Colloquial expressions (blank invoices, unreal transactions, artificial transaction chain) and the tax law. Warsaw, 17.01.2020.

Tax law imposes an obligation on tax authorities and administrative courts to express their opinions accurately and clearly.

Negative consequences for taxpayers cannot be drawn without precisely defining (in a legal sense) their actions and behaviour.

Naming the same events with different legal terms (e.g. transaction that did not take place at all, fraud, abuse) and terms typical for colloquial speech (e.g. blank invoices, unreal transactions, artificial chain of transactions), but devoid of legal significance seriously hinders taxpayers’ effective defence. This practice of tax authorities is also contrary to the recommendations formulated in the jurisprudence of the Supreme Administrative Court.

Such practice has been questioned by the Supreme Administrative Court in a judgment of October 2019.

In its judgment, the Supreme Administrative Court also questioned the improper practice of tax authorities by “taking shortcuts” instead of gathering reliable and impartial evidence.

The Supreme Administrative Court also confirmed that it is inappropriate to question the taxpayer’s good faith solely by claiming that if it is proved that the transaction between the entities indicated on the invoice did not actually take place, it is obvious that the taxpayer was not acting in good faith and was aware of the violation rules for deducting input tax.

The above means that the use of only such arguments by courts and authorities is insufficient and defective.

Unfortunately, a fairly common practice of tax authorities is a very cursory examination of taxpayers’ good faith, without going much into the details of their activities.

Thanks to the NSA judgment of October 2019, taxpayers will be able to defend themselves against such actions more effectively.

Consequently, the taxpayer’s good faith cannot be examined (in principle) without hearing the parties to the transaction and (possibly) other persons involved in it. Good faith, understood as a “state of consciousness,” cannot be determined effectively without examining that consciousness by questioning the person.

It happens that the tax authorities only vaguely state that taxpayers should exercise due diligence, not only in terms of documenting expenses, but also in the collection of all documents illustrating business operations. Such opinions should be considered cursory and not sufficient.

This approach is not enough to properly assess taxpayers’ good faith.

Tax authorities should clearly indicate (in their decisions) what objective actions taxpayers should have taken to be considered reliable taxpayers.

Authorities should provide such objective circumstances for individual taxpayer transactions, taking into account his/her state of consciousness at the time of the transaction.

Tax authorities and courts cannot assess the taxpayer’s behaviour and conduct on the basis of circumstances established or disclosed later (e.g. at the stage of tax proceedings).

Bernard Łukomski
Legal Counsel
Warsaw, 17.01.2020