Constitutional Tribunal's judgment – the obligation to report MDR schemes is unconstitutional

Tax advisors protected by professional secrecy

The Constitutional Tribunal, in its judgment of 23 July 2024 (reference number K 13/20), found that the provisions on reporting MDR tax schemes are inconsistent with the Constitution to the extent that they violate the professional secrecy of tax advisors. This means that tax advisors will not be obliged to report MDR schemes to the National Tax Administration (KAS). The judgment has not yet been published in the Journal of Laws.

The Constitutional Tribunal's judgment is the result of a complaint filed by the National Council of Tax Advisors (KRDP), which already in 2019 indicated that the MDR provisions violate the Constitution.

The main argument of KRDP was that these provisions allow clients to exempt tax advisors from professional secrecy, which violates the fundamental principle of this profession. According to KRDP, only a court can release an advisor from confidentiality.

The Constitutional Tribunal shared the arguments of the KRDP and found that forcing tax advisors to disclose information protected by professional secrecy violates their constitutional right to practice the profession. Additionally, the Constitutional Tribunal ruled that the provisions imposing the obligation to report MDR schemes for the period before 1 January 2019 are also unconstitutional.

The Constitutional Tribunal's ruling – important for tax advisors

In the judgment of the Constitutional Tribunal Ref. No. file K 13/20 we read that:

and

In its unanimous decision, the Tribunal stated, among other things, that:

• provisions on tax schemes violate the professional secrecy of a tax advisor,
• imposing an information obligation on tax advisors covered by professional secrecy does not meet the proportionality criterion,
• by deciding to retroactively implement the provisions on MDR, the legislator violated the principle of lex retro non agit, which is particularly important in tribute law and cannot justify its action by protecting an important public interest.

It is worth mentioning that the ruling applies only to the obligations of promoters or those supporting tax advisors practicing their profession. The judgment does not apply to other promoters, e.g. legal advisors or lawyers, because when issuing a judgment, the Constitutional Tribunal is bound by the scope of the complaint.

What is most important here is the fact that the obligation to provide information on tax schemes other than cross-border schemes imposed on promoters who are tax advisors is inconsistent with Art. 2 of the Constitution and it does not matter whether the advisor was bound by professional secrecy or not. The judgment also concerns obligations regarding the provision of standardized schemes.

As we read in the statement after the verdict:

Consequently, the provisions on tax schemes still apply to the users, i.e. taxpayers, payers and collectors subject to information obligations arising from the provisions on MDR.

MDR regulations inconsistent with the Constitution – why?

On 23July  this year, the Constitutional Tribunal found that the provisions on reporting tax schemes challenged by KRDP:

• do not meet the requirements resulting from Art. 2 of the Constitution, the principle of specificity of law, and
• prevent tax advisors from acting in accordance with Art. 17 section 1 of the Constitution, i.e. for the good and safety of their clients and the protection of the public interest.

It is worth emphasizing that the provisions on reporting tax schemes have been strongly criticized since their introduction in 2019. The too short vacatio legis (38 days) and the retroactive nature of the legislation have also been questioned many times.

The tax advisor community also pointed out the excessive complexity and ambiguity of the regulations. Let us recall that the Ministry of Finance issued clarifications in this regard in 2019. Read also about Supreme Administrative Court: individual interpretations also for MDR and Operating leasing will not always be a tax scheme

All the above arguments were reflected in the complaint submitted by the KRDP to the Constitutional Tribunal, which resulted in the Constitutional Tribunal's judgment of July 23 this year.

When discussing the unconstitutionality of Polish regulations on reporting tax schemes, it should also be mentioned that the Court of Justice of the EU in 2022 ruled in a similar case regarding the Belgian MDR regulations. On 15September 2022 and 20 July 2023, the Belgian Constitutional Court also found that the national MDR provisions violated professional secrecy and were unconstitutional.

The Polish judgment is extremely important and is the beginning of the road to repairing national tax regulations.

Tax Scheme Reporting (MDR) – check how we can help

We offer support in MDR reporting. Our assistance includes, among others: areas such as:

• Identification of patterns - support in identifying transactions/events that may constitute a tax pattern;
• Creation of an internal due diligence procedure - the procedure will enable the ongoing identification of tax arrangements subject to reporting as a tax scheme in terms of the MDR regulations;
• Training for employees - training of employees who may participate in activities qualifying as tax schemes within the meaning of the MDR regulations in terms of their recognition;
• Assistance in reporting tax schemes.