In the judgment dated November 26, 2019 the Voivodship Administrative Court of Rzeszów, in case No I SA/Rz 730/19 revoked both decisions of tax authorities and discontinued tax proceedings in a case in which according to tax authorities, the taxpayer should settle VAT on a transaction differently, although this settlement complied with the individual tax interpretation obtained.
In the discussed case, the taxpayer obtained an individual tax interpretation confirming that the purchase of real estate did not constitute a supply of an organized part of the seller’s enterprise.
Despite the Minister of Finance’s confirmation of the correct application of the provisions of tax law by the taxpayer with respect to the acquisition of real estate, the tax authorities decided to initiate an inspection, as a result of which they questioned the method of settlement of the transaction by the taxpayer, considering that the transaction was in fact a sale of an organized part of the enterprise.
While addressing the individual tax law interpretation obtained by the taxpayer, the authorities referred to the regulations of the Tax Ordinance, which indicate that if the circumstances that will occur in the taxpayer’s case, differ from the circumstances presented in the interpretation proceedings, while the difference is so significant that it will impact legal qualification, the applicant will not be able to benefit from the right of guarantee and protective function of the issued interpretation.
It should be noted that in the case in question, according to the tax authorities this “significance” referred only to the fact that in the application for the interpretation, the taxpayer did not prove that he conducts activities that are consistent with those of the seller, and that he concluded agreements for utilities and maintenance services with the same entities, with which the seller had concluded such agreements.
Considering the above, the authorities decided that an organized part of the enterprise was sold, to which the provisions of the VAT Act do not apply (Article 6 Section 1 of the VAT Act), as a result of which a decision was issued which denied the taxpayer the right to deduct input VAT from the invoice issued by the seller, and at the same time decided that due to the acquisition of an organized part of the enterprise, the taxpayer should settle outstanding tax on civil law transactions.
The taxpayer appealed against the above decision to the Voivodship Administrative Court in Rzeszów, alleging, among others, the infringement of Article 14c §1 and Article 14k §1 in relation to Article 191 in relation to Article 121 §1, Article 122 and Article 187 §1 of the Tax Ordinance.
In his appeal, the taxpayer pointed out that the tax authorities focused on elements of the circumstances of the case, which had no impact on the assessment of whether the subject of the transaction was real estate or an organized part of the enterprise, i.e. on the taxpayer’s activity in the same area as the seller’s and on signing by the taxpayer of agreements for utilities and maintenance services with the same entities with which such agreements were concluded by the seller.
The taxpayer did not agree with the statements of the tax authorities that the circumstances presented in the request for an interpretation were significantly different from the circumstances found in the course of the proceedings, and with respect to significant elements which affected the qualification of the subject of the transaction under the VAT Act.
In the taxpayer’s opinion, the information contained in the application, referring to the circumstances of the transaction, fully corresponded with the most important circumstances related to the course of the transaction and was not intended to mislead the interpreting authority, therefore the individual interpretation of the Director of National Revenue Administration obtained by the applicant should be taken into account in assessing the tax consequences of the transaction.
The Voivodship Administrative Court in Rzeszów accepted the taxpayer’s appeal and revoked the decision of the tax authorities.
In the justification of the judgment, the Voivodship Administrative Court stated that the tax authorities of both instances erroneously assumed that the individual tax law interpretation obtained by the Company, concerning the tax consequences of real estate acquisition, does not have binding force in relation to the actual transaction.
In the Court’s opinion, the authorities erroneously considered that the interpretation obtained by the Company concerning the tax consequences of the acquisition of real estate is not binding with respect to the transaction, because the circumstances indicated in the interpretation are, with respect to significant circumstances, consistent with those indicated in the justification of the decision revoked by the Court’s judgment.
The Court also confirmed the taxpayer’s standpoint that:
• only significant discrepancies between the facts presented in the application and the actual circumstances established during the tax proceedings may justify that an individual interpretation should not be taken into account;
• compliance with an individual tax interpretation before it is amended or before delivery to the tax authority of a copy of a final administrative court decision revoking an individual interpretation, as well as in the event it is not taken into account while resolving a tax case, must not harm the applicant;
• the principle of no harm expressed in the provisions of the Tax Ordinance implements the guarantee character of tax interpretations and a derogation from this principle should be the exception and not the rule, since in any other case it violates the principle of certainty as to the application of law.
The decision of the Provincial Administrative Court presented above – although not legally binding – confirms the position presented in our publication dated September 1, 2020 that obtaining a favourable tax interpretation by a taxpayer may significantly facilitate the defence against excessive fiscalism of tax authorities.
Tomasz Bielenik
Adwokat, Doradca podatkowy | Attorney, Tax Advisor
T: +48 22 447 43 00
M: +48 502 793 152
E: bielenik@millercanfield.com
Disclaimer: This publication has been prepared for clients and professional associates of Miller Canfield, and is based on the facts and guidance available at the time of its release which may be subject to change. The purpose of the publication is to draw attention to the legal events indicated in it and should not be the sole basis for any decision regarding a particular course of action; nor should it be relied on as legal advice or regarded as a substitute for detailed advice in individual cases. The services of a competent professional adviser should be obtained in each instance so that the applicability of the relevant legislation or other legal development to the particular facts can be verified.