Individual tax ruling (binding tax interpretation) is an important tool for an entrepreneur. As a standard, it only protects the applicant (i.e., for instance, not the other party to the contract or another person in a similar situation).
Polish Tax ordinance (Ordynacja podatkowa) allows a person who plans to establish a capital company to acquire a ruling- such ruling also protects the company after it is established.
Transformation of a sole proprietor – legal and tax succession
Despite the fact that the provisions on the conversion of a sole proprietor into a capital company (e.g. a limited liability company) were made for such a transformation to cause as few administrative problems as possible (as a rule, all decisions, licenses, concessions etc. pass on to the company), yet some tax problems still arise.
It may result, e.g. from the change of NIP and REGON numbers. Acquiring a ruling can therefore be very useful.
Struggle against the tax office
An entrepreneur intending to make a transformation asked for a tax ruling that would apply to the company after the transformation.
It turned out, however, that the Minister of Finance (or rather the Director of the Tax Office acting on his behalf) decided that the entrepreneur who intends to transform into a company cannot be considered as one “planning to set establish a company”.
Why? According to the authorities, the term “establishing” used in the provision does not include transforming of an individual enterprise into a company.
Does it make any sense? None. The only justification that comes to mind is “obstructing for the sake of obstruction”.
Here it should be emphasized that the authority did not issue a negative ruling, stating that it has a different opinion regarding the questions asked by the taxpayer. The authority refused to issue the ruling at all, stating that the applicant had no right to obtain an answer to his question, even a negative one.
Fight in court
The entrepreneur decided not to give up. He appealed to the court. Of course, the Administrative Court acknowledged that the applicant had the right to acquire a tax ruling.
What did the authorities do? They filed a cassation appeal to the Supreme Administrative Court! Again – the dispute did not pertain to whether the taxpayer’s position was right or wrong, but whether the taxpayer is even entitled to ask a question in his situation.
What was the result? The Supreme Administrative Court of course, dismissed the cassation appeal of the tax authorities (the court ruled in favor of the taxpayer), and the authorities was obliged to issue a tax ruling. The entire proceedings lasted two years, entailed costs, and the applicant only received flat rates as a reimbursement of expenses for legal representation, which were not even close to the market price of services that were necessary for him. Government employees could certainly have congratulated themselves on their excellent work that provided value to the public.
Fortunately, currently the right to obtain a tax ruling for the purposes of transforming “individual enterprise” into a company is no longer controversial and the National Tax Information releases such tax rulings.
This is a big aid for taxpayers, whom getting an individual tax ruling before transformation may help resolve problems with such issues as:
– the right to correct invoices received before the conversion,
– the right to correct invoices received after the conversion, in particular the possibility of applying corrective notes for this purpose,
– the right to correct invoices issued before the conversion, e.g. in the case of discounts to the customer after the conversion,
– the right to benefit from a tax exemption resulting from running the business in the Special Economic Zone after being converted into a company.
Generally, the authorities usually give positive tax rulings. However, considering that during conversions we often encounter officials who have not heard about the institution at all, or even stubbornly insist that “there is no such thing”, it is definitely recommended to obtain a ruling at least regarding the most important issues (such as, for example, the right to benefit from tax exemption in connection with running a business in a special economic zone).
Author: Jan Marczyński, Legal Counsel firstname.lastname@example.org, phone +48 608 528 772