Wiretap Evidence in Tax Proceedings

The Exclusionary Rule in Tax Proceedings: Judicial Scrutiny of Wiretap Evidence

Tax authorities may not uncritically accept evidentiary materials transmitted by prosecutorial offices or intelligence services. Where key evidence—including recordings from telephone intercepts—has been obtained through operational surveillance activities, the tax authority bears an independent obligation to verify the legality of such evidence before relying upon it as the foundation for an administrative determination.

This interpretive trajectory was confirmed by the Supreme Administrative Court (Naczelny Sąd Administracyjny, hereinafter “SAC”) in its judgment of February 7, 2019 (Case No. I FSK 1860/17), which marked a significant departure from earlier jurisprudence that had recognized a presumption of legality attaching to materials furnished by law enforcement agencies. The SAC grounded its reasoning in a purposive construction of Article 180(1) of the Tax Ordinance (Ordynacja podatkowa) and the jurisprudence of the Court of Justice of the European Union, particularly the seminal judgment of December 17, 2015, in Case C-419/14 (WebMindLicences).

I. Factual Background

The dispute arose from proceedings against a commercial entity whose input VAT deductions were disallowed by the Director of the Tax Audit Office in 2015. The first-instance authority determined that the audited company had knowingly participated in carousel fraud schemes involving trade in electronic goods. According to the authority’s findings, the invoices received by the company failed to document genuine purchase transactions and were, in substance, fictitious instruments. The consequences included not only denial of the right to deduct input tax but also application of Article 108(1) of the VAT Act, which imposes liability for tax shown on invoices that do not reflect actual taxable transactions—a determination frequently associated with allegations of fictitious invoices.

During the tax proceedings, the authorities incorporated into the evidentiary record protocols (transcripts) of telephone intercepts conducted by the Internal Security Agency (Agencja Bezpieczeństwa Wewnętrznego) and transmitted by the District Prosecutor’s Office. Portions of these materials were classified and consequently withheld from the taxpayer. Critically, the tax authorities undertook no analysis of the legality of the manner in which this evidence had been obtained, instead relying on an implicit presumption of its lawfulness.

II. The Voivodeship Administrative Court’s Judgment: Annulment of the Administrative Determinations

The Voivodeship Administrative Court (Wojewódzki Sąd Administracyjny, hereinafter “VAC”) in Wrocław, in its judgment of June 21, 2017 (Case No. I SA/Wr 1341/16), annulled the decisions of both administrative instances, identifying multiple violations of procedural requirements governing tax proceedings. The court faulted the authorities for constructing their entire argumentation upon a global assessment of the purpose and outcome of individual transaction chains rather than conducting a particularized analysis of the circumstances surrounding each discrete transaction entered into by the appellant company. Procedural deficiencies of this character may constitute effective grounds for appeals to administrative courts.

A. The VAC’s Position on Transcripts as Evidence

The VAC articulated a clear legal proposition in this case: “In light of the CJEU judgment of December 17, 2015, in WebMindLicences Kft., C-419/14, it must be recognized that evidence within the meaning of Article 180(1) of the Tax Ordinance of August 29, 1997, consists of the recordings of conversations rather than the protocols documenting the playback of intercepted communications.”

In support of this position, the VAC observed that Article 181 of the Tax Ordinance must be read in conjunction with Article 180(1) of that statute. While these provisions indicate that “materials gathered in the course of criminal proceedings” may constitute evidence, the court emphasized that “such materials indisputably include transcription protocols; however, in order to make specific factual determinations on their basis, tax authorities should have access to the recordings of such conversations to enable their playback.”

The VAC elaborated: “The evidence, in essence, is the recording of the conversation rather than the protocol prepared therefrom. This follows from the fact that the course of the conversation itself may also indicate the nature of the relationship between the parties or the context of the communication.”

The court further noted that the materials transmitted by the District Prosecutor did not include the audio recordings themselves, with the consequence that “neither the Court nor the tax authority had the opportunity to review the content of said recordings.” Moreover, the appellant was similarly denied access to the recorded evidence, “which must be regarded as a violation of its right to active participation in the proceedings, inasmuch as it had no opportunity to verify the accuracy of the transcriptions.”

B. Reliance on Supreme Court Precedent

The VAC grounded its analysis in the Supreme Court’s (Sąd Najwyższy) judgment of June 10, 2008 (Case No. II KK 30/08), which addressed the admissibility of utilizing transcripts from operational surveillance in criminal proceedings without producing the original recordings.

