Even though preventative mechanisms exist in Poland to curb disputes between taxpayers and tax authorities, the national regulations do not foresee effective measures to resolve already existing conflicts outside of court proceedings. Alternative dispute resolutions (ADR) could be beneficial for both tax officials and taxpayers by ensuring fast action from both parties in the case of a dispute, which could help avoid substantial costs of proceedings. This finding is based on a report entitled “Out-of-court dispute resolution methods, only benefits” prepared by PwC Poland.
For years, taxpayers, practitioners, and judiciary representatives have been advocating for the introduction of out-of-court dispute resolution methods into tax law. Experiences from other countries show that the operation of ADR allows reductions in the costs associated with tax collection, improves relations between tax authorities and taxpayers, and contributes to a more user-friendly and attractive image of the national tax system. Our analyses showed that some of the most widely used ADR methods in Europe and worldwide include mediation, tax agreements/settlements, the existence of specialized courts, various types of monitoring, special procedures in the area of tax inspections, and assistive figures like Taxpayer Ombudsmen and Taxpayer Rights Charters.
“From the analysis of foreign tax systems, it is evident that tax disputes do not always have to end in court. The need to introduce out-of-court dispute resolution methods into the national tax law system was pointed out by, among others, the Codification Commission for General Tax Law, which in the draft Tax Ordinance of 2017 (the basis for the government’s 2019 project, which was not passed), included proposals for solutions such as mediation and tax agreements. The National Chamber of Tax Advisors, which created a Mediation Center, and the All-Poland Association of Administrative Judges, which proposed the introduction of settlements and mediation within the framework of administrative court proceedings, also highlighted this need. Alternative dispute resolution methods can be an effective way of resolving tax disputes in a manner satisfying both taxpayers and tax authorities,” says Tomasz Kassel, Managing Partner of the Tax, Legal and People Department at PwC Poland.
Benefits of ADR include expeditiousness in resolving matters – waiting for a final resolution from a national court/tribunal often takes more time than reaching an agreement in mediation or negotiation. Prolonged court disputes have a negative impact on the taxpayer’s operations and often on their financial liquidity. Plus, reaching a resolution faster means less expenditure associated with conducting a dispute in court (by both taxpayers and tax authorities). ADR is also meant to aid the court system and relieve it wherever possible and purposeful. Easing the capacity of courts, allowing for a reduction in waiting time for a ruling in matters where no amicable solution has been reached, increases the effectiveness and efficiency of justice. Importantly, ADR is designed to enable mutually beneficial agreements to be reached, taking into account the human aspect of cooperation between taxpayers and authorities, making the tax system seem less oppressive and more friendly.
“We are watching with interest the global trend of strengthening ADR solutions. We also see the need to introduce such measures into the national tax system. The introduction of some of them (e.g. mediation, tax agreements, taxpayer rights charter, or taxpayer ombudsman) was within our reach. We hope that in the near future we will be able to use modern methods of resolving tax disputes also at the national level” – adds Andrzej Zubik, Partner at PwC Poland, Leader of PwC’s Tax Controversy & Dispute Resolution practice.
Mediation is the most popular ADR mechanism. In Canada, mediation can be conducted at the appeal stage (Mediation Process for Appeals). Mediation has been in effect for nearly 20 years in the USA. There is also a definite mode for small businesses, Fast Track Mediation. Since 2003, in South Africa, mediation can also be conducted in cases where tax evasion has been identified by tax authorities. In the UK, over a thousand applications for mediation were submitted in 2022-2023, and in Belgium, tax mediation issues are taken care of by a dedicated body: Tax Mediation Service. In the Netherlands, if an agreement is reached through mediation, the parties sign a settlement that binds both sides. In Ukraine, even though mediation is not directly prescribed by law, it is used in practice during tax inspections. In Italy, an agreement reached after mediation is deemed void if the tax is not paid.
“From the experience of foreign jurisdictions, it appears that mediation is one of the most popular ADR methods in the world. It provides an opportunity for quicker resolution of matters and for limiting costs associated with conducting prolonged court proceedings. At the same time, mediation does not undermine the role of courts in administering justice – at most, it reduces the number of cases referred to courts, or, depending on the model adopted, modifies their place in this process” – adds Mikołaj Kondej, Senior Manager at PwC Poland.
But ADR is not just mediation. Taxpayer Rights Charters operate in the USA, Belgium, Italy, and Spain. In Canada, the settlement process at the appeal stage (Settlement process for Appeals) is a form of negotiation. The USA operates both a Pre-filing Agreement Program, which makes voluntary tax inspections possible before the tax return is filed, and a Fast Track Settlement Program, which enables mediation for situations that have not been referred to court proceedings. In the Netherlands, horizontal monitoring involves enhanced cooperation between taxpayers and tax authorities. A specialized court – the Arbitration Tribunal – operates in Portugal, where over 800 disputes were settled in 2022 with only 245 appeals filed. In Germany, although the Final Findings institution (Tatsächliche Verständigung) is not directly derived from the law, it was recognized by administrative court rulings as applicable. In Italy, a settlement can be reached during court proceedings and if a joint position is worked out by authorities and taxpayers, an official report from negotiations is drawn up and the amount of punitive interest is reduced. In Turkey, tax settlements can be made during and after a tax inspection. In Australia, there are yearly accounting agreements (Annual compliance agreements). In South Africa, Kenya, Pakistan, Australia, UK, Belgium, and Portugal, a Taxpayer Ombudsman operates.
“The high level of complexity of the tax system results in a low rating – Poland ranks 33 out of 38 in the recent International Tax Competitiveness Index for 2023. This unfortunately affects the perception of the national tax system on the international stage, as being complicated and unfriendly to taxpayers and investors. The introduction of modern out-of-court dispute resolution methods would undoubtedly positively influence the perception of our conducted tax policy” – says Karolina Rutkowska-Barnaś, expert at PwC Poland.
The introduction of a tax agreement, a Taxpayer Ombudsman or a Taxpayer Rights Charter would require a change of approach by tax authorities to tax disputes. Such a change would indicate not only the desire to keep up with international trends but, above all, the maturity of the national tax system.
