Burden of proof in tax proceedings from a constitutional perspective

Abstract

Open AccessBurden of proof in tax proceedings from a constitutional perspectiveAgnieszka Olesińska, Artur JanickiAgnieszka OlesińskaSearch for more papers by this author, Artur JanickiSearch for more papers by this authorhttps://doi.org/10.7767/9783205217381.191SectionsPDF/EPUB ToolsAdd to favoritesDownload CitationsTrack Citations ShareShare onFacebookTwitterLinkedInRedditEmail About1. IntroductionThe issue of the burden of proof has been known since antiquity. Even then, lawyers were considering who was to prove and what facts they had to prove during a trial. Roman law gave rise to the concept of onus probandi (burden of proof), which over time became widespread in European legal culture.1 In Roman trials, there was a general rule stating that the burden of proof was on the one who asserts and not on the one who denies: ei incumbit probatio qui dicit, non qui negat. This rule indicated that the plaintiff should prove the facts asserted in the statement of claim. Otherwise, he or she had to expect the dismissal of his or her action. Said rule is now recognised by civil courts in many European countries, including Polish courts. Based on this rule, the Polish legislator decided in Article 6 of the Civil Code2 that the burden of proving a fact rests on the person who derives legal effects from this fact.The concept of the burden of proof developed in private law, but nowadays it is also of interest in the science of public law. There is no obstacle to analysing the burden of proof in criminal, administrative or tax proceedings; however, in none of the mentioned branches of public law has the legislator introduced a general rule along the lines of Article 6 of the Civil Code. Thus, the legislator has not clearly indicated the entity on which the burden of proof should rest. Nonetheless, many legal scholars recognise that studies on the burden of proof are needed to accurately define the rights and obligations of the participants in evidence proceedings. Furthermore, identification of the entity that bears the consequences of failing to prove a given fact is useful for the authority deciding the case.Polish criminalists have been debating the burden of proof in the criminal trial for many years.3 They have adapted this civilian institution to the peculiarities of the criminal trial, the primary objective of which is to establish the true facts of the case. Both the prosecutor and the criminal court are obliged to seek evidence of the defendant’s guilt. The accused, on the other hand, does not have to prove his or her innocence, as this would contradict the constitutional principle of the presumption of innocence (Article 42(3) of the Polish Constitution).4The burden of proof is highly controversial in the science of administrative and tax law.5 There is no consensus on the usefulness of using this term in proceedings conducted by an administrative authority. Lawyers often unreflectively use the terms burden of proof and duty to proof as synonyms. They also have difficulty in identifying situations in which a party to administrative proceedings would have to prove certain factual assertions. Further problems arise at the level of application of the law by tax authorities and administrative courts.Recently, the issue of the burden of proof in tax proceedings has gained importance due to the judgment of the Constitutional Tribunal and the actions of the Polish legislator. The Constitutional Court looked at the issue in a 2013 judgment,6 whose main theses will be referred to in the third point of this paper. In turn, the legislator in 2016 used the term burden of proof for the first time in provisions of a tax act, placing this burden on the taxpayer. In the last two years, the legislator has used the term in question in further tax law provisions without defining it. In view of this, the burden of proof has ceased to be a concept used only by the legal doctrine and case law and has become part of legal language.The purpose of this paper is to examine the validity of using the term burden of proof in tax proceedings and to assess to what extent the issue of the distribution of the burden of proof in tax law can be analysed through the prism of constitutional principles. The authors will identify provisions of substantive tax law in which the legislator explicitly shifts the burden of proof to the taxpayer. In doing so, they will make use of the legal–dogmatic method. In addition, in an attempt to standardise terminology, the authors will take a closer look at the views of doctrine and jurisprudence relevant to the subject under consideration.In the first section, the authors will review and organise the views of the Polish legal doctrine and jurisprudence on the burden of proof in tax proceedings. They will present arguments by supporters of this concept and its opponents. Furthermore, they will draw attention to current jurisprudential trends. In the second point, they will analyse selected provisions of Polish tax laws in which the legislator has imposed the burden of proof on the taxpayer. They will indicate what problems may arise in the application of these provisions. In the third point, the authors will examine the burden of proof in tax proceedings from the perspective of the principles present in the Polish Constitution. Such an approach has not yet appeared in the literature. The authors will take into account the jurisprudence of the