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August 7, 2024
2024-1516

Polish Constitutional Court rules certain MDR provisions unconstitutional as violating tax advisors' legal professional privilege

On 23 July 2024, the Polish Constitutional Court ruled that certain provisions providing mandatory disclosure rules (MDR) in amendments to the Tax Ordinance1 are unconstitutional (ref. K 13/20)2 to the extent that they violate the legal professional privilege of tax advisors.

From 1 January 2019, based on the Tax Ordinance,3 these provisions' MDR obligations have been imposed on promoters, beneficiaries and service providers, including those who are covered by legal professional privilege. The MDR provisions included (the highly controversial) possibility of release from legal professional privilege and, if not released from professional privilege, the obligation to notify beneficiaries and/or other obligated parties and submit an anonymized report.

Following the implementation of the MDR provisions in Poland, the National Council of Tax Advisors filed a complaint objecting to these regulations in December 2019, indicating a violation of a number of constitutional provisions, including those guaranteeing legal professional privilege for professions of public trust, as well as the right to privacy and protection of the secrecy of communications. Highlights of the Constitutional Court's 23 July 2024 judgment follow.

Provisions deemed inconsistent with the Constitution

Based on the Constitutional Court's judgment, the following MDR provisions were deemed as unconstitutional:

  • Articles 86b, 86d, 86e and 86f in connection with Article 86a of Tax Ordinance and in connection with Article 37(4)(2) of the Act on Tax Advisory,4 insofar as they create an obligation for tax advisors covered by legal professional privilege to provide information on the tax arrangement and do not sufficiently specify the prerequisites and procedure for exclusion or exemption from the obligation of legal professional privilege, are inconsistent with Article 2 in connection with Article 17(1) and with Articles 49 and 51(2), in connection with Article 31(3) and Article 47 of the Constitution of the Republic of Poland.5
  • Article 28(3) of the Act of 23 October 2018 amending the Personal Income Tax Act, Corporate Income Tax Act, Tax Ordinance Act, and certain other acts to the extent that it obliges a promoter who is a tax advisor to provide the Head of the National Revenue Administration with information on a tax arrangement within the meaning of Art. 86a section 1 item 10 of the Tax Ordinance (other than a cross-border tax arrangement within the meaning of Article 86a section 1 item 12 of the Tax Ordinance, which was implemented before the entry into force of the Act of 23 October 2018) is inconsistent with Article 2 of the Constitution of the Republic of Poland.

Currently, only an operative part of the judgment (as cited above) appears on the Constitutional Court's webpage, without the factual and legal basis for the judgment. As a result, there still might be some doubts as to the scope of the judgment.

According to the announcement published on the Constitutional Court's website6 and the verbal justification presented during the announcement of the judgment, the obligations regulated in Article 86b sections 5-6 of the Tax Ordinance should not apply to tax advisors7 (i.e., the requirement to inform other obligated parties and submit anonymized report MDR-2). Furthermore, the content of Article 86d section 5 of the Tax Ordinance should not apply to tax advisors8 to the extent that it imposes an obligation on them to inform entities other than clients to whom they are bound by legal professional privilege. Analogous effects should apply to the legitimacy of the obligations regulated in Article 86e and Article 86f of the Tax Ordinance. The judgment also provides that a client as such is not the disposer of the legal professional privilege of the tax advisor and there is no possibility for the client to release an advisor from their legal professional privilege.

Given that the Constitutional Court was bound by the scope of the application, the judgment related only to tax advisors and their legal professional privilege.

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Endnotes

1 Act of 23 October 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Tax Ordinance Act, and certain other acts (J.L. 2018.2193) ("Tax Ordinance").

2 Judgment of Constitutional Tribunal of 23 July 2024, K 13/20.

3 Act of 29 August 1997 — Tax Ordinance (J.L. 2023.2383).

4 Act of 5 July 1996 on Tax Advisory (J.L. 2021.2117).

5 Constitution of the Republic of Poland dated 2 April 1997 (J.L. 1997, no.78, item 483).

6 Source: https://trybunal.gov.pl/postepowanie-i-orzeczenia/komunikaty-prasowe/komunikaty-po/art/12841-tajemnica-zawodowa-doradcy-podatkowego-w-swietle-nowelizacji-przepisow-ordynacji-podatkowej-przekazywanie-informacji-o-schemacie-podatkowym.

7 According to Art. 86b section 5 of the Tax Ordinance where the promoter's obligation to report a tax arrangement other than a marketable tax arrangement would breach the legal professional privilege and the taxpayer has not relieved the promoter of the duty to comply in this respect; where more than one promoter is required to provide information about a tax arrangement, the promoter indicated in section 4 shall, in addition to informing the beneficiary, inform in writing other persons required to file information about a tax arrangement who are known to him that he will not file information about the tax arrangement to the Head of the National Revenue Administration. According to Art. 86b section 6 of the Tax Ordinance, within 30 days from the day when the promoter informed the beneficiary or other persons about the obligation to file information about a tax arrangement, the promoter shall notify the Head of the National Revenue Administration (MDR-2 form) that the beneficiary or other persons have been informed about the obligation to file information about a tax arrangement to the Head of the National Revenue Administration, indicating that date when the tax arrangement was made available or an action in the implementation of the tax arrangement was made and the number of persons he has informed under section 4 or 5.

8 According to Art. 86b section 5 of the Tax Ordinance where the service provider's obligation to report a tax arrangement would breach the legal professional privilege and the beneficiary has not relieved the service provider of the duty to comply in this respect, the service provider shall immediately inform, in writing, the beneficiary or the promoter commissioning the actions that in his opinion the arrangement qualified as a tax arrangement to be reported to the Head of the National Revenue Administration. In addition, within the deadline referred to in Art. 86b section 4, the service provider shall notify the Head of the National Revenue Administration about the situation referred to in the preceding sentence, indicating the day when he noticed that the arrangement qualified as a tax arrangement and the number of persons whom he has informed about the obligation to file information to the Head of the National Revenue Administration (MDR-2 form).

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Contact Information

For additional information concerning this Alert, please contact:

EY Doradztwo Podatkowe Krupa sp.k., Warsaw

Ernst & Young LLP (United States), Polish Tax Desk, New York

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
 
 

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