In a judgment handed down on July 18, 2014 (case no. II FSK 1934/12), the Supreme Administrative Court stressed the point that the Finance Minister could not refuse to issue a tax ruling without a determination of the facts of the case, as set out in the application.
A company applied for a tax ruling on corporate income tax (CIT) and related implications for its shareholders (Company B) following its takeover of a different company (Company A) and the transformation of the surviving company into a partnership.
The company filed an application as a taxpayer, asking the following questions: If Company B (the applicant) is transformed into a partnership, will former shareholders of Company A and existing shareholders of Company B obtain taxable income amounting to a portion of Company A’s retained earnings in previous years? And, if so, will Company B – in its capacity as Company A’s legal successor – be required as a remitter to calculate and collect the tax on that taxable income of former shareholders of Company A and existing shareholders of Company B?
The Finance Minister issued a ruling, whereby he denied the Company’s request to launch proceedings under Article 165a § 1 of the Tax Ordinance (the “T.O.”) on the grounds that the applicant’s query involved not so much its own tax implications as those of separate entities – i.e. of partners in a partnership or, alternatively, of the partnership surviving the transformation of Company B.
In an appeal, the company explained that it filed the application as a tax remitter, not a taxpayer, as was clear from the wording of its query. In fact, the company marked the word “Taxpayer” in box B.2 of the application (“Status of Applicant”) by mistake.
The Finance Minister upheld the ruling on appeal. The Provincial Administrative Court (WSA) in Warsaw found in favor of the Company’s complaint and reversed the Minister’s ruling. The Finance Minister filed an appeal with the Supreme Administrative Court (NSA), but his appeal was dismissed. In its oral reasons, the NSA underscored that, seeing that there were inconsistencies and doubts surrounding the facts of the case, the Finance Minister should have called on the company to provide a clarification or a resolution of the same. In so doing, the Minister would have taken a lawful and, indeed, necessary course of action aimed at fully determining the facts of the case, and thus curing the application’s deficiencies. That is not to say, however, that the Minister was entitled to require that the applicant correct or modify the presented facts of the case on the merits.
Only if the above-mentioned statutory requirement under Article 14b § 3 is not fulfilled is the authority entitled to issue a ruling with a decision to leave the application unconsidered under Article 14g of the Tax Ordinance. Ultimately, the appellate court refrained from assessing the Company’s status as the interested applicant, as the matter will be assessed by the Finance Minister following the clarification of the state of the facts.
The court has stressed the guarantee-like nature of a request for a clarification of the state of facts described in an application. The purpose of tax ruling proceedings is to provide protection to taxpayers acting in compliance with the ruling issued. If, during tax proceedings, the tax authorities decide that the facts of the case are different from those on which they relied in making their previous ruling, the ruling in question – by reason and to the extent of the difference between the two sets of facts referred to above – will not protect its intended recipient. A full description of the facts of the case is therefore crucial to a tax ruling application. If, for whatever reason, the state of facts must be supplemented, the tax authorities are required to call on the applicant to supplement them. A refusal to consider the application or to issue a ruling without a clarification of existing doubts as to the state of facts will form the basis for a reversal of the ruling.