Michał Gosek

Tax adviser (Poland)
Associate Partner
Phone: +48 61 624 49 39

In the article entitled “Special Economic Zones in Poland: Moving tangible assets to another project in the same special economic zone or to another zone” we pointed to a risk to which taxpayers conducting business within a Special Economic Zones in Poland (SEZ) are exposed, namely, that in some cases they may not be protected by the advance tax ruling issued to them by authority of the Polish Minister of Finance. Should the Minister of Economy revoke the permit issued to an enterprise (taxpayer), this will  change the facts and circumstances presented in the taxpayer's application for an advance tax ruling. In view of the above, it is in the interest of enterprises operating within SEZs to additionally consult the authority responsible for issuing or revoking permits on decisions planned by those enterprises. 

With regard to the subject brought up in the previous article, it can be therefore asked where an enterprise intending to move its tangible assets between different investment projects  (conducted within a SEZ)  should apply to make sure that  its permit is not revoked as a result of such a movement, how such an application should be filed, and whether it is at all possible to make sure that the permit is not revoked.

Whenever there are difficulties with the assessment of some present or future facts in terms of the Polish tax law, a Polish taxpayer can apply to the Minister of Finance for a relevant advance tax ruling. The advance tax ruling protects the taxpayer against the negative consequences of observing the instructions set out in the ruling. However, the legislator has not created an institution that would issue binding interpretations of the law with respect to matters which by virtue of separate regulations should be decided by the Minister of Economy. 

Permits issued on behalf of the Minister of Economy by the managing bodies of the respective Special Economic Zones in Poland contain a provision obliging enterprises to e.g. incur, within a SEZ in which they operate and within a strictly defined time limit, investment outlays in a value exceeding a specified amount. Since the legislator has not provided in the regulations for the legal definition of the phrase “within the zone”, it can be assumed to be construed literally in the context of the permit, i.e. as the place within the geographical borders of a given SEZ. And here, unfortunately, enterprises are faced with difficulties because the entities responsible for issuing permits do not represent a unified, and – most importantly – a clear standpoint which would at the same time be substantiated by the law (this issue was discussed in more detail in the previous article).

One of possible solutions is invoking the zone regulations (§10 in the case of the Kostrzyńsko-Słubicka SEZ) by virtue of which the managing body of a given SEZ is obliged to provide enterprises with information necessary to meet the conditions contained in the permit. In such a case the enterprise has a chance to obtain an answer to the question whether, in the opinion of the managing bodies of a given Special Economic Zone in Poland, the movement of some tangible assets between locations held by the enterprise within the SEZ can be classified as a gross violation of the terms and conditions of the permit. An advantage of this solution is that a specific situation of the enterprise, and not the abstract phrase “within the zone”, is analysed. 

A disadvantage is that, unfortunately, due to the lack of specific regulations governing the matter in question, enterprises applying to the Special Economic Zone managing body for its stance must – to a certain extent – rely on the discretionary nature of the answers they receive. In our opinion, of key importance for obtaining an answer that would be seen as favourable by an enterprise may be the question whether both locations constitute an integrated economic area (e.g. whether both locations are within the same urban agglomeration).

However, this solution has another, serious, disadvantage. The body managing a given Special Economic Zone in Poland, in performing the statutory duty of supervising the observance of the terms and conditions of permits, only checks if a given condition has been met and subsequently submits the checking results to the Minister of Economy. It is then up to the Minister of Economy to decide whether a permit condition has been violated and whether the violation, if any, can be classified as gross. As a result, the enterprise can obtain a favourable answer, with a possible reservation that it is only a stance taken by an entity empowered to supervise and check the observance of the terms and conditions of the permit. Therefore, besides the tax advance ruling of the Minister of Finance, the taxpayer may also obtain a written stance of the SEZ managing body which, however, may not be satisfactory enough. It seems, therefore, that the correct procedure would be to (additionally) apply to a “higher instance” authority, which is the Ministry of Economy.

