How and who do the tax authorities control?

In response to its motion for access to public information, the Foundation received an internal document of the Ministry of Finance setting out the principles of tax control over excessive income obtained from disclosed sources or income generated from undisclosed sources.

The document, fully titled “The Guidelines of the Ministry of Finance on the proceedings by tax authorities concerning excessive income obtained from disclosed sources or income generated from undisclosed sources”, outlines, among other things, areas of undisclosed income sources, general rules for qualifying entities against whom tax proceedings are to be initiated and rules governing the selection of entities eligible for tax control.

The content of the document focuses specifically on the sources of information on taxpayers, their expenditures and income.

The Guidelines list an extensive catalogue of sources from which information on taxpayers can be collected. This includes public registries, databases maintained by state authorities as well as other sources of information, such as travel agencies, real estate agencies, developers, brokerage houses, providers of luxury services (car dealers, yacht sellers, golf courts owners) or casinos.

The Guidelines also set out a catalogue of persons whose “external indicia” point out that they make substantial expenditures or live “a lavish lifestyle”, which may justify subjecting such persons to control or initiating tax proceedings against them. “Among the persons whose undisclosed income should be of particular interest to the tax authorities are persons acquiring assets of sizeable value, persons with ostentatious wealth or persons suspected of obtaining income undisclosed in their tax returns”, reads the document. Persons who fall within the last category are, among others, purchasers of property, stock exchange investors, young persons who acquire personal property of sizeable value or independent professionals such as medical practitioners, lawyers, architects and also land surveyors, translators and bookkeepers.

The document also contains information on the rules of evidence in tax proceedings, including such issues as allocation of the burden of proof, the strategy of case management, interviews and reviews of expenditures incurred by taxpayers subject to a control. The Ministry of Finance instructs that “when a party invokes actions or events which cannot be documented in a written form (…), it will be of crucial importance to collect evidence that would enable [the authorities] to question the statements made at a later stage of the proceedings on the grounds of inaccuracy or logical inconsistencies”.

“This is a valuable document which provides information on the manner of conducting control by tax bodies. Thanks to the Guidelines, we’ve learnt, often to our surprise, which sources of information are used by the tax authorities and which taxpayers are more likely to be subject to control”, says advocate Robert Krasnodębski, an expert collaborating with the HFHR in the educational programme The Law Clinic “Human Rights and Taxes”. The Guidelines also explain the rules and manner of taking evidence by tax authorities. “These findings are extremely important for protecting the taxpayers’ right to privacy”, adds Mr Krasnodębski.

“We’ve received signals that tax bodies request private entrepreneurs offering luxury goods to provide tax information, also about unnamed taxpayers. The content of the Finance Ministry’s guidelines seems to confirm such practice. The HFHR attempts to probe into the scale of this phenomenon”, says Małgorzata Mączka, a lawyer with the HFHR.