There is divergence in the case law on whether the percentage rate that should be applied in setting the amount of inheritance tax is the rate in force on the date the tax obligation accrued or the date when the tax authority issues the decision setting the amount of the tax.
Old inheritances, i.e. those acquired years ago, often under tax regulations that are no longer in force, are generally subject to inheritance tax under the regulations in force when the tax obligation accrued. Determining which regulations are application is particularly important in reprivatisation cases which are now pending mainly with the legal successors of the former owners of real estate taken over in Poland after the Second World War by the State Treasury or local governmental units. In such cases, the estate included real property or various types of claims of significant value, and consequently, application of regulations other than those in force when the tax obligation accrued may create huge differences in the amount of tax to be paid.
Art. 15(3) of the Inheritance and Gift Tax Act of 28 July 1983 indicates that in determining the amount of tax, the amounts free from tax and the tax scales referred to in par. 1 of this article in force on the date when the tax obligation accrued should be applied, subject to par. 4, which provides for taxation of acquisition by way or gift or instruction by the donor at the sanction rate of 20%.
Under Art. 6 of the act, the tax obligation in the case of inheritance accrues upon acceptance of the inheritance, which under the Civil Code occurs either at the time the heir submits a statement on acceptance of the inheritance or six months after the heir learns of acquisition of the inheritance (i.e. learns of the decedent’s death). If following submission of the statement on acceptance of the inheritance or expiration of the period for submitting the statement the inheritance was not reported to the competent tax office for taxation, the tax obligation accrues on the date of the document confirming acquisition of the inheritance. This document could be more specifically a legally final ruling of the court confirming acquisition of the inheritance or registered notarial deed certifying the inheritance. If the inheritance is not declared for taxation, the tax obligation also accrues at the time the heir relies on the fact of acquisition before a tax authority or tax audit authority.
Tax scale and percentage rate
Under Art. 15(1) of the Inheritance and Gift Tax Act, the tax is calculated on the basis of the surplus above the tax-free amount, according to the scales set forth in the following table, broken down by zloty amounts (tax thresholds) and percentage rates for specific tax groups.
Art. 15(3) of the act refers to the tax scales in force at the time of accrual of the tax obligation. But it is not plainly evident whether the concept of “tax scale” includes both the threshold amounts and the percentage rates included in the foregoing table. Resolving this dilemma is of key importance. The answer will determine which regulations the tax authority applies in issuing the decision establishing the amount of the tax to be paid.
Some of the rulings from the administrative courts present the view that the tax scale provided in Art. 15(1) comprises two separate elements:
- Threshold amounts
- Percentage rates applicable to amounts above each threshold.
These courts also indicate that the regulations in force on the date of accrual of the tax obligation apply only with respect to the threshold amounts. The percentage rates should be applied in the amount in force on the date when the tax is assessed by the tax authority—the date when the head of the tax office issues the decision setting the amount of the tax. In other words, some of the administrative courts take the view that the reference in Art. 15(3) of the act to the regulations in force on the date when the tax obligation accrues does not include the percentage rates specified in par. 1 of this article. The principal argument by the courts for this position is based on the view that the decisions establishing the inheritance tax obligation are constitutive in nature. This means that it is the tax authority, in its decision, which determines the amount of tax to be paid. Thus, in the view of these courts, the tax authority is required to decide the matter on the basis of the regulations in force on the date the tax is assessed (the date of issuance of the decision).
But opposing views are also encountered in the case law. Some of the administrative courts take the position that Art. 15(3) of the act does not permit the table to be divided into two elements governed by different legal regimes in force at different periods. According to these courts, the table as a whole should be treated as the tax scale. The function of Art. 15(1) of the act, as a whole, is calculation of the tax. To calculate the tax, it is necessary to apply both elements of the tax scale, that is, the amount of the surplus tax base over the amount free from tax (threshold amounts) and the percentage rates. The technical inconsistency of the disputed conception is also pointed out, as in reality it leads to application in its entirety of the law in force on the date the tax is assessed (the date of issuance of the decision). Mere application of the thresholds, in the view of some of the courts, contributes nothing to calculation of the tax. The correctness of the second position is also indicated by the understanding of the concept of “tax scale” in the literature, where it is taken to mean the juxtaposition of percentage rates with successive thresholds of taxation.
This discrepancy in the case law has yet to be patched up. According to legal commentators, a linguistic analysis of Art. 15(3) of the act leads to the conclusions that the concept of tax scale covers both the amount of the surplus tax base over the amount free from tax (threshold amounts) and the percentage rates. This view is also supported by the latest cases from the administrative courts, under which the phrase used in Art. 15(3) “subject to par. 4,” referring to taxation of acquisition by way of gift or instruction of the donor at the sanction rate of 20%, means that par. 3 essentially covers percentage rates, as par. 4 refers to a different, sanction percentage rate. The view that when setting the amount of the tax on inheritances acquired years ago, the regulations in force on the date the tax obligation accrued should be used, seems more persuasive.
Tomasz Piejak, Tomasz Krzywański, Private Client Practice, Wardyński & Partners