entrepreneurs—the artificial initiation of fiscal criminal proceedings solely to buy time for their own investigations and audits. Significantly, as the Gdańsk court held, when officials invoke the suspension of the statute of limitations due to the initiation of criminal proceedings against entrepreneurs, courts are obligated to examine whether such actions constitute an abuse of authority, as occurred in this case. An abuse that entrepreneurs need not accept.

The timeline is worth considering in full: April, 2008, the company files its amended return. November, 2010, a criminal investigation opens. August, 2011—less than a year later—that investigation is suspended. November, 2012, the company is finally notified. September, 2019, more than eight years after the investigation was suspended, officials issue their tax decision. February, 2020, in response to a court inquiry, officials confirm that the investigation remains suspended—it was never resumed. Nine years of inaction, yet the statute of limitations stayed frozen the entire time.

One might wonder what, precisely, an “investigation” means when no investigating occurs. The Gdańsk court’s language—”instrumental invocation,” “no action”—carries the weight of judicial restraint barely containing exasperation. The provision in the Tax Code was meant to prevent taxpayers from running out the clock on legitimate criminal investigations. Instead, it has become a mechanism for authorities to stop the clock themselves, indefinitely, through the mere gesture of opening a case file and then walking away from it. The company in question might have committed tax fraud—or it might not have. What’s certain is that for nine years no one bothered to find out, yet the possibility remained sufficient to suspend the company’s legal protections against endless government pursuit.

Polish courts are now requiring that authorities prove they didn’t abuse this power—that the criminal proceedings were genuine rather than theatrical. It’s a burden that should, perhaps, have been obvious from the start: if you’re going to claim extraordinary authority to override statutory deadlines, you should probably use that time to do something.

Robert Nogacki

Robert Nogacki is a Polish attorney at law (radca prawny), the founder and managing partner of Kancelaria Prawna Skarbiec (Skarbiec Law Firm), which has operated continuously since 2006.

The law is equal for everyone, but the parties rarely are: on one side stands an organization with time, money, and lawyers, on the other a person with one business, one nest egg, and one life.

Clients rarely come to him with a legal problem. They come with a problem that also has a legal side: an audit that began with a single invoice, money entrusted to someone who has disappeared, a company that has to be passed on before it is too late. Most such matters are decided long before the first letter is written, in decisions made without asking and in deadlines nobody remembered. So he begins by asking how the client got here, not what the client should have done.

He advises entrepreneurs and families from more than a dozen countries, including those whose accounts the tax office has just seized and who do not know what to do tomorrow morning. He defends them in tax audits, customs and fiscal inspections, disputes with the tax authorities, and criminal tax proceedings. He represents victims of investment fraud and Ponzi schemes. He helps families set up family foundations and plan succession, so that a life’s work outlasts a single generation.

Not every case can be won. Every case can be run so that the client knows where they stand. Since 2006 he has represented the victims in the WGI case (Warszawska Grupa Inwestycyjna, the Warsaw Investment Group), one of the longest criminal cases in the history of the Polish financial market, because some things must not be left half finished, even when they take two decades. In the case of the collapsed cryptocurrency exchange Zonda (Zondacrypto, operated by BB Trade Estonia OÜ), he represents several hundred victims in the criminal investigation conducted by Poland’s National Prosecutor’s Office and in the Estonian bankruptcy proceedings.

Kancelaria Prawna Skarbiec is listed in the rankings of Poland’s largest tax advisory firms published by Dziennik Gazeta Prawna and Rzeczpospolita, and it is a four-time recipient (2015 to 2018) of the European Medal awarded by the Business Centre Club and the European Economic and Social Committee. Robert Nogacki publishes regularly, in the press and on the firm’s website, for people who have a problem rather than a law degree, because a legal opinion the client cannot understand protects only the lawyer.

He believes that the best legal advice is the kind that means the client never has to appear in court.