The tax authorities target those "living beyond their means”
Tax authorities in Poland are increasingly active in checking taxpayers whose spending exceeds their officially declared income. This is not limited to people of very high net worth - inspections also cover people on the minimum wage who make purchases out of line with their declared income.
Employees of Polish tax offices (urząd skarbowy) are actively looking for so-called income from undisclosed sources. According to experts, the number of such proceedings is rising steadily. Taxpayers receive summonses requiring them to explain in detail where they got the funds for specific purchases - from real estate and cars to other valuable assets.
The way the tax authorities operate is simple: officials compare the value of the assets acquired with the taxpayer's income history as shown in their tax returns. If there is a significant gap between spending and income, the office opens clarification proceedings. The burden of proving that the funds are of legal origin then falls on the taxpayer.
What exactly does the Polish Tax Office check?
The scope of the checks carried out by the tax authorities is wide and covers a variety of life situations. Officials have access to many databases and registers, which allows them to select taxpayers for review effectively.
The most commonly checked cases are:
- Buying a car by someone who has so far declared no income or very low income
- Acquiring real estate by a taxpayer who files returns on the minimum wage
- Costly renovations and investments that are not covered by official earnings
- Regular cash deposits into bank accounts that do not match the declared sources of income
- Spending on luxury goods, such as yachts, works of art or jewellery
It is worth stressing that the tax authorities use advanced analytical tools and exchange information with other institutions - including banks, notaries and even foreign tax administrations. Hiding significant spending from the tax authorities is now much harder than it was just a few years ago.
The 75% penalty rate - how does it work and who does it affect?
The financial consequences of having undisclosed income detected are extremely severe. Under the Personal Income Tax Act, income that is not covered by disclosed sources or that comes from undisclosed sources is taxed at a penalty rate of 75%.
This tax is calculated on the excess of spending over documented income. This means that if a taxpayer spent PLN 200,000 in a given period but declared income of PLN 50,000, then the 75% tax will be calculated on PLN 150,000 - that is, as much as PLN 112,500. On top of this come late-payment interest charges, which can significantly increase the total liability.
Importantly, the 75% rate is a penalty rate and is one of the highest in the Polish tax system. Its purpose is not only to top up the budget, but above all to deter people from hiding income from the tax authorities. In practice, the amount payable may exceed the value of the very purchase that attracted the tax office's attention.
Can the 75% rate be avoided?
Yes - the key is to successfully prove the legal origin of the funds. If a taxpayer can show that the money for the purchase came from legal, though previously undeclared, sources, the tax authority should refrain from applying the penalty rate. Even so, in such a situation it may still be necessary to pay "ordinary” tax on that income together with interest.
Savings "under the mattress” and family gifts - are they an effective defence?
One of the arguments most often raised by taxpayers summoned to give explanations is that they hold savings accumulated in cash - colloquially known as savings "under the mattress”. However, as experts, including lawyer Grzegorz Gębka, emphasise, explanations of this kind rarely convince officials.
The problem is that cash savings can hardly be documented in a credible way. The tax authorities expect concrete evidence: bank statements, contracts, receipts or tax returns confirming the earlier income from which the savings are said to have come. A taxpayer's statement alone is not sufficient evidence.
Another popular line of defence is to rely on gifts from family members. Under the Inheritance and Gift Tax Act, gifts within the so-called zero tax group (closest family) of up to PLN 36,120 do not need to be reported to the Polish Tax Office (urząd skarbowy). The same applies to family loans up to the same amount. Taxpayers also cite income exempt from personal income tax (PIT) - for example, from selling mushrooms or forest fruits.
When is a gift not enough as an argument?
It is essential that the gift is properly documented - ideally by bank transfer and a written gift agreement. The tax authorities may challenge a gift if the donor did not themselves have sufficient funds, or if the amount of the gift is disproportionately high compared with their financial means. The tax authorities have the right to verify the donor's financial situation, which means that fictitious gifts will quickly be exposed.
How to prepare for a tax inspection
The best strategy is prevention and properly documenting all sources of income as you go. However, if a taxpayer has already received a summons from the tax office, it is crucial to take immediate and well-considered action.
Here are the most important steps to take:
- Do not ignore the summons - failing to respond is interpreted against the taxpayer and may speed up the issuing of an assessment decision
- Contact a lawyer who specialises in tax law - professional advice at an early stage of the proceedings can protect you from the 75% penalty rate
- Gather all documents confirming the legal origin of the funds: contracts, transfers, tax returns, notarial deeds
- Prepare a consistent and credible argument - inconsistencies in explanations are the most common cause of unfavourable outcomes
- Consider voluntarily disclosing the income before proceedings are formally opened - in some cases this makes it possible to avoid the harshest consequences
It is worth remembering that proceedings concerning undisclosed income are one of the most difficult kinds of dispute with the tax authorities. Defending yourself without the support of an experienced lawyer often ends in an unfavourable decision and the need to pay huge sums.
Do not wait for a summons - protect yourself now
The growing activity of the tax authorities in detecting undisclosed sources of income is a clear signal that it is worth keeping proper records of your finances. Whether you are only planning a larger purchase or have already received a summons from the tax office, professional legal help may prove crucial to protecting your assets.
Contact our firm today. Our tax law specialists will analyse your situation, help prepare the documentation and represent you in proceedings before the tax authorities. Do not risk a 75% tax - act now, before it is too late.
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