Theoretically, a binding interpretation of the permit content can be obtained e.g. by invoking Article 113(2) of the Polish Code of Administrative Procedure (CAP), according to which the authority who has issued a decision must clarify, by way of a resolution, any doubts regarding the decision content (and, therefore, also the content of the permit issued in this form) if requested to do so by the applying party. This means that the taxpayer can then apply to the Minister of Economy for clarifying the phrase "within the zone" included in the permit. However, our experience shows that in such cases the Ministry of Economy will pass the “privilege” of answering the application to the body managing the relevant Special Economic Zone in Poland by invoking Article 65(1) CAP (if a public administration authority receiving an application is not a competent authority, it must immediately forward the application to the competent authority) and by claiming that the SEZ managing body, as the authority which by virtue of the relevant regulation is competent for issuing permits (e.g. regulation of the Minister of Economy of 2 July 2009 on empowering Kostrzyńsko-Słubicka Specjalna Strefa Ekonomiczna S.A. to issue permits for conducting business within the Kostrzyńsko-Słubicka Special Economic Zone and to supervise the observance of the terms and conditions of permits) is also responsible for clarifying the terms and phrases contained therein. 

In our opinion, this procedure is not quite correct because the regulations (including that referred to above) are exclusively executive acts to legislative acts (in this case, to the Special Economic Zones Act of 20 October 1994 (Journal of Laws of 2007, No. 42 Item 274, as amended, the "SEZ Act")). This means that the SEZ Act should contain a provision which would expressly and in more detail specify the scope of powers to be entrusted. Article 20(1) SEZ Act contains such a provision. It says that the Minister of Economy can by way of a resolution entrust a Special Economic Zone in Poland managing body exclusively with the powers to grant, on its behalf, the permits to conduct business within a SEZ and to supervise, on its behalf, the observance of the terms and conditions of those permits. The powers passed by the Minister of Economy to another authority refer, therefore, exclusively to the issuing of permits and by no means to the issuing of resolutions clarifying the contents of decisions.  

Noteworthy, the SEZ Act allows the passing of the powers regarding the issuing of permits to the body managing a given Special Economic Zone in Poland exclusively on behalf of the Minister of Economy.  However, it does not allow the conclusion that this body is also entitled to clarify the permit content.  Assuming a different standpoint would be in conflict with Article 92 of the Polish Constitution and would illegally exceed the scope of matters regulated by the resolution. In this context, it should also be pointed to the judgement of the Constitutional Tribunal of 25/05/1998 (file no. 19/97) in which the Tribunal stated that “it is inadmissible to have the fundamental elements of legal regulations shaped by the law-making decisions of the executive bodies”. In the case concerned it means that the executive authority in the person of the Minister of Economy is not empowered to extend the scope of powers provided for in the SEZ Act. 

Also worth mentioning is the case law of administrative courts (e.g. the judgement of the Supreme Administrative Court (SAC) of 04/06/2008, file no. II OSK 612/07), which expressly states that the regulations governing the processing of a given administrative issue (in this case, the granting of a permit) are separate from those governing the clarifying of the content of a given decision. This is because these are two separate procedures. As a side note it can be mentioned that, for example, the act says expresis verbis that the Minister of Economy is the authority empowered to change the decision content.

But even assuming that, by issuing a permit, the managing body of a Special Economic Zone in Poland acted in the capacity of a public administration authority and as such was to examine the enterprise's application, one should conclude that the taxpayer would be then protected exclusively by virtue of the principle of strengthening the citizens' trust in administration authorities, which would imply for the taxpayer the necessity to bear the consequences of a wrong interpretation, should such be issued by the SEZ managing body. Passing the duty to clarify the permit content on the managing body of a SEZ is all the more questionable as the power to revoke the permit rests with the Minister of Economy.

Another argument speaking against entrusting a SEZ managing body with the duty to clarify the permit content is the fact that any clarification of the phrase “within the zone” used in the permit would mean going beyond the content and the scope of the decision, i.e. the permit. This is because when issuing permits, the SEZ managing bodies refer to the SEZ Act whose Articles 16(1) and 16(2) (definition of the basis for enjoying the state aid granted according to this act) and Article 12 contain the phrase “within the zone”. The clarification of the above phrase would de facto mean that the managing body of a Special Economic Zone in Poland would be forced to interpret the law, which it is under no circumstances empowered to do.  

