What is a tax procedure and how long does it take?

What are tax proceedings?

Tax proceedings are, in a sense, a specific type of administrative proceedings characterised by a high degree of formality. They constitute a process of authoritative, public-law, unilateral determination and shaping of an entity’s legal and tax situation. The aim of the proceedings is to establish the existence of a specific factual situation and to resolve the matter by issuing a decision, which reflects the substantive nature of this procedure. Tax proceedings implement the standards arising from the provisions of substantive tax law

Tax proceedings form part of a system of verification procedures designed to ensure that taxpayers comply with tax law and settle their public-law liabilities correctly. The main stages of tax proceedings are:

• initiation of proceedings: the tax authority initiates proceedings, usually in response to irregularities noted in tax returns, suspicions of tax avoidance, reports (although this cannot be the officially stated reason for initiating proceedings), notifications or as a result of an audit. Proceedings may also be initiated at the taxpayer’s request, e.g. where there is a need to correct tax returns;
• gathering evidence: the tax authority analyses the documents and information provided by the taxpayer, as well as any other available data that may be relevant to the case. This may include, for example, interviewing witnesses, requesting explanations, and analysing financial records;
• assessment and decision: after gathering evidence (conducting the evidentiary proceedings), the tax authority assesses the taxpayer’s tax situation. On this basis, it issues, for example, a decision determining the amount of tax liability, establishing an overpayment or confirming the correctness of previous tax returns;
• appeal and court proceedings: if the taxpayer disagrees with the tax authority’s decision, they have the right to lodge an appeal with the tax authority of the second instance, and subsequently, if necessary, to lodge a complaint with the administrative court against that authority’s decision; the appeal process may lead to the decision being amended or revoked, or even to the proceedings being discontinued.

How long do tax proceedings take?

The duration of tax proceedings can vary significantly depending on their complexity, the complexity of the case and the extent to which the taxpayer cooperates with the tax authorities. The provisions of the Tax Ordinance stipulate that:

• cases requiring the taking of evidence should be resolved without undue delay, but no later than within one month, and particularly complex cases no later than within two months from the date of the commencement of proceedings, unless the provisions of this Act provide otherwise;
• cases which may be examined on the basis of evidence submitted by a party together with a request to initiate proceedings, or on the basis of facts in the public domain and evidence known ex officio to the authority conducting the proceedings, should be resolved without delay
• a case in appeal proceedings should be resolved no later than within 2 months of the date on which the appeal was received by the appeal authority, and cases in which a hearing has been held or a party has submitted a request for a hearing – no later than within 3 months.

However, if the tax authority is unable to conclude the proceedings within the prescribed time limit, it is obliged to inform the taxpayer of the reasons for the delay and to specify a new deadline for the conclusion of the proceedings. In practice, tax proceedings can last from several months to even several years, especially if the case is complex or the taxpayer appeals against the decision. As a rule, however, proceedings must be concluded no later than the expiry of the limitation period, unless circumstances arise that result in the limitation period not commencing, being suspended or interrupted.

Recently, it has become common for tax authorities to initiate criminal tax proceedings, often solely for the purpose of suspending the limitation period. In many cases, such proceedings were of an instrumental nature, i.e. they were initiated solely to avoid the tax liability becoming time-barred. However, this practice has been rightly criticised by the administrative courts, which have frequently also made use of the option to issue a ruling in which, in addition to overturning the decision, they discontinued the proceedings in the case, thereby nullifying all the effects arising from the tax decisions and depriving the tax authorities of the possibility of further dealing with the matter.

However, it should be borne in mind that not every criminal tax proceeding must be of an instrumental nature, and one should always pay attention to the actions taken by the tax authorities within the framework of this procedure, as the authority’s active involvement will prevent us from raising the objection that the criminal tax proceedings were initiated for instrumental purposes.

Summary

Tax proceedings are a key element of the tax system, serving to verify the correctness of tax returns and ensure that taxpayers fulfil their obligations in accordance with the law. The duration of this process may vary, and it should be borne in mind that there are legitimate reasons for extending the time limit for handling a case; in such instances, one should be patient and await the conclusion of the matter. In the event of doubts regarding a tax decision, the taxpayer has the right to appeal, which may prolong the entire process, but may sometimes lead to a change in the decision. In any case, however, it is important to remember not to be merely a passive participant in the proceedings, but to actively participate and cooperate with the tax authorities in order to safeguard one’s own interests.

Author

Piotr Magda

Radca prawny, Senior Associate

The practice includes ongoing advice on administrative and tax law. He has extensive experience in handling judicial, administrative, tax and judicial-administrative proceedings concerning both individual clients and business entities, including that gained through many years of providing services to local government units and other units of the public finance sector.

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