Polish Deal: tax amnesty removed from the statute

by Maria Wośkowiak

16 May 2022

The amended Polish Deal cancels tax amnesty, i.e. a temporary flat rate income tax.

The law effective from 1 January 2022 provides for a temporary flat rate tax on income earned in the past but not disclosed, in whole or in part, for PIT or CIT purposes in Poland. That flat rate tax is time-limited and offers a preferential income tax rate of 8%. The lawmakers have decided to cancel this option as of July 2022.

Vanishing laws

In the current legislation status, taxpayers wishing to use this form of tax amnesty between 1 October 2022 and 31 March 2023 may apply to competent tax authorities for a flat rate tax.

In practice, however, they will not be able to use it because the relevant provisions will be removed from the statute on 1 July 2022, i.e. before anyone can benefit from them. Therefore, further doubts arise if this is constitutional at all  – a flat rate tax on undisclosed income is favourable to taxpayers and withholders, and changes that are unfavourable to taxpayers cannot be made during the tax year. Is this another paradox of Polish Deal?

The issue of compliance with the Constitution

The Ministry of Finance decided to delete the respective provisions as it feared that the mechanism was unconstitutional. President Andrzej Duda requested the Constitutional Tribunal to conduct a follow-up investigation into the constitutionality of the legislation. The President claimed that the statute: 

• violated the principle of trust in the State and its laws (Article 2 read together with Article 217 of the Constitution);
• violated the principle of equality (Article 32(1) of the Constitution);
• violated the principle of universal and equal taxation (Article 84 of the Constitution);
• violated the principle of common good and the principle of social justice (Articles 1 and 2 of the Constitution).

In his opinion, the provisions governing the temporary flat rate income tax violated rights protected by the Constitution and it is hard to disagree with him.

The provisions on the temporary flat rate income tax were criticised many times as unconstitutional already during parliamentary work on the statute. Especially the rate of the temporary flat tax aroused much controversy. The 8% flat rate, with PIT rates at 17% and 32% paid by honest taxpayers, violates the principle of equality before the law. The temporary flat rate income tax favours dishonest taxpayers over law-abiding ones.

There were attempts in the past to implement similar solutions but the Constitutional Tribunal found them to be unconstitutional. The Ministry of Finance argued that this solution was different and checked it for compliance with rulings of the Constitutional Tribunal and with the Polish Constitution.

It was found, however, to be insufficient and doubts about the regulations remained. As the Ministry of Finance feared that the Tribunal would abolish the temporary flat rate income tax following its launch, it decided to remove the provisions from the statute.