International Tax Board Goj r, Tax Controversy at Ernst & Young

Young publication presents applicability of GAAR across the major world economies. Poland abandoned applicability of GAAR nearly ten years ago, when the economy was in the very good shape and was rapidly growing. The way Polish GAAR were construed then was not in line with the Polish constitutional standards, as the GAAR left to much space for the tax authorities’ interpretations. It also need to be remembered that, in that time, aggressive tax authorities were a threat to what Polish entrepreneurs or multinationals could give to the State thanks to their investments. These days, the Ministry of Finance has already started a discussion on reintroduction of GAAR in Poland. Much more civilized methods are used to achieve the goal. Professors and practitioners are involved in the discussions and they should have some influence over the final wording of the provisions. In fact, we expect that it would be introduced rather sooner than later.

We build our relations with tax authorities on trust and do not employ any contrivances that might damage the client’s good reputation with the authorities.

Q

If you are able to do so, please detail any significant clients/cases undertaken by your firm in the past year.

Polish Ernst & Young practice is a well recognized player on the tax controversy market. The number and scale of cases is therefore impressive. Just to select one, we were involved in excise duty dispute, where the shipping entity did not follow custom procedures for some time. As a result, a huge amount of outstanding tax arose according to the tax authorities. The case required identifying and providing alternative evidence of shipments and convincing the tax

authorities and tax courts that they may accept that kind of evidence in place of evidence required by law. To win the case, we had to go through EU argumentation, supported by experts’ opinions and evidence collected abroad. Finally, we achieved what seemed to be far from possible.

Q

What are the common challenges faced by your clients?

One of the challenges is the difference between the tax systems and the approach of the tax authorities. Multinationals may have problems in gathering and providing required evidence and understanding reasons for tax authorities insisting on providing such evidence. If fact, Polish tax authorities are still quite formal and require physical evidence of operations, transactions or services (such as intangible services), where no documentation is produced normally. Other factor is the short deadlines. E.g. to appeal against the tax authorities decision you only have 14 days and in some cases even 7 days.

Q

How can your firm assist the client when such challenges arise?

We provide every kind of support to our clients, subject to their needs and – sometimes – restrictions. One of the ideas is to completely remove the burden of on-going contacts with the tax authorities during the audit and appoint EY experts as proxies. This solution is not applicable in all circumstances though. We are, therefore, used to support the clients with the ideas and paperwork from behind the scenes – especially when we want to avoid the case being perceived as important for the client. A lot of our efforts go into ensuring the clients’ comfort prior to any audit is launched. Preparation of defense files, arranging for professors opinions, review of evidence and assistance in collection of missing information – this may help to prepare for any audit and save time when it is most necessary.

Q

Have there been any legislative changes recently (12 – 24 months)?

If not, what changes would you like to see happen?

Unlike in other jurisdictions, legislative changes in Poland over the last years might be seen as

generally positive for the taxpayers. We have witnessed limitations of tax inspection length, incentives for voluntary corrections and disclosures (including a guarantee of no penalties, applicable even, when the correction is made after an irregularity was identified by tax authorities). At the same time, however, some of the tax authorities, in particular tax inspection authorities were making the taxpayers’ life hard. Only recently, Polish Constitutional Tribunal ruled that the practice of tax inspection authorities, who launched some criminal proceedings only to stop the statute of limitation, not even informing the taxpayer on such action, was illegal.

These days, it is clear that the Ministry is planning, and most likely will successfully implement, a major act, which would disallow numerous tax optimizations – so far legally available to the taxpayers. We also expect that the tax authorities would be granted more possibilities to question the transactions based on substance over form rules. Still, it is of crucial importance that the changes are made in a civilized manner and all major rules are obeyed in the process of changes.

Contact:

Agnieszka Talasiewicz Partner, Law / Tax Controversy Tel: +48 22 557 70 00 Direct: +48 22 557 72 80 Agnieszka.Talasiewicz@pl.ey.com

Michal Goj Senior Manager, Tax Controversy Direct: +48 22 557 7253 Michal.Goj@pl.ey.com

Ernst & Young

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