Highlights of tax liabilities and arrears - what are they? how to check them? what can be done about them?

Benjamin Franklin, in a letter to Jean-Baptiste Leroy in 1789, wrote the famous sentence 'In this world, only death and taxes are certain', which is still relevant today, and the inevitability of taxes is becoming a sore point for many people. According to data from the Ministry of Finance, Poles' tax arrears in 2023 exceeded PLN 115 billion, of which as much as 81 % are VAT arrears, thus affecting entrepreneurs in the largest share.

In this article, we take a closer look at the most important issues relating to this issue, including first and foremost answering the question of what is a liability and what is a tax arrears, how it can be checked and how it can be dealt with.

Contents:

1. What is tax liability?

Debt to the Tax Office is a situation in which a taxpayer has unpaid tax liabilities towards the tax administration. The Tax Ordinance defines a tax liability as a taxpayer's obligation resulting from a tax liability to pay tax to the broadly understood state in the amount, time and place specified in the provisions of law. In other words, it creates an obligation for taxpayers to pay a specific tax, and for the tax authority the right to demand such payment. It may include various types of taxes, such as personal income tax (PIT) or corporate income tax (CIT), goods and services tax (VAT), excise tax, civil law transaction tax (PCC) and other fees related to business or personal activity.

2. When does tax liability arise?

According to the Tax Ordinance, the date of creation of a tax liability is the occurrence of an event with which the tax act connects the creation of such a liability or the delivery of a decision of the tax authority determining the amount of this liability. To put it simply, its creation occurs at the moment when the taxpayer's obligation to pay tax is specified, in terms of the amount, date and place, whether on the basis of regulations resulting from individual tax acts and implementing acts thereto, or on the basis of the aforementioned decision. While the tax liability resulting from the decision raises fewer doubts (as a rule, we will find in it information on the amount, payment deadline and the authority responsible for collection), the moment of its creation by virtue of the law may seem less obvious. In this respect, the division into incidental benefits comes in handy, where the tax liability arises at the time of performing the act (e.g. tax on civil law transactions) and periodic benefits, where the amount of tax is specified after a specified period, e.g. a month or a year (VAT tax, income taxes, real estate tax).

3. When does a liability become a tax arrear?

A tax arrears is a tax not paid on time, but also a tax advance or tax instalment not paid. Tax arrears are therefore the result of the mere fact of non-payment of tax, regardless of any other circumstances, and arise from the day after the due date.

4. How to check tax arrears?

Information on tax arrears may be obtained directly from the tax authority with jurisdiction in rem (type of case) and/or local jurisdiction (according to the taxpayer's place of residence, domicile). In the case of the tax office, the general rule is that the taxpayer belongs to the office with jurisdiction over the place of residence or registered office. On the Internet, search engines and lists are available to help identify the competent authorities.

In order to verify your tax arrears, you should submit an application to the Tax Office, indicating what information you are requesting. Since the Tax Ordinance regulates in detail the issue of certificates issued by the authority, the content of the application should be more specific as to what information you wish to obtain, in particular whether you are expecting a certificate stating the status of your arrears, a certificate stating that you are not in arrears with your taxes, or whether you need another certificate with the required content.

5. What may be the consequences of being in arrears with tax liabilities?

Being in arrears with tax obligations has many negative consequences, ranging from limiting the ability to carry out business activities, e.g. due to the impossibility of obtaining a certificate of non-default and the loss of contracts, to the increasing size of the debt as a result of high tax interest, to the complete blocking of the possibility of doing business due to the faster enforcement procedure in administrative proceedings.

6. What can be done with tax arrears?

There are a number of steps you can take in relation to a tax arrears case to protect yourself from negative consequences from the tax authorities. Steps to consider are:
-application for deferral of payment of tax arrears;
-Filing a request for instalment of tax arrears;
-application for remission of tax arrears in whole or in partor interest on late payment.
The tax authority makes its decision on the basis of an important interest of the taxpayer or the public interest, which is worth duly substantiating in the content of the application.

It may also be the case that verification work reveals that the arrears are due to an error, in which case the error must be corrected, e.g. by entering the correct values in an amended tax return.

In cases where tax liabilities are disproportionate to the ability to repay or the taxpayer has many different liabilities, not only tax liabilities resulting from different titles, it is worth considering a comprehensive action, e.g. by implementing the procedure for approval of the arrangement, which allows for the conclusion of a comprehensive agreement tailored to the taxpayer's situation and securing assets during the proceedings before possible enforcement actions by some creditors.

7. Can a tax liability be written off?

A tax liability may be written off in part or in whole by the tax authority or in restructuring proceedings. The grounds for remission under the Tax Ordinance are quite restrictive as it may occur when:

• there is a reasonable expectation that an amount in excess of the enforcement expenses will not be obtained in the enforcement proceedings;
• the amount of tax arrears does not exceed five times the costs of a reminder in enforcement proceedings;
• the amount of tax arrears has not been satisfied in completed or discontinued liquidation or bankruptcy proceedings or the court has dismissed application for declaring bankruptcy;
• the taxpayer has died leaving no assets or has left non-enforceable movable property;

In any case, the tax authority may write off the tax arrears if the write-off will not constitute state aid or will constitute de minimis aid to the extent and in accordance with the rules laid down in directly applicable Community legislation on de minimis aid.

8. Benefits of debt write-off in restructuring proceedings

Remission of a tax liability is also possible under one of the four restructuring proceedings, which offer far broader possibilities.
First restructuring proceedings create the possibility of concluding an arrangement of a comprehensive nature, covering a wider group of creditors and enabling the adjustment of total repayments to the level that can be handled in the specific situation of the entrepreneur.
Secondly, within the framework of arrangement proposals it is permissible to write off part of the tax arrears and tax interest accrued on this receivable. In this matter, one should agree with the position that in restructuring proceedings, the important interest of the taxpayer is already manifested in the implementation of the statutory purpose of the proceedings, which is to avoid bankruptcy.
Thirdly, the decision to write off is always preceded by the tax authority verifying the issue of the existence of public aid and its admissibility. In the course of restructuring proceedings, a document called the private creditor test is drawn up, in which an assessment is made as to whether the support provided by the tax authority will constitute public aid or not, which makes an analysis of this premise no longer necessary. In addition, the tax authority also obtains an objective analysis of the restructuring authority as to the possibility of satisfaction in a hypothetical negative scenario, as an obligatory element of the document is a comparison of the degree of satisfaction under the arrangement proposed in the restructuring procedure and the degree of satisfaction in the case of bankruptcy proceedings. The results of the analysis are an important source of knowledge for deciding whether to accept the taxpayer's proposal.
We cannot lose sight of the fact that the provisions of law restructuring allow for the conclusion of an arrangement in the event of obtaining a specified majority of votes and the amount of the claim even in the absence of consent from some creditors. In other words, assuming obtaining the required numerical and value majority of votes of the remaining creditors, restructuring is possible tax debt even with a negative position of the authority. After approval by the Court, the tax restructuring arrangement by operation of law, modifies the amount of liabilities and their repayment dates.

Marta Zarówna

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