On the need to regulate the legal concept of paying agents withholding taxes at source

Abstract

The concept of paying agent is applied in the Polish taxation system relatively widely. In fact, there has been a tendency to extend its applicability. This tendency would not be a reason for concern if it were not for the fact that there is little reflection among legal scholars and commentators on the legal concept of the term paying agent. In consequence, paying agent is used to refer to two markedly different legal concepts without drawing any distinction in terminology. More specifically, the word paying agent is used to refer not only to a person with the normative characteristics of a paying agent as specified in the Polish Tax Act [Polish: Ordynacja podatkowa], but also to a person required by law to withhold tax amounts at source, but for which no such normative characteristics are defined. Moreover, the provisions of the Polish Tax Act that deal with paying agents are applied in either case without drawing any distinctions, although there are serious legal questions to be answered as regards the application of the provisions to the latter, i.e. a person required by law to withhold tax at source. The existence of these two types of payers of taxes has significant practical implications. The differences between these two types should force lawmakers to pass provisions that distinguish, at least partially, between these two legal concepts. In particular the authors recommend to make statutory rules dealing with the expiry of the obligations of the taxable person. According to section 59(1)(2) of the Polish Tax Act, when a paying agent collects the tax due from the taxable person, the tax liability expires. This is the case only when the taxable person is legally obligated to pay tax or make a payment on account. However, if no tax statute imposes such an obligation on the taxable person, it is logical that the withholding of a payment on account by the paying agent may not result in the taxable person’s obligation expiring, as no such obligation exists. If a person is not legally required to make a tax payment or a payment on account and only a paying agent is legally obligated to withhold a payment on account at source, then such withholding only creates a right for the person from whom the payment on account was withheld to treat the amount withheld as a future tax liability, which does not exist at the moment of the withholding and which may arise in the future. Consequently, if the withholding of a payment on account by the paying agent only results in the taxable person’s right to deduct the amount withheld from the amount due from the taxable person, then the provision of s. 59(1)(2) of the Polish Tax Act must not apply. The authors indicate also that the meaning of s. 30(1) of the Polish Tax Act is such that the paying agent is liable for his failure to withhold a tax payment or to transfer the tax withheld to the relevant tax authority. In the opinion of the authors’, the applicability of this provision to the paying agent is at least questionable. Consequently, it is postulated in the article to amend the relevant provisions of s. 30(1) and s. 30(1) of the Polish Tax Act so that it is clear that the provisions governing the liability of paying agents must apply to persons obligated to withhold payments on account accordingly. In the article, it is also noted that the relevant tax statutes should definitely be amended to include provisions for the withholding of payments on account by paying agents. The rationale behind it is that a payment on account is an entirely separate and independent payment, the concept of which cannot be derived from the concept of tax and, therefore, it is impossible to calculate the amount of such a payment. However, the withholding of payments on account by paying agents is not always sufficiently provided for in Polish statutory provisions. In the opinion of the authors’, it is also necessary to introduce appropriate changes in 47 § 4 of the Polish Tax Act regarding to the date of payment of tax by remitters, e.g. to amend the relevant tax statutes so that the deadlines for the withholding of such payments on account by such paying agents are clear. As regards the legal status of paying agents, it needs to be noted that Polish lawmakers should ensure that whenever a legal institution is established in respect of a tax, the rules for assessing payments on account in respect of that tax are also made. Where such rules are not specified, which is exemplified by s. 18 of the VAT Act, the paying agent’s obligation might be regarded as an empty obligation. Finally, it should be proposed that the provision of s. 62b(1) of the Polish Tax Act be amended so that the law allows the future taxable person to make a payment on account if it is only the paying agent that is legally obligated to make the payment.