Constitutional Tribunal, particularly the judgment concerning the constitutionality of the provisions on taxation of undisclosed income. Finally, they will present the main conclusions arising from the research conducted.2. The burden of proof in tax proceedings – views of doctrine and case lawBefore the Polish legislator began to use the term burden of proof in tax laws, representatives of the doctrine and judicature debated the possibility of using this term when describing the relationship between the taxpayer and the tax authority.7 In tax proceedings, there is no general rule defining the distribution of the burden of proof.8 In view of this, various opinions on the subject have emerged over the last 20 years. It is worth looking at the main arguments by supporters and opponents of using the concept of the burden of proof in tax proceedings and, in addition, paying attention to the views expressed in judgments of administrative courts.First of all, it should be emphasised that all theories concerning the burden of proof refer to the general principles of procedure, included in the provisions of the Polish Tax Ordinance Act (hereinafter: the TOA).9 Representatives of the doctrine most often refer to the principle of material truth (Article 122 of the TOA). According to this principle, the tax authority should take all necessary measures to clarify the facts of the case precisely. The principle’s particularisation is the principle of completeness of evidence proceedings (Article 187 § 1 of the TOA), which orders the authority to collect and exhaustively consider all the evidence.10 Representatives of the doctrine agree that pursuant to the aforementioned general principles, the tax authority is obliged to collect and examine evidence that is relevant to the resolution of the case.11 The authority may not shift this obligation onto the party and should seek to clarify the facts even if the taxpayer is passive and does not contribute to clarifying the circumstances of the case.12 This is because the basis for the decision of the tax authority can only be such facts that are free of gaps and do not raise doubts. Otherwise, the administrative court will overturn the decision of the authority, following the directive of resolving doubts in favour of the taxpayer (in dubio pro tributario).13 Although the content of the cited principles is clear, representatives of the doctrine draw different conclusions based on them. The first group of researchers recognises the burden of proof as a concept that is useful in tax proceedings and allows this burden to be placed on a party to the proceedings. In their view, the institution of the burden of proof has an important impact on the establishment of full, objective evidence.14 They consider two aspects of it. The first aspect involves determining the facts that must be proved in order to properly establish the facts of the case. The second aspect concerns the assessment of which entity should provide the sources of evidence or indicate the means of proof in order to prove the truth of the factual allegations. This entity bears the consequences of failing to prove the evidentiary thesis.15The burden of proof, understood in this way, may lie either with the tax authority or with a party to the proceedings.16 Sometimes, this is determined by specific provisions of tax laws. The legislator places the burden of proof on the taxpayer when the legislator expressly obliges the taxpayer to produce certain documents, books of account, registers or records kept for tax purposes. It happens that the distribution of the burden of proof does not result directly from the provisions of the tax laws but only indirectly from the construction of the tax in question. For example, it has been pointed out that this is the case for deductible expenses in income taxes. The burden of proof may also fall on the taxpayer when he or she contests the previous findings of the authority. This is because it follows from the principles of logic that the burden of proof is on anyone who makes assertions of fact.17 According to the theory under discussion, the taxpayer should prove the truth of his or her assertion. Otherwise, the claim in question will not have the effect desired by the taxpayer.18 If it were not possible to place the burden of proof on the taxpayer, the tax authorities would not be able to establish the true state of facts in those cases where only the taxpayer has access to certain data. Representatives of the theory under discussion emphasise that the burden of proof has a positive effect on the efficiency and speed of proceedings, as it stimulates the party to the proceedings to undertake evidentiary activity.19The second group of researchers is against the application of the burden of proof in tax proceedings. They conclude that the burden of proof is characteristic of adversarial proceedings.20 As is well known, adversarialism occurs when equal parties conduct a dispute before an impartial arbitrator. The parties present their theses and point to evidence to support them. The court, which decides the case, remains passive and rules on the basis of the evidence provided by the parties.21 However, tax proceedings are not adversarial in principle. It involves a weaker party (the taxpayer) and a stronger party (the tax authority).22 The tax authority interferes in the taxpayer’s sphere of freedom and unilaterally decides on his or her legal situation. In addition, it has its own powers and duties, including, inter