Undisclosed sources of income and PIT

Service-Tax

According to the PIT Act, a taxpayer may earn income on the basis of various titles. Among the sources of financing, the act also mentions revenues from undisclosed sources. The main objective of taxing such revenues is to tighten the tax system and reduce the "shadow economy" phenomenon. Undisclosed sources of income are in most situations a tax offense.

Undisclosed sources of income - judgments of the Constitutional Tribunal

The provisions on the taxation of undisclosed sources of income have been reviewed by the Constitutional Tribunal. In two judgments (case no. SK 18/09 and P 49/13), the Constitutional Tribunal ruled that the above-mentioned provisions were inconsistent with the Constitution, and therefore it was necessary to amend and amend them. New regulations regarding the issue of undisclosed sources of income were introduced to the PIT Act from January 1, 2016. Currently, these issues are regulated in the newly added chapter 5a - Taxation of income not covered by disclosed sources or originating from undisclosed sources.

Definitions

According to the new definition, revenues from undisclosed sources now include the surplus of expenses over taxed or untaxed revenues:

  1. not covered by disclosed sources, including revenues from sources indicated by the taxpayer but disclosed in an incorrect amount;

  2. and income (income) from undisclosed sources, not indicated by the taxpayer and not determined by the tax authority or tax inspection authority.

Example 1.

Ms. Alicja runs a sole proprietorship in the form of a beauty salon. Doesn't hire any employee. He claims that he earns a monthly income of PLN 250,000 from this activity.

Example 2.

In 2016, Mr. Mariusz bought a developed property worth PLN 600,000. In the tax returns submitted for the last 5 years, he did not show any income.

Tax base and tax from undisclosed sources

The tax base is the amount of the excess of expenses over taxable or untaxed income (income) achieved in the tax year. The obligation to determine the tax base rests with the tax authority or the tax inspection authority that conducts the appropriate proceedings and issues a relevant decision in this regard. The authority will impose a tax of 75% of the tax base on revenues that are not covered by disclosed sources or originating from undisclosed sources. It is worth noting here that if the authority determines the source of a given income in the course of the procedure, the income so determined is subject to taxation on the terms specified in the provisions of the Act other than the provisions of this chapter or in the provisions of other acts.

Example 3.

In relation to the taxpayer, the authority initiated proceedings on account of undisclosed sources. In the course of the proceedings, the taxpayer explained that he had received a donation from his uncle, which he had not previously reported to the tax office. In such a case, the proceedings concerning undisclosed sources will be discontinued, and proceedings concerning tax on inheritance and donations will be initiated.

Principles of conducting the procedure

As a rule, in the course of the proceedings concerning undisclosed sources, the burden of proof with regard to proving which revenues have covered the expenses rests with the taxpayer. The taxpayer is also required to indicate which of the individual revenues were used to finance specific expenses. If the taxpayer fails to do so, the tax authority will make an assignment on its own in accordance with the principle that the earliest expenditure was covered with the earliest revenues.

It should be noted, however, that when the fact of obtaining income is known to the authority ex officio or it can be determined on the basis of records, registers or other data held by the authority, the taxpayer is not burdened with the burden of proof.

Example 4.

The taxpayer inherited money from his deceased father. The purchase of the inheritance was reported to the competent tax office on the SD-Z2 form. Therefore, the taxpayer is not required to prove that they have these resources, as the authority may establish them on the basis of the data held.

The regulations also provide for a second exception to the taxpayer's obligation to prove income covering the expense. Well, if, in the course of the proceedings, the taxpayer fails to prove that he has taxed or untaxed income constituting the coverage of expenses and the tax liability has been time-barred in relation to this income, the taxpayer may make obtaining them more probable.

Example 5.

In 2015, Mr. Eugeniusz purchased a car worth PLN 300,000. The taxpayer has not shown any income so far. The tax authority initiated proceedings from undisclosed sources in the course of which Mr. Eugeniusz referred to the savings accumulated from his work in Cuba in the years 1980-1985. As confirmation, he submitted a written statement from two cousins ​​with whom he was working at the time in Cuba. The statement shows that the savings collected were sufficient to cover the purchase of the car. In such a situation, the income became more probable, and therefore the authority will be forced to discontinue the proceedings.

It is worth noting that in the past, in the course of conducted proceedings from undisclosed sources, taxpayers often referred to Art. 2 clause 1 point 4 of the PIT Act in order to avoid paying the tax. According to its provisions, the Act does not apply to revenues resulting from activities that cannot be the subject of a legally effective contract. Clever taxpayers indicated, for example, drug trafficking, theft or prostitution as a source of income in order to avoid paying the tax. In view of this position, the tax authorities were practically helpless, as it was extremely difficult to prove another source of income. In order to meet the needs, Art. 2 clause 6, which shows that in the absence of evidence to the contrary, it is assumed that the revenues come from activities that may be the subject of a legally effective contract. This means that, as a rule, there is a presumption that the taxpayer's revenues come from legal sources, unless the taxpayer proves otherwise.

Example 6.

In the course of proceedings from undisclosed sources, the taxpayer indicated that he had obtained income from drug trafficking. In the current legal situation, submitting such a statement is not sufficient to avoid taxation, the taxpayer must provide the tax authority with evidence confirming the truthfulness of such a statement.

Finally, it should also be pointed out that in accordance with the applicable regulations, the amount of the taxpayer's expenses should be determined by the authority on the basis of actually incurred expenses for the purchase of goods, even in a situation when they significantly deviate from their market value. Only in the event of failure to provide evidence confirming these amounts, the authority has the right to use market prices.