Introduction to Polish Tax Law Prof. W. Nykiel Centre of Tax Documentation and Studies University of Łódź
Part I Glossary
Tax compulsory unrequited payment to the government (OECD working definition)
Unrequited benefits provided by government to taxpayers are not normally in proportion to their tax payments
Return tax declaration (usually a completed official form) by which a taxpayer reports income, sales and other details and calculates his/her tax liability
Direct taxes Indirect taxes
Income tax tax imposed on income received which is recognized for tax purposes by taxpayer, reduced by the allowable deductions, exemptions and credits
Income tax on individuals (Personal income tax, Individual income tax) Income tax on legal entities (Corporate income tax) Income tax
Withholding tax tax on income imposed at source, i.e. a third party is charged with the task of deducting the tax from certain kinds of payments and remitting the amount to the government
Turnover tax general term used to refer to the different forms of consumption and sales taxes
Turnover gross receipts, gross amounts due, from the sale of goods or services supplied by the entity
Value added tax specific type of turnover tax levied at each stage in the production and distribution process
Excise duties (Excise tax) taxes typically charged on products such as alcohol, tobacco and motor fuels
Death duties taxes imposed on the transfer of property on death (death duty, inheritance tax, succession duty, tax on transfers by death)
Gift tax tax imposed on gratuitous transfer of property among the living, levied by reference to the value of a single gift or cumulative gifts during a certain period of time
Property tax tax imposed on owned tangible movable or immovable property or both
Nationality additional (to residence) basis of subjecting an individual to taxation
Individuals Companies Residence
Tax liability • Unlimited tax liability • Limited tax liability
Juridical double taxation one person is subjected to taxation twice in respect of the same income
Economic double taxation imposition of comparable taxes on different taxpayers in respect of the same taxable income
Methods of relievingdouble taxation • Exemption method • Credit method • Deduction method
Part II Tax System in Poland
Tax System in Poland • Main elements and main features of tax system in Poland • Tax liability
Until 1989 the Polish tax system differed substantially from systems functioning in states with a market economy. These differences concerned among other: • basic principles of the tax system that were connected with the economic and political regime, • sources of tax law, • structure and function of the most important taxes, • fiscal procedure, • tasks and role of fiscal administration, • behaviour of the taxpayers.
The structure of budget revenues was also very different from the ones existing in states with a market economy. The nationalised sector was the main source of income for the budget. The most important resources came from nationalised legal entities such as state enterprises and co-operatives. Taxes levied on the private sector of the economy were of very limited importance mainly due to their size. Taxes levied on the population were also of minimal significance.
The reform of the tax system in Poland started in 1989 with the introduction of uniform corporate income tax regardless of the form of ownership thus realizing the principle of fiscal equality. This tax was based on solutions existing in countries with a market economy including those existing in member states of the European Community.
The reform went on with the adoption of the Corporate Income Tax Act of 15 February 1992 currently in force. The act was amended many times, which provoked criticism by representatives of doctrine and practice. On the other hand, it must be emphasised that these changes substantially improve the very structure of the tax and make it similar to modern solutions existing in states with an advancely developed tax system.
Examples of such solutions are as follows: • according the status of a taxpayer to a capital group, • introducing new solutions, based on OECD recommendations, concerning associated enterprises and profit shifting, • introducing thin capitalisation rules.
The adoption of the Personal Income Tax Act of 26 July 1991 was the next step of reforms of the Polish tax system. This act contained principles of equality and commonness of taxation, replacing a whole range of acts concerning five other taxes.
This act, which came into force on 1 January 1992, had effect on several millions of people who became taxpayers of a new tax. It also created new tasks for the fiscal administration. Due to principles governing the very structure and collection methods of this tax, the situation of taxpayers in Poland became to a large extent similar to that of taxpayers in states with a market economy
Within the period from 1989 to 2006 Poland concluded 57 treaties on the elimination of double taxation within the field of income and capital taxation. This constitutes more than 3/4 of all bilateral treaties on elimination of double taxation concluded by Poland. These treaties are based on the OECD model convention. Concluding these treaties is the result of development in the field of economic co-operation. Moreover, it indicates an evolution of our tax system and depicts the direction of this evolution.
Introduction of the tax on goods and services (Polish VAT) into fiscal system constituted a huge challenge for the Polish legislator. Works on construction of this tax lasted for several years and were inspired by solutions existing in European law, especially in the Sixth Directive (77/388/EEC) These works resulted in the adoption of the Tax on Goods and Services and Excise Duties Act of 8 January 1993.
At the beginning, both the fiscal administration and taxpayers were quite confused as to the application of new solutions. This was due to the scope and complexity of the regulation (the Act, which came into force on 5 July 1993, was accompanied by a huge number of executory regulations), to the completely new legal structure of the tax and some legislative shortcomings.
The analysis of the budgetary revenues structure shows clearly that the two direct taxes (personal income tax and corporate income tax) and the two indirect taxes (tax on goods and services – the Polish VAT - and excise duties) constitute the core of our fiscal system bringing 86 % (2005) of income to the state budget.
Besides the abovementioned taxes, there also exist the tax on games and the tonnage tax, which go to the state budget.
Furthermore, the whole range of taxes flows into communal budgets. These are: • immovable property tax, • agricultural tax, • forest tax, • tax on means of transport,
tax on the possession of dogs, • heritage and donation tax. • tax on civil law acts – such as different contracts.
Among local taxes the one on immovables is of greatest importance, as in many other states. The proposed changes aim at establishing the value of land and buildings as the basis of taxation. Currently the taxable basis in case of buildings is their usable surface and in case of land – its surface.
In 1997 the General Tax Law was adopted. It contains rules focusing on fiscal liabilities and fiscal procedure.
It is estimated that the Polish tax system suffers a whole range of shortcomings that should be eliminated. The most important ones include: • high complication and lack of clarity leading to significant enforcement difficulties for both the taxpayers and fiscal administration, • lack of stability.
On 1 May 2004 both the new Tax on Goods and Services Act and Excise Duty Act came into force implementing the Council directives in Polish domestic regulations covering these taxes.
During the last period before our accession to theEU, Polish legislator concentrated on changing Polish tax law mainly in line with standards derived from the relevant EU directives.
These works did not sufficiently include analysis of compatibility of Polish legislation with the provisions of the EC Treaty, especially the ones devoted to four freedoms.
General Tax Law Tax liabilities Tax proceedings