The principle of a two-instance system is a fundamental principle in public authority proceedings. At times this principle is severely limited, and at times merely fictitious.
The principle of a two-instance system is provided for explicitly in Art. 78 of the Polish Constitution. Under tax law, it is provided for in Art. 127 of the Tax Ordinance.
Under that provision of the Tax Ordinance, a taxpayer wishing to contest a decision can ask the authority of second instance to review it and correct it where applicable. This right is therefore a kind of guarantee that a tax authority ruling complies with current laws and that it reflects the wording of the law.
In certain types of tax cases, the two-instance principle is substantially limited or does not exist at all.
Appeal in the case of an individual ruling
One drawback of a two-instance system is prolongation of proceedings, and this is why legislators have recently tried to simplify the appeal procedure.
One example is abolition of the two-instance system in the issuance of an individual ruling giving an interpretation of law tax. As of 1 June 2017, a taxpayer wishing to contest the standpoint adopted by an authority in an individual ruling is not entitled to appeal to the issuing authority on the basis of breach of law. The taxpayer is only entitled to contest the ruling in an administrative court.
Incidentally, in 2015, the rules on filing complaints with administrative courts concerning individual rulings were changed. Now the only basis for a complaint of this kind is alleged breach of procedural provisions, an error in interpretation, or flawed assessment of applicability of material law. Also, unlike complaints in other cases, in such a situation the administrative court is bound by the allegations made in the complaint and by the cited legal basis.
Appeal following a customs and tax inspection
There are also different rules on appeal proceedings in the National Revenue Administration Act. The act came into force on 1 March 2017, and under the act a taxpayer who is party to tax proceedings following a customs and tax inspection is entitled to appeal against a decision issued by the head of the customs and tax office (the authority of first instance) to the same authority, as the authority of second instance. This is a two-instance system in name only, because the contested decision is the subject of appeal proceedings conducted by the authority whose decision was contested. This structure is not a new development in Polish tax law, as a similar system has been applied for instance in decisions issued by the Minister of Finance.
The rule described above is an exception to the general rule in tax proceedings because in principle tax proceedings are in practice two-instance proceedings. The authority of second instance is in general a different authority to the authority that reviewed the case first. This is true in other tax proceedings in which the authority of first instance is for example the head of the tax office and the appeal authority is the director of the tax administration chamber.
Under the National Revenue Administration Act, the procedure for conducting an inspection, for instance the way in which it is concluded, has also changed. Under the previous provisions, it was the authorities’ common inspection practice to review tax records during an inspection. At the end of the review a protocol would be drawn up, and the party undergoing the inspection was entitled to submit objections to the protocol. Under current laws, inspection findings are drawn up after a customs and tax inspection, and the party does not have any appeal remedy if it contests the findings. This means that the party has to wait for the decision in tax proceedings instigated following the inspection. Until this time, the party de facto does not have any opportunity to address arguments presented by the authority.
The intention to simplify the appeal procedure in tax cases is certainly a welcome development. Both taxpayers and tax authorities benefit, but there are concerns that simplifying proceedings in this way might deprive taxpayers of the right to two-instance proceedings.
If a dispute with tax authorities only concerns legal assessment of the issue in question (for example in cases of individual rulings) it is reasonable not to have a two-instance system and shorten the time needed for a court to review a case. Cases of this kind do not require any action on the part of the parties (for example submission of evidence for processing). A ruling is given on the basis of indisputable facts.
The situation is different in tax proceedings following customs and tax inspections in which the findings often depend on the actions taken by the tax authorities (for example whether they consider the evidence submitted by the taxpayer). In this case, the decision issued is not truly reviewed until the court proceedings stage, because the taxpayer has a right to appeal against the decision to the issuing authority. Because administrative courts do not conduct evidentiary proceedings, if errors are found in the authorities’ actions, the courts have to overturn the decision and remand the case for re-examination by the authority, which considerably prolongs the entire proceedings.
Mateusz Jopek, adwokat, Tax practice, Wardyński & Partners