In that decision, the Supreme Court articulated a categorical proposition: “Verbal renderings of audio recordings (conversations) do not constitute independent or primary evidence upon which a court may rely, even where the parties so request. Such renderings may be introduced into the proceedings, but only alongside the content of the recorded (audio-captured) conversations.”

The Supreme Court’s reasoning rejected the appellate court’s position that the absence of a party’s request to hear the recordings, coupled with reliance solely upon written transcripts, “creates a procedurally permissible fiction of having examined all classified materials.” The court declared: “Such reasoning cannot be accepted. Verbal renderings of audio recordings (conversations) do not constitute independent or primary evidence upon which a court may rely.”

The Supreme Court further specified that “this act—namely, admission into evidence of audio recordings through playback or without playback—may not be substituted by reading verbal transcripts.” Where recorded conversations are disclosed, their written renderings become mere appendices to the hearing protocol.

Significantly, the Supreme Court emphasized the necessity of verifying the legality of the surveillance: “Upon retrial, the District Court shall be bound by the legal views expressed above and shall consider, as a threshold matter… whether consent was granted by the Court, whether initial or subsequent, by order, for the operational surveillance employed—that is, the recording of telephone conversations—pursuant to Article 19(1) or (3) of the Police Act. Only through such procedure could operational pre-trial surveillance have been legitimized and, subsequently, the evidentiary material derived therefrom introduced into the proceedings. Otherwise, conversations recorded on magnetic media and rendered into written transcripts would be subject to an evidentiary prohibition.”

C. Implications for Tax Proceedings

Transposing this analysis to the tax proceedings context, the VAC concluded: “Simultaneously, the administrative court lacks competence to assess the legality of said evidence in the criminal proceedings in accordance with Union law. The tax authorities likewise do not cite any criminal court rulings that would establish such certainty. Consequently, the effect must be recognition that the aforementioned materials could not serve as evidence in this case.”

The VAC also criticized the appellate authority’s handling of the transcripts, characterizing it as evidentiary manipulation: “The highlighting of statements taken out of context from conversations must be regarded as manipulation of evidentiary material and constitutes reprehensible conduct, as it creates the appearance of evidence for circumstances that were, in fact, not proven.”

The court further observed that the cited conversations did not pertain to the audit period: “The appellant argued in the appellate proceedings… that records of telephone conversations conducted more than a year after the period covered by the instant proceedings do not relate to said period.” Additionally, the VAC emphasized: “Given that the recorded conversations were of key significance for the appellate authority, it was incumbent upon that authority to examine the participants in those conversations to clarify the subject matter thereof, which was not done in this case.”

III. The Legal Question Presented to the Enlarged SAC Panel

Upon reviewing the tax authority’s cassation appeal, the Supreme Administrative Court recognized the gravity of the issue and, by order of April 6, 2018, referred the following legal question to a seven-judge panel:

“In light of Article 180(1) and Article 181 in conjunction with Article 123(1) of the Tax Ordinance and the CJEU judgment of December 17, 2015, in Case C-419/14, under the legal framework effective from April 15, 2016, may tax authorities utilize as evidence in tax proceedings protocols (transcripts) of telephone intercepts conducted by authorized agencies and transmitted by the Prosecutor’s Office, without appropriate confirmation that they were obtained in accordance with law and without accompanying recordings?”

By order of October 1, 2018 (Case No. I FPS 2/18), the enlarged SAC panel declined to adopt a resolution, leaving the determination to the adjudicating panel.

IV. The SAC’s Position: Abandonment of the Presumption of Legality for Operationally Obtained Evidence

In its judgment of February 7, 2019, the SAC adopted a position of considerable significance for prevailing practice. The court held that “the view that dominated earlier administrative court jurisprudence—namely, that tax authorities are relieved of the obligation to assess the legality of evidentiary materials obtained through operational activities and transmitted by the Prosecutor’s Office or other agencies conducting criminal investigations—cannot be sustained.”

The SAC observed that the earlier view derived from a presumption of legality attaching to transmitted materials. However, in light of the CJEU’s position expressed in its judgments of December 17, 2015 (C-419/14, WebMindLicences) and January 17, 2019 (C-310/16), which emphasize the absolute necessity of respecting the principles of legality and the rule of law as “one of the primary values on which the Union is founded,” as evidenced by Article 2 TEU, such a presumption cannot be accepted.

The court further noted that this conclusion does not conflict with Polish procedural rules on evidence or with Articles 2 and 7 of the Constitution of the Republic of Poland—to the contrary, it finds confirmation therein. This position carries particular significance for taxpayers engaged in disputes with the tax authority.

