Tightening up the tax system is one of the priorities of the current Polish government. Inter-ministerial consultations are now underway concerning a draft amendment that would expand the catalogue of offences in the Criminal Code and vest the public authorities, including the newly created National Treasury Administration, with broad enforcement powers. All of this is designed to combat VAT fraud.
VAT fraud is an offence involving concealment of the true amount of output VAT to be paid or obtaining an undue tax refund. Generally the methods of VAT fraud can be divided into two groups:
- Output VAT fraud—this group includes such ruses as declaring a supply of goods which actually occurred within the country as an export or intra-Community supply of goods, understating the value of the goods, charging a reduced rate on services, or declaring that the place of performance of the services was outside the country.
- Input VAT and VAT refund fraud—for example, issuance of invoices documenting performance of activities by an entity which did not actually perform the activities, issuance of invoices documenting fictitious activities, or issuance of invoices by “straw men” that do not actually conduct any business.
Currently, people involved in VAT fraud in Poland are held responsible primarily under the Fiscal Penal Code (Art. 56, 62 and 76). The maximum penalty that can be imposed under those regulations, in the most aggravated cases, is 10 years’ imprisonment and a fine of 1,080 per diem units, which theoretically could come to more than PLN 45,633,000.
Need for changes
The scale of irregularities uncovered in connection with VAT fraud is growing year by year. According to data from the Supreme Audit Office, in 2014 treasury auditors uncovered fictitious VAT invoices in Poland totalling PLN 33.7 billion, and in 2015 PLN 81.9 billion.
To combat VAT fraud, the Ministry of Justice has drafted a bill to amend the Criminal Code.
The proposed changes include expanding the catalogue of offences set forth in Chapter 34 of the Criminal Code, which covers offences against the integrity of documents. These would include two offences not previously found in the Polish legal system: “material falsity” and “intellectual falsity” of a document in the form of an invoice with respect to circumstances relevant for determining the amount of a public-law obligation.
“Material falsity” would be covered by Art. 270a of the Criminal Code, under which forgery or alteration of invoices with respect to circumstances that could be relevant for determining the amount of a public-law obligation, with the aim of recognition of such invoices as authentic, or use of such invoices as authentic, would be punishable by imprisonment of 6 months to 8 years. If the amount of such invoice or invoices exceeded PLN 1 million, or the perpetrator relied on such procedure as a regular source of income, the penalty would be heightened, to 3–15 years of imprisonment. In the case of acts of lesser weight, the penalty would be a fine, probation, or imprisonment up to 2 years.
“Intellectual falsity” would be covered by Art. 271a of the Criminal Code, under which issuance of invoices for goods or services whose value exceeds PLN 200,000, containing false information with respect to circumstances that could be relevant for determining the amount of a public-law obligation, would be punishable by imprisonment of 6 months to 8 years. If the amount of such invoice or invoices exceeded PLN 1 million, or the perpetrator relied on such procedure as a regular source of income, the penalty would be heightened, to 3–15 years of imprisonment.
The proposal also provides for a specific instance of aggravated criminal responsibility for these offences where they concern invoices with a value over PLN 5 million—then the perpetrator could be punished by 5–15 years or 25 years of imprisonment.
For commission of these offences, in addition to imprisonment the perpetrator could be punished by a fine of up to 3,000 per diem units, in other words up to PLN 6 million. (Under the Criminal Code, a fine is imposed in per diem units, assessed within a range of PLN 10–2,000, which works out to a value lower than that provided for in the Fiscal Penal Code.)
Under the proposed new provisions, the prosecutor could request extraordinary mitigation of the penalty for a perpetrator who notified the relevant authorities of the offence or disclosed relevant circumstances of the offence, or indicated acts related to these offences or their perpetrators before the relevant authority had knowledge of them.
New enforcers and new powers
Broad authority to combat offences such as those described above is to be vested not only in the Central Anti-Corruption Bureau and the Military Police, but also in a newly created agency known as the National Treasury Administration (Krajowa Administracja Skarbowa—KAS). The tasks to be performed by KAS would include collection of revenue from taxes, customs duties, fees and non-tax receivables of the state budget, protection of the interests of the State Treasury, and protection of the European Union’s customs territory.
To prevent or uncover such offences, KAS would be allowed to collect personal data and other data—including, under a special procedure, data from telecoms, postal operators and electronic service providers concerning persons being audited or against whom there are justified suspicions of commission of an offence. Every six months KAS would notify the relevant court of the collected data.
In certain instances KAS would be authorised to conduct operational surveillance consisting of:
- Obtaining and recording the content of conversations conducted by technical means, including via telecommunications networks
- Obtaining and recording images or sounds of people from premises, vehicles or other non-public spaces
- Obtaining and recording the content of correspondence, including correspondence conducted via electronic communications
- Obtaining and recording data contained in IT data carriers, end-user telecommunications devices, and IT and teleinformatic systems
- Accessing and inspecting the contents of postal items.
Such surveillance would be conducted secretly, and in urgent cases, where there was a concern of loss, obliteration or destruction of evidence of an offence, such surveillance could occur without prior court approval.
KAS officers would be authorised among other things to detain and search persons, seize items, search premises and use documents concealing their identifying details and the means they use in carrying out their official duties.
The proposed changes would put Poland near the top of the heap of European countries in terms of the severity of sanctions for VAT fraud. In Italy, for example, similar offences are punishable by a maximum of 6 years in prison, and 10 years in Germany, Greece and the UK. It remains an open question, however, whether imposing draconian penalties for VAT fraud and vesting the authorities with broad powers to combat these offences will actually achieve its preventive function and reduce the scale of VAT fraud.
Jakub Świetlicki vel Węgorek, Tax Practice, Wardyński & Partners