The Ministry of Finance presented assumptions for the project (UDER110), which provides for the introduction of a tax settlement into the Tax Ordinance. The ministry argues that this is an opportunity for both the tax authorities (they can reduce costs) and the taxpayer (he can avoid interest and penalties).
Today, if a taxpayer fails to pay the tax office, a tax arrears arises. Tax authorities may initiate inspections, tax proceedings, and enforce arrears, i.e. collect them. All these activities are costly for the tax office. Billions of PLN are spent on this annually (in 2024, PLN 9.86 billion was spent on tax inspections and enforcement).
However, the taxpayer may be subject to interest on arrears, sanctions and fiscal penalties. And taxpayers' debts are growing (at the end of December 2024, taxpayers owed PLN 108 billion to the tax authorities).
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How the tax settlement is to be constructed
The tax settlement will be proposed by the tax authority, and its conclusion will require an agreement with the taxpayer. The settlement is intended to end or prevent a dispute as long as the repayment arrangements provided for in the settlement are met.
The settlements are to be a new instrument of support for taxpayers. Today, such instruments include the possibility of obtaining an individual interpretation of tax law provisions, binding rate information, an opinion on the application of preferences, a cooperation agreement, and an advance pricing agreement (APA). Most often, taxpayers use individual interpretations. The largest taxpayers (whose revenues exceeded EUR 50 million per year) can also benefit from cooperation agreements and investment agreements. At the beginning of April this year. the Minister of Finance signed the first such agreement with Leonardo PZL-Świdnik.
Most of the above solutions are provided for in the Tax Ordinance (the exception is APA, which is regulated by the Act on the settlement of disputes regarding double taxation and the conclusion of advance pricing agreements).
What will be the benefits of a tax settlement?
The conclusion of the settlement is expected to bring tangible benefits to the taxpayer and the tax administration.
Taxpayer:
– avoid disputes with the tax authority,
– will have the opportunity to reduce interest,
— will not be subject to tax or criminal penalties (guarantee of no criminal record).
Tax administration:
— will avoid disputes with the taxpayer, including the related costs,
— will avoid incurring enforcement actions and costs,
— will obtain greater certainty of repaying tax arrears covered by the tax settlement.
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In what situations could a tax settlement be used?
– Alone the idea of a tax settlement is beneficial both for taxpayers (payers) and tax authorities. Thanks to the opportunity to negotiate and develop a common, compromise solution, both taxpayers (payers) who do not have to prove their case during long-term tax disputes that drag on for years before administrative courts, investing time and resources in the proceedings, and tax authorities benefit, as well as the tax authorities – comments Katarzyna Judkowiak, tax advisor, partner at RŐDL. The expert explains that prolonged tax audits cause, on the one hand, uncertainty as to the applicable law and, on the other hand, increasing late payment interest. — The possibility of “reaching an agreement” with the authority is tempting in this case, taking into account the complexity of tax law, the number of changes during the year and various interpretations and positions. It all depends on the details that will be worked out here, which are missing for now, he says Katarzyna Judkowiak.
The Ministry of Finance also points out that tax settlements are used in many other countries. They are classified as alternative dispute resolution instruments (“ADR”). Katarzyna Judkowiak also admits that tax settlements are popular in other countries. How could they work?
Katarzyna Judkowiak explains it with an example. Let's assume that we have a taxpayer whose authority found VAT irregularities in the month for which tax proceedings were conducted. As a result of irregularities, the taxpayer must, on the one hand, correct past tax returns (for each month in the case of monthly settlements), calculate tax arrears (also on a monthly basis) and calculate default interest (counting each month separately until the full amount of the arrears is paid). Assuming that the taxpayer carries out similar activities for a longer period of time, there is also a risk that the authority will want to verify subsequent months, and therefore, the taxpayer may want to get ahead of it and make the necessary corrections and calculations on its own. — If a tax settlement could be used in this case, it would be possible to agree with the authority the amount of the surcharge along with default interest (according to announcements, the interest will be lower the earlier the settlement is concluded) and waive the need to prepare corrections to the declaration, which is primarily associated with an administrative burden. – explains Katarzyna Judkowiak. He also gives another example.
Let's assume that the taxpayer made incorrect assumptions and included expenses in tax deductible costs that should have been included in the initial value of the fixed assets he produced, and then included them in tax costs through depreciation write-offs.
— An error made (double recognition of costs – editor's note) costs the taxpayer not only the need to pay additional tax along with late payment interest (annually and on advance payments), but also the need to correct tax returns for past periods. It may also involve responsibility, explains Katarzyna Judkowiak. The expert also adds that in very complex cases in which it is difficult to develop a coherent solution, concluding a settlement may allow for a more flexible approach and faster resolution of the dispute.
The expert emphasizes that there is no draft law yet, and the details of this regulation will determine whether the provision will be dead or will be applied in practice and how widely. According to Katarzyna Judkowiak, A tax settlement may also involve certain risks. — The Office, being in a privileged position, will obtain, through negotiations, additional information that it may use contrary to the will of the party, e.g. by initiating inspections for subsequent periods – says the tax advisor. Therefore, a settlement should also be a tool to end disputes at an earlier stage, not replace them. If it is more advantageous for the taxpayer to conduct the proceedings, the proceedings should be conducted.
Author: Łukasz Zalewski, journalist of the Law section, Business Insider Polska