It bears noting, however, that the SAC in the instant judgment mandated analysis of the legality of the evidence but did not prejudge its outcome in this particular case. The court expressly stated that the VAC’s conclusions regarding the inadmissibility of wiretap materials were “at minimum premature,” and the authorities would not be bound by that position upon reconsideration. Accordingly:

• The SAC judgment does not automatically render such evidence inadmissible; it merely requires that an analysis of legality be conducted.
• Transcripts are not entirely excluded as elements of evidentiary material; they are simply insufficient, standing alone, to support binding factual determinations.
• Each case requires individualized assessment of the lawfulness of evidence collection and utilization.

A. Scope of the Verification Obligation: What Tax Authorities Must Examine

Pursuant to Article 180(1) of the Tax Ordinance, anything that may contribute to clarifying the matter and is not contrary to law shall be admitted as evidence. The SAC derived from this provision the requirement that tax authorities verify whether evidentiary materials obtained through operational techniques:

1. Were obtained in compliance with the formal requirements of the governing statutory provisions;
2. Involved operational techniques applied in categories of cases for which such techniques are authorized; and
3. Were conducted under the supervision of a court of general jurisdiction (in the case at bar, pursuant to Article 27 of the Internal Security Agency Act, taking into account the Constitutional Tribunal’s judgment of July 30, 2014, Case No. K 23/11).

The SAC cautioned that the results of such analysis would be subject to review for legal compliance by the first-instance administrative court should the party challenge it. The court simultaneously emphasized that no such analysis had been conducted by the tax authorities in the case under review.

B. Transcripts Without Recordings: Limited Probative Value

The SAC also addressed whether a protocol transcript of an intercepted conversation can constitute a sufficient basis for factual determinations. The court held that “in order to make specific factual determinations based on transcription protocols, tax authorities should have access to the recordings of such conversations to enable their playback.”

In support of this position, the SAC invoked:

• The principle of thorough factual clarification (Articles 122 and 187(1) of the Tax Ordinance);
• The party’s right to verify whether the transcript faithfully reproduces the recorded content;
• The opportunity for the party to respond to the authority’s position regarding the probative value of the recordings; and
• The Union law principle of respect for the rights of the defense.

The SAC concluded: “Although a transcript of intercepted conversations, if lawfully prepared, may constitute evidence in tax proceedings as material gathered in criminal or fiscal criminal proceedings pursuant to Article 181 of the Tax Ordinance, without accompanying recordings it is insufficient to support binding factual determinations upon which tax liability may be determined or assessed.”

A significant qualification is warranted: the SAC did not entirely exclude the possibility of utilizing transcripts without recordings as an element of evidentiary material; it merely indicated that transcripts alone are insufficient for binding factual findings forming the basis for tax liability determinations.

C. Classified Materials and the Rights of the Defense

A significant element of the judgment concerns the SAC’s position on materials bearing security classifications. The court confirmed that the consequence of applying Article 179 of the Tax Ordinance (exclusion of portions of the file from disclosure) is that evidentiary material inaccessible to the party cannot be utilized to prove a given factual circumstance, as the party had no opportunity to address it.

The SAC invoked the general principle derived from Article 123(1) of the Tax Ordinance and the general principle of Union law concerning respect for the rights of the defense, expressed in paragraph 84 of the reasoning in CJEU Case C-419/14. Under this principle, addressees of decisions that appreciably affect their interests must be afforded an effective opportunity to present their position regarding the elements upon which the administrative authority intends to base its decision. This principle corresponds with the currently applicable principle of resolving doubts in favor of the taxpayer (in dubio pro tributario).

V. The CJEU Judgment in WebMindLicences (C-419/14): Foundation of the Jurisprudential Line

The CJEU judgment of December 17, 2015, in Case C-419/14, constitutes the essential point of reference for assessing the admissibility of utilizing evidence from criminal proceedings in tax matters.

A. Factual Background of WebMindLicences

The case concerned a Hungarian company, WML, which the tax authority accused of abuse of law through the artificial transfer of know-how to a company established in Madeira to benefit from a lower VAT rate. These allegations fell within the broader category of tax avoidance cases. The tax authority based its findings in part on evidence obtained in parallel criminal proceedings—intercepted telephone conversations and seized electronic correspondence—without the taxpayer’s knowledge.

