Persistent Failure to Pay Taxes vs. Failure to Disclose the Tax Base or Subject: Legal Consequences, Interpretations, and How to Avoid Penalties

The Polish tax system is complex and requires regular settlement of obligations. Delays in payments may lead to serious legal consequences, including high fines and criminal liability. Below we explain what “persistent” means in the context of unpaid taxes, what the legal consequences are, and how penalties can be avoided.

Consequences of Not Paying Taxes

Failing to pay taxes on time carries several serious consequences:

1. Demand for Payment: Initially, the taxpayer receives a demand for payment. Ignoring this may lead to further actions by the tax authorities.
2. Tax Audit: Unpaid taxes can result in a tax audit, which may uncover additional irregularities. This audit can reveal not only the tax arrears but also other potential inconsistencies in tax documentation.
3. Interest for Delay: Delays come with the obligation to pay interest, increasing the total liability. Interest is calculated based on statutory rates and can significantly affect the total debt. It’s important to note that interest is charged from the day the payment deadline was missed until the debt is paid.
4. Fiscal Criminal Liability: Persistent evasion of tax payments is treated as a tax offense and may result in fiscal criminal liability.

Persistent Evasion of Tax Payment

According to Article 57 of the Fiscal Penal Code, persistent evasion of tax payments is considered a tax offense. The term “persistent” is not precisely defined by law, meaning each case is assessed individually. Persistence may include:

• Repeated delays: Recurring, cyclical delays may indicate persistent evasion. Consistently missing payment deadlines can be viewed as wilful avoidance of tax duties.
• Single but long-term arrears: Even a one-time but long-standing delay can be considered persistent, especially if the taxpayer had the ability to pay but failed to do so.

Persistence and Intentional Behaviour

In assessing persistence, it is crucial to determine whether the taxpayer deliberately and consciously avoided paying tax, despite having the objective ability to do so.

• Conscious decisions: If the taxpayer had financial means to pay the tax but deliberately allocated those funds elsewhere, this behaviour may be classified as persistent evasion. For example, investing available funds in business development instead of paying tax arrears may be considered intentional avoidance and thus persistent behaviour.
• Exceptional circumstances: Delays due to extraordinary events such as a financial crisis, natural disaster, or the need to cover unforeseen expenses may not be deemed persistent. Key to this assessment is providing documentation proving financial hardship and efforts made to settle the liabilities. For example, a health crisis that prevents timely payment may be excused if the taxpayer can show consistent efforts to resolve the debt.

Documentation and Partial Payments

Even partial repayments may indicate the absence of bad faith and a willingness to meet tax obligations. Documentation proving efforts to pay despite difficulties can be beneficial in fiscal penal proceedings. Keeping records such as transfer confirmations or correspondence with tax authorities can significantly reduce potential penalties.

Penalties for Persistent Non-Payment of Taxes

The Fiscal Penal Code outlines separate penalties for different forms of tax law violations. A separate (though related) case is the failure to disclose the subject or basis of taxation to the relevant authority, or failure to submit a tax return.

The subject of taxation is the legal or factual situation which, under tax law, triggers a tax obligation. The tax base is the amount on which tax is calculated. These actions may be considered either a fiscal crime (Article 54 §1 and 2 of the Fiscal Penal Code) or a fiscal offense (Article 54 §3), depending on the value of tax at risk.

According to Article 54 of the Fiscal Penal Code, a taxpayer who, in order to evade taxation, fails to disclose the tax base or subject to the relevant authority, or fails to file a return, thereby causing a risk of tax loss, is subject to a fine of up to 720 daily rates, imprisonment, or both.
If the amount of tax at risk is minor, the offender may face a fine only.

• Penalty amount: A fine for persistent failure to pay taxes (Article 57 of the Fiscal Penal Code) may range from one-tenth to twenty times the minimum wage. In 2024, the minimum wage is PLN 4,300.00, meaning the fine may range from PLN 430.00 to PLN 86,000.00.
• Maximum fine: In extreme cases, when the taxpayer fails to disclose the subject or basis of taxation or fails to file returns, the fine can reach up to PLN 42 million. While such cases are rare, they illustrate the severity of consequences for serious tax law violations.
• Penal ticket (fine without court): For minor offenses (up to PLN 21,500.00), the authority conducting the fiscal penal proceedings may impose a fine through a penal ticket, up to PLN 21,500.00. If the taxpayer disagrees with the fine, the case proceeds to court.

How to Avoid Penalties?

To avoid penalties for persistent failure to pay taxes, consider the following steps:

1. Timely payments: Regular and timely settlement of tax liabilities is the best way to stay compliant. Automated reminders and accounting systems can help maintain payment schedules.
2. Voluntary disclosure (czynny żal): If the taxpayer notices an issue, it should be reported to the tax authorities before proceedings are initiated. Voluntary disclosure may mitigate consequences and demonstrate good faith.
3. Request for payment deferral or installment plan: In case of financial difficulties, it is advisable to request a deferral or payment in installments. If justified and well-documented, such requests may be approved.
4. Request for debt remission: One may also apply for partial or full cancellation of tax liabilities, depending on financial standing and payment history. However, remission is rare and requires solid justification.

Complying with tax obligations and taking proactive steps to resolve payment issues allows for peace of mind in running a business. Regular settlements and using available support mechanisms such as deferrals or installment plans can help avoid serious issues and allow focus on growth.

If in doubt about your tax situation, it’s advisable to consult a tax advisor or legal counsel who can help manage your obligations and avoid unpleasant consequences.