It took five years for the Director of the National Tax Information (hereinafter: DKIS Director, the Authority) to confirm KR Group's position on this matter. In the course of court-administrative proceedings, the Supreme Administrative Court (NSA), in its judgment of March 22, 2024, case no. I FSK 1765/20, stated that an entity providing tax representation services is entitled to submit a request for a tax interpretation regarding its rights and joint liability, as it is an interested party under Article 14b § 1 of the Act of August 29, 1997, Tax Ordinance (Journal of Laws 2023.2383 consolidated text), hereinafter: O.p.
Background of the Case
In July 2019, KR Group experts submitted a request for a written interpretation of tax law provisions concerning value-added tax (VAT). The request related to the payment of tax liabilities from the representative’s bank account on behalf of and for the taxpayer, who had appointed KR Group as their tax representative, and the scope of our joint liability as their tax representative. In September 2019, DKIS issued a decision refusing to initiate proceedings on the request for a tax law interpretation.
In DKIS’s view, the issue presented in the request for an individual interpretation exceeded the substantive scope of tax law interpretations issued under Article 14b § 1 O.p. In September 2019, an appeal was filed against this decision, but DKIS upheld its decision in November 2019.
In the context of the case, the Authority stated that the subject matter of the Applicant's inquiry did not pertain to tax law provisions as defined in Article 3 points 1 and 2 O.p. The Authority could not issue an interpretation of tax law provisions in the scope requested. In December 2019, a complaint was filed against the DKIS Director's decision from November 2019.
The Provincial Administrative Court in Warsaw, in its judgment of April 30, 2020, case no. III SA/Wa 231/20, ruled that the complaint was justified.
The Complaint
In the complaint, it was alleged, among other things, that the Authority's refusal to initiate proceedings was unjustified due to the following:
- For the issuance of an interpretation, it is sufficient that the case concerns provisions that may be relevant to the legal and tax situation of the interested party, excluding provisions directed exclusively at the tax authority, such as deadlines for issuing decisions in tax proceedings (no other restrictions exist). Article 14b O.p. lists the areas in which an individual interpretation cannot be issued.
- The uncertainties regarding Article 18c and Article 103(1) of the VAT Act, as well as Article 62b § 1 point 3 O.p., and issues related to the possibility of paying tax through a tax representative acting on behalf of the taxpayer, and joint liability, have legal implications for both the taxpayer and the tax representative. Therefore, issuing an interpretation would undoubtedly provide protective functions in this area.
Ultimately, the case was resolved by the Supreme Administrative Court (NSA), which in its judgment of March 22, 2024, I FSK 1765/20, dismissed the Authority's cassation complaint. The NSA rejected, among other things, DKIS’s argument that we had essentially requested an explanation of technical issues regarding which bank account should be used to pay tax liabilities for a taxpayer who had entered into a tax representation agreement, as well as the scope of the tax representative's liability together with the taxpayer. According to the Authority, this did not concern our tax liability and did not entitle us to the status of an interested party under Article 14b § 1, O.p.
This judgment finally compelled the Authority to issue an individual interpretation in the case.
Important!
Interpretation
The creation of unclear regulations, which raises many doubts, can first lead to significant tax risks, borne by the taxpayer or, as in this case, the tax representative. Second, the uncertainty in the application of the law can, in certain situations, make business operations impossible (the ruling in this case was issued after five years). Lastly, all taxpayers bear substantial costs of legal proceedings.
In this case, there was no doubt regarding the right to submit a request, and in our opinion, the scope of the request also allowed the Authority to issue an interpretation based on the facts described in the application.
Finally, on September 2, 2024, DKIS issued an individual interpretation, ref. 0114-KDIP1-2.4012.409.2019.10.WH, in which it agreed with the position on four questions and found the stance incorrect on one question.
Questions
- Is a tax representative, if it results from the tax representation agreement, authorized to settle VAT liabilities on behalf of and for their final client, in an amount exceeding PLN 1,000, in such a way that the taxpayer (final client) transfers funds to the representative’s account to cover VAT liabilities, and the VAT obligation is settled from this account, with the proof of payment clearly indicating that the payment is intended for the taxpayer's liability?
- Is a tax representative authorized to settle VAT liabilities in an amount exceeding PLN 1,000, by transferring funds through an intermediary to the representative’s account, and then settling the tax liability from that account, without doubts as to the purpose of the payment?
- Is a tax representative authorized to settle VAT liabilities exceeding PLN 1,000 from their own funds before receiving funds from the taxpayer?
- Does the tax representative have joint liability for VAT liabilities arising from settlement periods that preceded the representative's appointment but for which the representative submitted VAT return corrections?
- Does the tax representative have joint liability for VAT liabilities arising during the periods when the representative was in place, in cases where the taxpayer failed to provide necessary information about transactions affecting the VAT return?
DKIS's Position
If the tax representation agreement provides for it, the tax representative is authorized to settle VAT liabilities. The tax obligation is extinguished regardless of whether the payment is made from entrusted funds or the representative's own funds. This is significant for managing tax risk and interest on tax arrears. The tax representative can always pay the tax on time from their own funds or pay it late to stop interest from accruing.
The tax representation institution, as described in Article 18a and following of the VAT Act, is intended to protect the state's fiscal interests, particularly in cases where tax recovery might be difficult or impossible. Non-EU taxpayers, except those from Norway and the UK, are required to appoint a tax representative to register for VAT in Poland. However, this role carries significant risks, as the representative is jointly liable for the taxpayer's tax liabilities.
VAT Return Corrections
Another important issue concerns situations where the tax representative submits corrections for VAT returns that were initially filed by a previous representative. It was argued that the representative is responsible only for the transactions that form the basis for the corrections.
The Authority confirmed this position, thus resolving certain uncertainties. However, it disagreed on the joint liability issue, noting that the service remains risky, requiring additional measures to mitigate this risk. The Authority’s position is largely positive and clarifies certain issues, which will benefit not only us but also other entities in this field.