B. Key Holdings of the CJEU

The Court held that Union law does not preclude a tax authority’s utilization of evidence obtained in criminal proceedings, provided that:

1. Lawful acquisition in criminal proceedings—the investigative measures were prescribed by law and necessary within the framework of those proceedings;
2. Lawful utilization in administrative proceedings—the legal basis must be sufficiently clear and precise; and
3. The taxpayer had the opportunity to review the evidence and present its position—in accordance with the general principle of respect for the rights of the defense.

C. The Requirement of Judicial Review

The CJEU emphasized the requirement of effective judicial review arising from Article 47 of the Charter of Fundamental Rights of the EU. The national court reviewing a tax decision must have the capacity to examine whether the evidence was obtained in compliance with Union law, particularly Article 7 of the Charter (the right to respect for private life).

Where the court determines that the taxpayer had no opportunity to review the evidence and present its position, that the evidence was obtained or utilized in violation of Article 7 of the Charter, or that it lacks competence to review the legality of evidence collection, it should disregard such evidence and annul the decision if it thereby becomes unfounded.

It bears emphasis that the CJEU did not exclude the possibility of utilizing evidence from criminal proceedings in tax matters; it merely specified the conditions that must be satisfied for such utilization to comply with Union law.

VI. The CJEU Judgment in Dzivev (C-310/16): Legality Over Effectiveness

The CJEU judgment of January 17, 2019, in Case C-310/16 (Dzivev), constitutes an important supplement to the jurisprudential line concerning the utilization of wiretap evidence in tax cases. The SAC cited this judgment in Case No. I FSK 1860/17 as confirmation of its position.

A. Factual Background of Dzivev

The case concerned criminal proceedings against individuals accused of VAT offenses committed through a Bulgarian company. During the preliminary investigation, several applications for authorization of telephone surveillance were granted by a court that had subsequently lost jurisdiction due to legislative amendments. The referring court indicated that only conversations intercepted pursuant to authorizations issued by the court lacking jurisdiction provided clear and unequivocal evidence of the principal defendant’s commission of the offenses charged.

B. The CJEU’s Central Holding

The Court held that Article 325(1) TFEU and the provisions of the Convention on the Protection of the Financial Interests of the European Communities, read in light of the Charter of Fundamental Rights, do not preclude a national court from applying a rule requiring exclusion in criminal proceedings of evidence from telephone intercepts authorized by a court lacking jurisdiction—even where only such evidence can establish commission of the offenses at issue.

C. The Principle of Legality as a Paramount Value

The CJEU emphasized that the obligation to ensure effective collection of Union resources does not relieve national courts of the necessity of respecting the principles of legality and the rule of law, which constitute “one of the primary values on which the Union is founded, as evidenced by Article 2 TEU” (paragraph 34 of the judgment).

The Court observed that telephone surveillance constitutes an interference with the right to private life (Article 7 of the Charter). Such interference may be permissible under Article 52(1) of the Charter only if it is prescribed by law and is necessary and proportionate. Given that the surveillance at issue was authorized by a court lacking competence, it must be regarded as “not prescribed by law” within the meaning of Article 52(1) of the Charter (paragraphs 36–37 of the judgment).

D. Significance for Tax Proceedings

The Dzivev judgment carries fundamental importance for assessing the admissibility of evidence from operational activities in administrative (tax) proceedings as well. The Court unequivocally stated that Union law cannot require a national court to refrain from applying a procedural rule mandating exclusion of unlawfully gathered evidence—”even if utilization of unlawfully gathered evidence could enhance the effectiveness of criminal prosecution” (paragraph 39 of the judgment).

Significantly, the CJEU also indicated that the circumstance that the unlawful conduct resulted from imprecise transitional provisions is immaterial. The requirement that restrictions on the right to privacy be prescribed by law means that the legal basis must be “sufficiently clear and precise” (paragraph 40 of the judgment).

VII. Additional SAC Guidance on Proceedings Involving Carousel Fraud

In its judgment in Case No. I FSK 1860/17, the SAC also addressed broader questions concerning the methodology of conducting tax proceedings in cases involving carousel fraud. These questions carry significant implications for customs and fiscal audit practice.

A. Analysis of the Entire Fraud Mechanism

The SAC disagreed with the VAC’s proposition that tax authorities should confine their examination to the taxpayer’s relationships with immediate counterparties. The court observed that “establishing the factual circumstances related to the carousel fraud mechanism necessitates gathering evidence concerning the chain of transactions comprising such a carousel and, against this background, assessing the taxpayer’s relationships with immediate counterparties.”

