A special task team: ALTO Litigation

Sounds like mission impossible? Sometimes it is, but our Tax Litigation team proves every day that there are no impossible things for them. The team is led by two experienced managers: Łukasz Kalisz (Advocate & Tax Advisor) and Dominik Niewadzi (Tax Advisor) supported by four consultants: Maciej Matłok, Marek Kortala, Marcin Gliszczyński and Maksymilian Skurzak.

Tax Litigation – what does it actually mean?

The wide-ranging tax inspections and disputes handled by our Team include not only impressive litigation, but also more mundane tax or ZUS contribution inspections, enforcement and security proceedings, and the not-so-pleasant ones involving fiscal criminal liability. It is also the recovery of often spectacular, multi-million (!) amounts of tax that, for various reasons, has been overpaid. Sometimes this also involves a struggle on the subject of incorrectly imposed, multi-million dollar penalties. As the authorities’ practice varies and is not always uniform, in case of doubts as to the correct model of proceedings, the team often also supports the clients of ALTO in obtaining individual interpretations or precautionary opinions, which are of considerable importance in case of possible difficulties later on.

It is also no less important to prevent disputes that are difficult to foresee – it is not uncommon for a client to seek support while still needing to secure their position for the future. Although the situation encountered is not always ideal, with the right approach and knowledge, our experts find solutions to positively influence the client’s situation and take arguments out of the authority’s hands in the event of a future audit or dispute.

Thinking outside the box in practice

However, if a dispute with an authority does arise, ALTO’s Tax Litigation Team represents clients in the course of inspections, court and administrative proceedings, often breaking the – seemingly already established – unfavourable to taxpayers line of jurisprudence or interpretation. They often contribute to its establishment in precedent-setting cases, when the regulations are new and the jurisprudence practice has not yet been developed at all. In such situations, years of procedural experience and the ability to think against the established patterns, “out-of-the-box”, pay off particularly clearly. This is all the more so as they often affect the situation of numerous and significant groups of taxpayers – from individuals to multinational corporations.

There is no shortage of examples, and we present some of the most interesting ones below.

• The first case study may be the representation of a client in a highly significant proceeding related to the limitation of costs of intangible services under Article 15e of the CIT Act. An unfavourable tax interpretation meant that the client was obliged to recognise at the ‘head office’ level the revenue of the affiliate company, while at the same time not being entitled to include all costs in the tax result. He was therefore effectively bearing the economic burden on the business presence in Poland. However, the out-of-the-box approach soon paid off. While not questioning the approach of qualifying the separate company as a permanent establishment, our team demonstrated that limiting the services purchased from it was completely out of place. The arguments, backed up by strong evidence, were so convincing that the overpayment was reimbursed by the authority without even having to get into a dispute. The team’s original conception and actions meant that, ultimately, the client’s business model in Poland proved to be economically viable.

• Although individual interpretations are intended to provide taxpayers with certainty that their actions will not be challenged, there do occur situations when the authorities deny their protective power. Sometimes this results not only in, for example, a refusal to refund tens of millions of excess VAT, but even in the imposition of sanctions amounting to several millions – in such a bizarre and at the same time difficult situation, expert support is necessary. In the case conducted by our team, the actions of the authority were already challenged at the level of the Voivodeship Administrative Court (WSA), and then confirmed at the stage of the Supreme Administrative Court (NSA), which dismissed the cassation appeal of the Director of the Tax Administration Chaber (IAS). The main conclusion is that, contrary to the practice of some authorities, there is, however, a certain limit to the requirements as to the description of the facts in the application for interpretation submitted by a taxpayer. Namely, it must indicate only what is relevant from the perspective of interpretation of the regulations, while in order to undermine the protective power of the interpretation, the authority should indicate specifically that a different description would actually contribute to a different legal assessment. In this case, our experts proved that this was not the case: thus, the authorities did not have any grounds to undermine the protective power of the interpretation.

• Criminal tax proceedings are only enjoyed by the tax authorities and some advisers – from the taxpayer’s perspective, there is nothing pleasant about them. One of the cases won by our experts proved that it is possible to counteract the widespread abuse of criminal law in tax cases, which is an unparalleled problem created by the Polish tax authorities. Indeed, these authorities very often initiated criminal proceedings in order to suspend the running of the tax limitation period without any specific reason. And the fact that the ALTO team obtained a favourable verdict in a case conducted for a client and forced the tax authority to admit to committing abuses shows that this type of negative phenomenon can and should be challenged.

• Is a taxpayer entitled to adjust the rate of VAT on consumer sales documented by receipts? According to the authorities – no. According to the Tax Litigation team – yes. The optimistic approach to the case resulted in the fact that at the level of proceedings before the Supreme Administrative Court (NSA), the argumentation of the authorities completely collapsed, and the Court agreed with us that there are no obstacles to taxpayers correcting the records of receipted sales. The ruling won by our team is in fact important not only for the client, but for all entities conducting retail sales. For in a situation where, for example, the applied VAT rate was too high, the authorities should not hinder them from exercising their right to correct the tax.

• Another of the landmark cases of recent years, in which the Tax Litigation team had the opportunity to demonstrate an out-of-the-box approach, was the support at the stage of the dispute before the tax authorities, as well as before the court, of companies that decided to jointly declare tax and concentrate within a tax capital group. However, an issue arose with regard to the settlement of tax losses – in principle, it can be settled within five consecutive years. However, this law has been challenged by the Polish tax authorities. Fortunately for the client, and thanks to a pioneering argumentation based on a whole series of closely related steps – i.e. interpretation of the CIT Act, linguistic interpretation, systemic analysis and historical analysis of the legislation, combined with arguments concerning the prohibition of discrimination of taxpayers – the client’s claims were fully recognised by the court and the company recovered the overpayment. The judgment unequivocally confirmed an entitlement that groups had never been able to exercise before. And the settlement of previous years’ losses can result in significant savings!

Such examples could, of course, be multiplied. However, due to the often secretive and confidential nature of the cases conducted by our experts, it is difficult to boast about them on a daily basis. However, this does not change the fact that in a battle with the authorities, the taxpayer is not always at a losing position. With the support of not only qualified, but also out-of-the-box specialists at their side, even cases that seem to be lost in advance can be turned to the taxpayer’s advantage.

At ALTO, we support family-owned businesses, medium-sized companies as well as multinationals and large corporate groups daily. At the same time, we are aware that the results obtained have a direct impact not only on the situation of our clients, but often on the entire market and the position of thousands, if not millions of taxpayers. And even though tax proceedings or litigation often drag on for years, their conclusion is often very rewarding. To ensure that this is the case, in each instance we focus on a fully individualised approach to the matter and the most effective support from the earliest possible stages of support.