Poland vs K.J.S. Polska Sp. z o., April 1999, Supreme Court, Case No III RN 184/98

Category: Arm's Length Principle, Burden of Proof | Tag: , ,
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Judgement on application of the Polish arm’s length provisions in Article 11 of the Corporate Income Tax Act.

Excerpts from the Supreme Court Judgement

“The provisions of Articles 11(3) and 11(4) of the Corporate Income Tax Act do not introduce a requirement for the tax authority to prove the fault (collusion) of the seller and the buyer of goods consisting in deliberate under- or overpricing in order to achieve favourable tax consequences. The extraordinary revision’s suggestions that the establishment of the relationship referred to in Article 11(4) of that law, without the simultaneous establishment of intentional conduct, is insufficient for the application of assessed prices to the contractor, as they are contrary to the linguistic (basic) interpretation of that provision, are erroneous. Also, the claim in the extraordinary revision that it is up to the court to prove that the relationship set out in sections 11(3) and 11(4) of the said law influenced the determination of lower prices is not justified. This allegation demonstrates an erroneous understanding of the role of the court. Evidence is presented by the parties to the trial and the court evaluates it. The court does not prove anything, but only assesses the credibility of the evidence taken at the request of the parties or exceptionally ex officio.
The procedural rules have not been violated either (and certainly no gross violation of them can be alleged). The Supreme Administrative Court adequately explained the facts (Articles 7 and 77 § 1 of the Code of Administrative Procedure in conjunction with Article 59 of the Act on the Supreme Administrative Court) without violating the principle of free – but not arbitrary – assessment of evidence (Article 80 of the Code of Administrative Procedure in conjunction with Article 59 of the Act on the Supreme Administrative Court). It has not been demonstrated by the applicant that there were economic grounds for applying in the transactions between it and “O.” significantly lower prices than to other counterparties of “O.”. There was no successful challenge in the extraordinary revision to the view taken in the contested judgment that, in relation to the applicant, “O.” determined prices with the assumption of a profit of approximately 5%, while with regard to other customers a profit of several tens of percent was assumed, reaching up to nearly 80%.
Courts – as well as administrative authorities – assess evidence according to the principles of life experience. These principles indicate that sufficient evidence regarding the circumstances constituting the basis for the application of Article 11(3) and (4) of the Corporate Income Tax Act is the use by “O.” significantly lower profit rates, and also – and perhaps above all – the application of this practice to the future purchaser of the “O.” company, and, moreover, that both entities had two of the same persons on the board of directors.
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Poland Case no III RN 184-98 SC





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