Simultaneously, the SAC emphasized that assessment of the taxpayer’s degree of awareness regarding the character of transactions should be conducted primarily through analysis of its conduct within specific transactions, with the features characterizing the entire mechanism of the disclosed fraud serving as background.

B. Identification of the Fraud Organizer

The SAC expressly stated that “it is not the role of tax authorities to establish, within tax proceedings, such circumstances related to carousel fraud as would require determination of who organized the scheme, who recruited its participants, and who supervised them. Establishing these circumstances is the task of criminal proceedings, not tax proceedings.”

The court observed that, given the scale and international character of such schemes, this may prove impossible in practice within the timeframe in which tax proceedings should be concluded. These objective circumstances cannot, however, limit the possibility of conducting parallel tax proceedings.

VIII. Significance of the Judgments for Practice

The judgments of the VAC in Wrocław (Case No. I SA/Wr 1341/16) and the SAC (Case No. I FSK 1860/17) carry substantial significance for the protection of taxpayer rights in tax proceedings, particularly in cases involving allegations of invoice fraud or unreliable bookkeeping. The following conclusions may be derived from these decisions:

First, tax authorities should independently examine the legality of evidence obtained through operational activities and transmitted by the prosecutor’s office or other agencies. They may not rely solely upon a presumption of legality attaching to such materials.

Second, verification of legality should encompass examination of compliance with formal requirements, the permissibility of employing a given operational technique in the relevant category of cases, and the conduct of activities under the supervision of a court of general jurisdiction.

Third, evidentiary material in the form of transcripts from intercepts without accompanying original recordings—according to the position of both the VAC and the SAC—is insufficient to support binding factual determinations forming the basis for tax liability determinations. This position finds support in the established jurisprudence of the Supreme Court (judgment of June 10, 2008, Case No. II KK 30/08), which categorically stated that verbal renderings of audio recordings “do not constitute independent or primary evidence” and may be introduced into proceedings only alongside the original recordings.

Fourth, evidence bearing security classifications and not disclosed to the party cannot serve to prove factual circumstances adverse to the taxpayer, as the party had no opportunity to address it.

Fifth, the judgment does not preclude the possibility of utilizing materials from operational activities in tax proceedings; it does, however, require proper verification of their legality and assurance of the party’s right to review the evidence and present its position.

IX. Practical Guidance for Taxpayers

A taxpayer against whom tax authorities seek to utilize evidentiary material from operational activities should obtain professional legal counsel and consider the following courses of action:

1. Demand information regarding the source and manner of evidence collection—pursuant to Article 123(1) of the Tax Ordinance, the party has the right to active participation in the proceedings.
2. Verify whether the authority examined the legality of the evidence—in particular, whether the conduct of judicial supervision of operational activities and their permissibility in the given category of cases was documented.
3. Move for disclosure of recordings—transcripts alone, without the possibility of verification against original recordings, possess—in light of judicial positions—limited probative value.
4. Invoke the rights of the defense—both within the meaning of the Tax Ordinance and the Union law principle of respect for the rights of the defense.
5. Challenge utilization of classified evidence—material inaccessible to the party cannot serve to prove factual circumstances forming the basis of an adverse determination.

In the event of an adverse tax decision based upon evidence whose legality is questionable, the taxpayer may file an administrative appeal, followed by a complaint to the VAC and a cassation appeal to the SAC.

X. Conclusion

The SAC judgment of February 7, 2019 (Case No. I FSK 1860/17) establishes a significant interpretive direction regarding the utilization in tax proceedings of evidence from operational activities. The court departed from the earlier view presuming the legality of materials transmitted by the prosecutor’s office, indicating instead the obligation of independent verification by tax authorities of the lawfulness of obtaining such evidence.

This decision, together with the preceding VAC judgment in Wrocław, aligns with the CJEU’s jurisprudential line—expressed in WebMindLicences (C-419/14) and Dzivev (C-310/16)—emphasizing the fundamental importance of the principles of legality and the rule of law in proceedings concerning harmonized taxes, particularly VAT and related recovery matters. The requirement of effective combating of tax fraud cannot lead to disregard of procedural guarantees and fundamental rights.

For tax litigation practice, these judgments signify a requirement of greater diligence by authorities in documenting the legality of utilized evidence, as well as broader opportunities for taxpayers to challenge evidentiary material whose compliance with law has not been properly verified. It must be borne in mind, however, that the SAC judgment does not automatically render evidence from operational activities inadmissible—it merely mandates that a thorough analysis of legality be conducted in each particular case.

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.