On 17 February 2003, the President of the Polish Supreme Administrative Court and the Ombudsman requested the Constitutional Court to declare that Article 24b par. 1 of the Tax Ordinance of 29 August 1997 – by giving the tax authorities and fiscal control bodies, while resolving a tax case, the right to disregard the effects of legal transactions which may give the taxpayer an advantage in the form of reduction of tax liability, increase of overpayment or refund of tax – violates the principle of citizens’ trust in the state and the created law resulting from Article 2 of the Constitution of the Republic of Poland and violates the principle of freedom of economic activity expressed in the freedom to arrange one’s civil law relations, i.e. Article 22 of the Constitution of the Republic of Poland. Article 24b of the Tax Ordinance had the following wording: “Art. 24b par. 1. Tax authorities and tax inspection bodies, when settling tax cases, shall disregard the tax consequences of legal actions, if they prove that from the performance of these actions one could not expect any significant benefits other than those arising from a reduction in the amount of tax liability, increase in loss, increase in overpayment or refund of tax. Par. 2. If the parties, by performing a legal transaction referred to in par. 1, have achieved an intended economic result for which another legal transaction or transactions is appropriate, the tax consequences are derived from that other legal transaction or transactions”. Judgement of the Constitutional Court In a split decision, the Court declared the provision in Article 24b § 1 of the Tax Ordinance inconsistent with the Constitution of the Republic of Poland. Excerpts “The infringement of the Constitution consists in enacting unclear and ambiguous provisions, which do not allow a citizen to foresee the legal consequences of his actions” /Judgement of 22 May 2002, K 6/02 – OTK ZU 2002 nr 3/A poz. 33 p. 448/. It follows from the principle of determinacy that “every legal regulation should be constructed correctly from the linguistic and logical point of view – it is only when this basic condition is met that it can be assessed in terms of the remaining criteria”.” “Phrases such as: “could not have been expected”, “other significant benefits”, “benefits resulting from the reduction of the amount of the liability” definitely do not allow to assume that “their jurisprudential interpretation will indeed be uniform and strict” and that “from their wording it will not be possible to derive a law-making power of the applying bodies”. It is worth noting here, that the aforementioned reservation, that a provision using indefinite phrases should not become the object of law-making activity of organs applying the law, has been formulated by the Constitutional Tribunal first and foremost in relation to the normative provisions applied by the courts” “In the opinion of the Constitutional Tribunal, such a statutory solution does not withstand criticism in the light of art. 93 clause 2 of the Constitution. On the one hand, it leads to a dangerous and undesirable blurring of the distinction between lawmaking and its interpretation, which results from giving the value of extended validity to the official interpretation, which is supposed to perform exclusively the function of subjectively limited ordering and unification of the jurisprudential activity. On the other hand, it makes acts addressed formally only to the internal structure of the state apparatus a means of influencing the sphere of taxpayers’ rights and freedoms, i.e. the sphere which may be regulated only by acts included in the closed category of sources of universally binding law. This kind of impact is not permissible either through sources of law of an internal character, or even less so through acts, which only seemingly have the value of purely interpretative actions, but in practice assume features similar to those displayed by normative acts. Therefore, apart from the inconsistency with art. 93 sec. 2 sentence 2 of the Constitution, the solution adopted in art. 14 par. 2 of the Tax ordinance may lead to “disruption” of the whole concept of the system of sources of law adopted by the legislator.” NB. A new Polish anti-avoidance clause was introduced by the Act of 13 May 2016 amending the Tax Ordinance and has been in force since 15 July 2016. Pursuant to the amended anti-avoidance provision in Article 119a § 1 o.p. – an act performed primarily for the purpose of obtaining a tax benefit, contradictory in given circumstances to the object and purpose of the provision of the tax act, does not result in obtaining a tax benefit if the manner of action was artificial (tax avoidance). Click here for English translation. Click here for other translation ...