The case that Paweł Kuźmiak – tax advisor, Partner at DSK, and his team conducted for one of our clients for the last few years, ended yesterday in the Supreme Administrative Court. The Supreme Administrative Court ruled that each executed donor’s instruction may reduce the tax base for inheritance and gift tax. This also applies to situations in which the recommendation serves the recipient himself and is beneficial to him. When the donor instructs the recipient to buy, for example, a house or a car with the money received as a gift, the value of this purchase will reduce the taxable value of the donation.
As a result, if, for example, the entire amount of the donation is spent on fulfilling the order – the recipient will not pay the inheritance and donation tax at all. This may be of great importance, especially for donations between strangers, who cannot benefit from the exemption provided for donations between relatives. The use of instructions may also be useful in the activities of charity organizations that transfer money to their charges, e.g. for treatment, purchase of rehabilitation equipment, stays in sanatoriums, etc.
The judgment is a precedent. It is very important for the Supreme Administrative Court to emphasize that where tax law uses the terminology of civil law, the achievements of civil law should be respected, and not inventing new – tax – meanings of terms and legal institutions, additionally to the detriment of the taxpayer.
The Supreme Administrative Court also strongly reminded that the tax law should be interpreted strictly and it is not permissible to use interpretation by analogy or going beyond the statutory formulations – in order to tax a given factual situation. Only what the legislator has explicitly recognized as taxable should be taxed. All other situations, even if they appear similar, are legally not taxed.
Such an approach is particularly valuable today, when tax authorities try to seek budgetary revenues in various ways, undermining ex post taxpayers’ decisionsJudgments like yesterday restore legal certainty.
We are still waiting for a written justification, and a commentary is in preparation. Approving, of course!
Ref. act: II FSK 1525-1526/16