Tax expiry by deduction

Service-Tax

The tax liability may expire in several situations. The most common case is payment of a liability. However, it should be borne in mind that this is not the only method, as the provisions of the Tax Ordinance also provide that the expiry of a tax liability may be met as a result of a deduction. In the following article, we present the circumstances that must be met for a set-off to take place.

Expiry of a tax liability - characteristics of the deduction

The set-off is provided for in Art. 64-65 of the Tax Code. These provisions indicate that tax liabilities and tax arrears along with interest for late payment of taxes constituting the income of the state budget are subject to deduction from the mutual, undisputed and due liability of the taxpayer towards the State Treasury or local government unit.

The entire debt set-off mechanism is activated both ex officio and at the taxpayer's request. The entity entitled to set-off is only the taxpayer, this right is not available to payers or collectors. As it results from the above provision, only claims that are mutual, undisputed and payable may be set off.

The feature of reciprocity occurs when both parties are both creditors and debtors to each other. The taxpayer is the taxpayer's debtor for taxes and arrears, and at the same time the taxpayer is the taxpayer's debtor. There is an indisputable situation where both parties recognize the existence of a claim and neither party questions their nature. As a rule, the receivables become due when their payment deadline has already expired. The receivables that can be pursued by law should also be considered due.

As indicated by the Supreme Administrative Court in the judgment of February 13, 2007, II FSK 256/06:

The cassation court does not share the interpretation of Art. 64 § 1 of the Labor Code, presented in the appellate measure in question, according to which the indisputable claim only means that there is no dispute as to its existence. This is a restrictive interpretation of the cited provision. The uncontested claim occurs when neither party questions not only its existence, but also its size and payment date.

It is also worth citing the judgment of the Supreme Administrative Court of 25 September 2014, II FSK 1156/12. In this ruling, the court comprehensively addressed the issue of conditions that must be met by a claim in order to be subject to set-off. In this judgment we read:

Set-off pursuant to Art. 64 A.P. only uncontested and payable claims are subject. The indisputability of a claim occurs when neither party questions its existence, size and payment date. As a rule, the receivables become due when their payment deadline has already expired. The receivables that can be pursued by law should also be considered due.

The institution of set-off regulated in Art. 64 of the LAW is one of the methods of extinguishing tax liabilities at the taxpayer's request. Thus, it is justified when assessing the fulfillment of the conditions of Art. 64 A.D. requiring the applicant to present evidence confirming the fulfillment of the statutory conditions for the application of this institution and cooperation with tax authorities in the matter of clarifying emerging doubts.

The issue of the amount and existence of a tax liability for which the company has tax arrears is not subject to verification in the proceedings regarding the control of the legality of the decision refusing to set off the taxpayer's claims with tax arrears.

Receivables that may be set off

It should be emphasized that not every claim that the taxpayer is entitled to against the State Treasury or local government unit is subject to deduction with the tax liability. This possibility covers claims strictly defined in Art. 64 and 65 of the Tax Code. In terms of deductions made with the State Treasury, the act lists claims arising from:

  • a valid court judgment issued pursuant to Art. 417 or article. 417 of the Civil Code;

  • a legally valid court settlement concluded in connection with the occurrence of the circumstances provided for in Art. 417 or article. 417 of the Civil Code;

  • purchase by the State Treasury of real estate for purposes justifying its expropriation or expropriation of real estate on the basis of the provisions on real estate management;

  • compensation for wrongful conviction, temporary arrest or detention, obtained under the provisions of the Code of Criminal Procedure;

  • compensation obtained on the basis of the provisions on recognizing invalid judgments issued against persons repressed for activities for the benefit of the Polish State;

  • compensation adjudicated in a decision of a government administration body.

As for local government claims, taxpayers are entitled to set-off in relation to the commune, poviat or voivodeship for:

  • a valid court judgment issued pursuant to Art. 417 or article.417 of the Civil Code;

  • a legally valid court settlement concluded in connection with the occurrence of the circumstances provided for in Art. 417 or article. 417 of the Civil Code;

  • purchase of real estate by a commune, poviat or voivodeship for purposes justifying its expropriation or expropriation of real estate under the provisions on real estate management;

  • adjudicated compensation.

Expiry of tax liability - deduction procedure

As already indicated, the deduction takes place mainly at the taxpayer's request. However, as is clear from Art. 64 § 3 of the Tax Ordinance, the deduction may also be made ex officio. Confirmation of the deduction takes place by way of a decision. If the authority refuses to make the deduction, it issues a decision in this regard.

Both liabilities and tax arrears are deducted, together with interest for late payment. As a result of the decision issued by the tax authority, the receivables are set off in whole or in part. If the claim reported for set-off is lower than the amount of the liability, we will only deal with the expiry of a part of the liability.