Ruling description

The Voivodship Administrative Court in Warsaw, by a judgment of November 18, 2014, case file no. III SA/ Wa 1004/14, ruled that a greater size of operations and complicated tax matters justify the prolongation of tax proceedings beyond the statutory period without the taxpayer being exempt from the obligation to pay default interest for the period in which the proceedings were conducted.

The Company applied to the Tax Audit Office (UKS) for a refund of the default interest charged on CIT arrears for the period of the tax proceedings, which took more than 30 months to complete. In accordance with Art. 54 § 1 Clause 7 of the Tax Ordinance (OP), default interest is not charged for the period from the date of initiation of tax proceedings to the date of delivery of the tax decision of the authority of first instance, unless the decision was delivered within 3 months following the starting date of the proceedings.

In the Company’s estimation, it is beyond any doubt that the UKS procrastinated in completing the proceedings. On several occasions the UKS changed the team of inspectors handling the case. It took them one year to respond to information provided by the Company’s affiliates. The Company’s replies to the UKS’ enquiries were not included in the tax audit reports. The Company was never informed which of its eighteen branches would be audited.

The UKS disagreed with the Company’s stance and claimed that the delay in completing the proceedings was due to reasons beyond its control, which excludes the application of Art. 54 § 1 Clause 7 of the OP. This was because apparently the case was complicated, and the tax audit office had to take necessary and justified evidence to clarify all the facts of the case. The appellate authority upheld the tax audit office’s ruling.

The Court dismissed the appeal filed by the Company because, in the Court’s opinion, the refusal to refund de- fault interest had been justified. The prolonged duration  of the proceedings was caused by circumstances beyond the authorities’ control. The tax authorities dealt with a case involving a company operating on a large scale in more than ten branches and it was impossible to complete the proceedings within the three months statutory period. The degree of complexity of the case and the amount of evidence allegedly warranted the long duration of the proceedings. The purpose of the proceedings was attained and the manner in which the proceedings were conducted is not inconsistent with tax regulations.


We find it difficult to agree with the court’s line of reasoning. Regulations concerning the duration of tax audits and the possibility of charging interest for this period permit the exemption of taxpayers from the obligation to pay interest for the duration of the proceedings, if the proceedings take more than 3 months to complete, unless premises excluding the exemption apply.

It was not proven that the company contributed to the delay or that there were any external reasons which could justify the prolongation of the proceedings to the staggering 30 month period. The complex organizational structure of the company cannot be said to constitute such a reason, as the tax authorities were aware of this fact before the proceedings started. Consequently, the authorities were able to prepare themselves for the proceedings and organize their staff in such a manner as to conduct the audit in each branch by the statutory deadline or in a period substantially shorter than 30 months. The interpretation assumed by the court leads to unequal treatment of audited business which operate on a larger scale via branches or which are audited too slowly. The message: taxpayers will now be even more exposed to long-lasting proceedings. Tax authorities will be able to assume a priori that they are not bound by any statutory deadlines for completing a tax audit, and the taxpayers will not be able to receive compensation in the form of exemption from default interest.

The aforesaid judgment mechanically copies the unfavorable line of judicature which finds no justifi- cation in the present case. Extending the duration of proceedings ten times over the statutory limit seems incommensurate in light of the scope of the audit.