Given the lack of provisions regulating in detail the issue in question, entrusting the interpretation of the decision to the managing body of a Special Economic Zone in Poland additionally implies the risk that entities operating within different SEZs in Poland will obtain entirely different answers. It may also happen that the SEZ managing body will consider the phrase “within the zone” as going beyond its scope of powers, because this would involve the interpretation of the law (that is, the SEZ Act, which in specifying the terms and conditions of granting the permit uses the phrase “within the zone”), which it is under no circumstances empowered to do. On principle, one should agree with such a standpoint of the managing body of a SEZ in Poland as, indeed, the problematic phrase "within the zone" is cited from the Act in each permit, so the clarification of this phrase should be considered not as the clarification of the decision content but rather as the interpretation of a statutory provision.  

It seems, therefore, that the only thing enterprises can do is send the enquiry to the Minister of Economy and hope that the Minister will take a stance. After all, public authorities are supposed to answer the questions asked by citizens. It turns out, however, that such a solution does not secure the taxpayer, either. This is because, in our opinion, the conditions specified in Article 9 CAP are not met. According to that article, public administration authorities are obliged to properly and sufficiently inform parties about the factual and legal circumstances that may influence their rights and obligations being the subject matter of administrative procedures. Authorities have to make sure that the parties and other persons participating in the procedures do not suffer any loss or harm due to the ignorance of the law, and therefore provide them with necessary explanations and instructions.

The problem is that the linguistic interpretation of this regulation seems to reduce the duty of the public authorities to issues to be tackled under the administrative procedures. Such a standpoint is also reflected in the case law (e.g. judgement of the SAC of 20/06/1997, file no. SA/Sz 1114/96, or of 21/05/1999, file no. I SA/Gd 754/97). Moreover, in its judgement of 28/08/1996 (file no. SA/Ka 1500/95) the SAC stated that: “It is obvious that public authorities should provide information compliant with law also outside the procedure itself, but any irregularities in this respect cannot directly affect the assessment of whether the appealed decision is compliant with the law. They may have other consequences, especially those regarding official responsibility. (...) It should once again be emphasised that even incorrect instruction of a taxpayer cannot exempt that taxpayer from the tax obligation, which is directly stipulated by law.  Nobody, including taxpayers, can justify themselves by pleading the ignorance of the law according to which they act.   If any errors occur in instructions given to taxpayers, they can be taken into account when considering the forgiving of e.g. interest on tax arrears. But they cannot invalidate the tax obligation itself, which arises according to the law.” The judgement cited above referred to the taxation with VAT. Nevertheless, its assumptions also apply to the dealings with other ministries.

A not very optimistic conclusion for the enterprises is that the current legislation lacks the mechanisms that would allow obtaining a binding answer to questions regarding the planning of activities within the Special Economic Zones in Poland. Theoretically, an authority is obliged to answer the questions it receives. But its answer will not be binding on the enterprise. It is also difficult to specify a deadline for such an answer. Although it is not very probable that an authority will provide a taxpayer with an answer and later on will punish that taxpayer for the actions taken based on that answer, but such a situation cannot be entirely ruled out. 

However, in view of the serious and justified doubts that the taxpayers have as regards the interpretation of the phrase “within the zone” used directly in the SEZ Act, and the serious tax and economic consequences these doubts may have, and given the fact that the respective administration authorities do not consider themselves competent for the interpretation of this phrase, it should be postulated that the lawmakers should include a legal definition of the above phrase in the glossary to the SEZ Act.  This would allow resolving the doubts of the taxpayers and administration authorities once and for all, and would clarify the tax and legal issues related to the taxpayers' activities. The lack of a legal definition of the phrase “within the zone” and the lack of an administration authority which would consider itself competent to clarify it, is a serious legislative gap which should be remedied as soon as possible. According to the Polish Constitution, the taxpayers' fiscal duties, and thus also any related situations that may directly affect those duties, including especially serious business transactions, should be clear and understandable to the taxpayer. This is why the legislation provides for the right of the taxpayer to apply for advance tax rulings. This right is included in both the Polish Tax Act and Article 10 of the Polish Freedom of Economic Activity Act (FEA Act). The problem is that, with regard to the tax issues covered by it, Article 10 FEA Act refers to the Tax Act. And the vicious circle is complete.

Our tax advisers in Poland working in Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw will gladly review your tax documentation related to your investment in the Special Economic Zones in Poland and propose a solution allowing minimising your tax risks. We are also on hand to answer any other tax-related questions you may have. Our offices offer legal support with conducting business within a SEZ and with any other aspects of your operations.