The taxpayer is not liable for the part of the liability corresponding to the advance payment which the withholding agent failed to collect, even if the failure to collect the advance payment resulted from the withholding agent’s compliance with an individual interpretation which was subsequently amended. The protection afforded to the withholding agent in connection with compliance with such an interpretation does not, in fact, entail a transfer of liability for the uncollected advance payment to the taxpayer.
Client's situation
The client was an employee of a company carrying out projects financed by non-repayable foreign aid. The employer regarded part of the client’s remuneration for work on these projects as exempt from personal income tax and, as a tax withholder, did not deduct any advance personal income tax from that amount. In doing so, the employer acted on the basis of individual tax rulings which confirmed the correctness of this position.Subsequently, the Minister of Finance amended the earlier interpretations ex officio, ruling that the employee’s remuneration was not eligible for the exemption. This raised the question of whether the amendment to the individual tax rulings could result in the taxpayer being held liable for tax which the withholding agent had not deducted whilst complying with the rulings originally issued.
The issue
DMS TAX’s task was to prepare an application for an individual tax ruling to be submitted to the Director of the National Tax Information Service, in which it would be confirmed that the client would not be obliged to pay the outstanding tax that had not been paid by the employer.
Our approach
On behalf of the Client, we submitted an application for an individual tax ruling, in which we sought a determination as to whether, in the situation described, the employee would be obliged to pay the tax that the employer had not deducted from their remuneration, taking the view that the employee is under no obligation to pay the outstanding tax. The tax authority deemed the Client’s position to be incorrect, pointing out that the protection arising from compliance with the interpretation is granted to the employer as the entity at whose request it was issued, and not to the employee.We challenged the interpretation before the Provincial Administrative Court in Wrocław, arguing that a change in the tax authority’s position cannot result in the employee being held liable for advance tax payments not withheld by the employer, provided the employer acted in accordance with the interpretation received. The Provincial Administrative Court agreed with our arguments and set aside the contested interpretation.
The tax authority subsequently lodged a cassation appeal with the Supreme Administrative Court. We also represented the client in these proceedings, maintaining the position that liability for advance tax payments not withheld cannot be transferred to the employee where the failure to withhold them resulted from the payer’s compliance with an individual interpretation which was subsequently amended.
The Supreme Administrative Court upholds DMS TAX’s arguments – a favourable ruling and the revocation of an unfavourable individual interpretation
The Supreme Administrative Court dismissed the tax authority’s appeal on points of law, upholding the Provincial Administrative Court’s ruling in favour of the client.The Supreme Administrative Court pointed out that the taxpayer is not liable for the part of the liability corresponding to the advance payment which the withholding agent failed to collect, even if the failure to collect the advance payment resulted from the withholding agent’s compliance with an individual tax ruling which was subsequently amended. The protection afforded to the withholding agent in connection with compliance with such an interpretation does not, therefore, entail the transfer of liability for the uncollected advance payment to the taxpayer.
This judgement was recognised by the Jury in the ‘2020 Tax Advisory Firms Ranking’ as one of the landmark judgements in the field of personal income tax.
What this means
Thanks to a favourable ruling by the Supreme Administrative Court, the client secured his tax settlements and obtained confirmation that he was not obliged to pay the outstanding PIT tax which had not been paid by his employer.