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Friday, June 14, 2024

Donation tax. Who is exempt from tax. Resolution of the Supreme Administrative Court

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The Supreme Administrative Court has passed an important resolution on the gift tax. It shows that the condition for the tax exemption of cash donations between relatives is documenting the payment of these funds to the payment account in a way that ensures identification of the parties to the contract.

– Introduction, e.g. the condition of documenting the receipt of funds with proof of their transfer to the account is aimed at ensuring the tightness of the tax system and preventing actions aimed at introducing funds of undetermined origin into circulation – said Judge Stanisław Bogucki in the justification of the resolution of the Financial Chamber of the Supreme Administrative Court. The Supreme Administrative Court, composed of seven judges, adopted Monday’s resolution after considering last year’s question from the Commissioner for Human Rights. According to the Ombudsman Marcin Wiącekwhich in November last year formulated his question, it is unjustified in the case of donations between close relatives to impose or exempt from tax only because of the method of transferring the money being the subject of the donation.

What exactly did the Ombudsman ask about the gift tax?

The Ombudsman’s question concerned the provision of the Act on inheritance tax and donations, according to which the acquisition of ownership of things or property rights by a spouse, descendants, ascendants, stepson, siblings, stepfather and stepmother is exempt from tax. However, the taxpayer is obliged to report the acquisition of property to the tax office within six months, and when the subject of the acquisition is cash (…), the receipt of cash should be documented with proof of transfer “to the buyer’s payment account, to his account, other than the payment account, in bank or cooperative savings and credit union or by postal order. In a question to the Supreme Administrative Court, Wiącek indicated that it was not known whether in such situations it is necessary to document the transfer of funds only by bank transfer, or whether it is possible to transfer funds in cash and then pay them by the beneficiary to his own account. As the Ombudsman argued, the construction of tax regulations “should not become a kind of trap for taxpayers – especially since in this case we are dealing with an exemption aimed at supporting citizens in meeting their family needs”. – The current state means that citizens must refer cases to administrative courts to prove that the conditions for obtaining a tax exemption are met in the case of cash donations, then documented with their own payment to the recipient’s account – indicated the Commissioner for Human Rights and added that in such cases citizens’ complaints are sent to his office . Prosecutor Przemysław Słupiński, representing the National Prosecutor’s Office, also presented the position during the Monday meeting that the requirement to document the donation set out in the provision in question “should be treated only as a condition of a technical nature aimed at confirming the factual, real nature of the donation made” and it is also met, when “cash is (…) transferred to the recipient in cash”.

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The NSA sided with… the regulations

However, the Supreme Administrative Court decided that the expression from the Act on Inheritance and Gift Tax referring to “documenting” the receipt of a donation “should be understood as meaning that a sufficient condition to take advantage of the tax exemption regulated in this provision is to document the transfer of funds to the indicated provision by the donor to the recipient. As judge Bogucki pointed out, the introduction of this regulation to the provision “was a deliberate effort of the legislator”. – It is impossible to guess how the payment of funds to the recipient’s own account would prove, and such positions are formulated, that it serves the performance of the donation agreement – emphasized the judge. He added that “if the purpose of the analyzed regulation is to confirm the fact of making a donation, it becomes all the more necessary to establish that the donation was made to the recipient’s account by the donor.” “But how to do it, if we refrain from verifying the person making this payment?” the judge asked. As he pointed out, in such a situation it would be impossible to “guess how a payment made by the recipient to his own account can be considered a donation”. Therefore, such documentation of the payment – as the judge continued – must allow for the identification of the parties to the contract and “only then can one be sure that a more favorable taxation model has been applied in a situation corresponding to the intentions of the legislator”. According to the Supreme Administrative Court, other – apart from those indicated in the act – activities “in order to document the receipt of cash as a donation (…) are insufficient or unnecessary”.

Main photo source: Shutterstock

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