In its ruling of 1 June 2015, case no. I FSK 1994/13, the Supreme Administrative Court (NSA) ruled that the statute of limitations in tax law is not only intended to protect the taxpayer but is also aimed at providing for the stability of tax relationships. As a consequence, upon the lapse of the time-barred period, a decision cannot be reversed even if it leads to the consolidation of errors made by tax authorities.
As a result of an inspection, in his decision of December 2009, the Head of the Tax Inspection Office defined the VAT tax liability for the period from May 2004 through December 2004 as a result of challenging the taxpayer’s right to apply the 0% VAT rate in the exports of goods. A penal fiscal proceeding was instituted against the taxpayer in order to suspend the period of time-barring a tax liability. Namely, as stipulated in Article 70 § 6 clause 1 of the Tax Ordinance, the course of the limitation period for a tax obligation shall not commence and, if commenced, it shall be suspended as of the day of initiating proceedings in matters of a revenue offence or revenue petty offence provided that the suspicion of the offence or petty offence is linked with a failure to perform such obligation.
Upon considering an appeal, in March 2010 the Director of the Tax Chamber sustained the decision of the first instance. An appeal against that decision was dismissed by the Voivoship Administrative Court in Białystok. Subsequently, the Supreme Administrative Court did not find any basis to repeal the ruling of the court of the first instance.
In his application of August 2012, the taxpayer moved for the proceeding concluded with the March 2010 decision to be reopened on the basis of the Constitutional Tribunal ruling of 17 July 2012, case no. P 30/11, in which the Tribunal held that Article 70 § 6 clause 1 of the Tax Ordinance was inconsistent with the Constitution to the extent it results in the suspension of the course of the limitation period for a tax obligation in connection with the institution of penal proceedings or proceedings in matters of a revenue offence or revenue petty offence, of which offence the taxpayer has not been informed by the lapse of the time period indicated in that provision, at the latest.
The taxpayer claimed that he was not duly notified of the penal fiscal proceeding and, consequently, the course of the limitation period for the 2004 tax obligation was not suspended in his case. In view of the fact that tax authorities are obligated to observe the limitation periods for tax obligations ex officio, it should be assumed that the original decision that defined the tax obligation had already been handed down in breach of the law. Due to the lapse of the period of limitation for the tax obligation, the Director of the Tax Chamber should have issued a decision to discontinue tax proceedings in respect of the tax obligation for the periods from May 2004 through November 2004 in 2010 already.
The Director of the Tax Chamber reopened the proceeding but refused to set aside the decision due to the lack of the possibility to rule on the case as a result of the lapse of the period of limitation for the tax obligations from settlement periods covered by the decision pursuant to Article 245 § 1 clause 3 letter b of the Tax Ordinance. Pursuant to that provision, a tax authority hands down a decision whereby it refuses to set aside the entire part or any portion of the existing decision if it finds that there are grounds for reopening the proceedings but a new decision as to the merits or the case cannot be handed down due to the lapse of the periods of limitation.
The Voivoship Administrative Court in Białystok shared the taxpayer’s position that the March 2010 decision had to be set aside. In the Court’s view, the provision of Article 245 § 1 clause 3 letter b of the Tax Ordinance does not prevent the tax authority from setting aside, upon reopening the proceedings, the final decision that determines or defines the amount of tax obligation and discontinuing the proceedings in the case in question, despite the lapse of the period of limitation. The regulation is intended as a protective measure for the taxpayer.
However, the NSA set aside a favorable ruling of the court of the first instance. In the opinion of the NSA, time-barring is not solely a measure to protect the taxpayer but is also aimed providing for the stability of tax relationships. Hence, if a time period of limitation elapsed, then the authority is deprived of its decisionmaking power and should not rule on the case in either the regular or extraordinary course of proceedings. In such manner, the decision handed down by the Head of the Tax Inspection Office was sustained.
It is hard to approve the theses of the court ruling at hand, and, in particular, the thesis regarding the absolute petrification of tax relationships upon the lapse of the period of limitation. Namely, it is inconsistent with the literal wording of Article 245 § 1 clause 3 letter b of the Tax Ordinance, which does not prevent the issuance of a decision to discontinue the proceeding (it is not a decision which rules on the merits of the case). Additionally, it involves the risk of tax authorities sanctioning the violations of law and, as a consequence, violating the supreme principle of the rule of law. More importantly, it renders it difficult for a taxpayer to assert the redress of damage since it entrusts a civil law court with the assessment of premises for reparations.