alia, deciding on the initiation of proceedings, determining the scope of the proceedings and conducting evidence proceedings. The dominance of the tax authority over the taxpayer is mitigated by the general rules under the Tax Ordinance Act. Their purpose is to balance the relationship occurring between the entity entitled to tax and the entity obliged to pay it.23 According to some representatives of the doctrine, the prevailing principles and the division of roles in tax proceedings determine that the burden of proof does not exist in it. In their view, it cannot be the case that the duty to prove certain facts rests once on the tax authority and another time on the taxpayer. The competence of the tax authority should therefore not be transferred to any other entity.24 In view of this, it is inadmissible to refer in tax proceedings to the general rule of the burden of proof applicable in civil proceedings (Article 6 of the Civil Code).25Opponents of the application of the burden of proof in tax proceedings note that there may be a situation where the taxpayer has a certain source of evidence (e. g., a document), and the outcome of the proceedings depends on the submission of that document. The requirement for the taxpayer to produce a certain document may even arise directly from the provisions of tax laws. However, this should not affect the rights of a party to the proceedings or the obligations of the tax authority. Moreover, the law does not provide any sanctions for a party that does not actively participate in the tax proceedings.26 A party only has to fulfil legally defined, instrumental duties. The tax authority, on the other hand, in accordance with the principle of material truth, should strive to clarify all relevant circumstances of the case regardless of the attitude of a party to the proceedings.27The question must be raised as to the reasons for the dispute at issue in the doctrine of tax law. It seems that the source of disagreement is the different understandings of the concept of burden of proof. According to those scholars who oppose the imposition of the burden of proof on the taxpayer, the burden of proof determines who is obliged to indicate evidence or collect it (i. e., who is obliged to establish the material truth).28 They use the terms burden of proof and duty to proof interchangeably, without noticing the differences between them.29 However, giving the same meaning to both terms is not quite correct. The duty to proof is defined in the literature as the normative obligation to take evidence.30 It encompasses the search for, gathering and conducting of evidence, as well as its evaluation. Both the burden of proof and the duty to proof can therefore be considered duties. However, what distinguishes the two concepts is the nature of these duties and the source of their validity. The burden of proof has its origin in praxeology and the civilian concept of the procedural burden. The distribution of the burden of proof may be determined by certain provisions of substantive tax law. The duty to proof, on the other hand, derives from the provisions of tax procedure. The normative basis for its imposition on the tax authority are the already mentioned principles of material truth and completeness of evidence.31 Furthermore, the duty to prove is carried out both in the public interest and in the interest of the parties to the tax proceedings and not in the self-interest of the entity concerned, as is the case with the burden of proof. For these reasons, it should be postulated that the terms burden of proof and duty to proof should be distinguished in the context of tax procedure, as is done in the science of criminal procedure.32Finally, it is important to examine how the judicature views the burden of proof.33 The Polish administrative courts recognise, as does the doctrine of tax law, that the tax authority should strive to ensure that the evidence is complete (i. e., that all evidence has been collected and considered, evidence applications have been carried out and the proven facts constitute a complete, coherent and logical whole).34 The courts address the issue of placing the burden of proof on the taxpayer differently. There is a widespread view in case law that the tax authority’s duty to seek evidence is not unlimited.35 If the taxpayer does not signal the existence of other evidence or does not provide data to support his or her claims, he or she bears the negative consequences of this.36 This jurisprudential position clearly refers to the general rule of the burden of proof established in the science of logic, the content of which reads as follows: the one who makes a given assertion should prove it.Furthermore, the administrative courts often point to the so-called duty of the taxpayer to cooperate with the tax authority in establishing certain facts. According to the judicature, this duty concerns those facts of which only the taxpayer is aware, and the failure to prove them may affect the outcome of the proceedings. Consequently, a taxpayer who disputes some evidence or findings of the authority should show the initiative of proof and convince the authority of his or her reasons.37 It must be stated that the ‘duty to cooperate’ analysed here is a creation of the judicature and finds no sufficient basis in the provisions of tax law. In particular, it cannot be derived from the principle of completeness of evidence, which is addressed exclusively to the tax authority. For this reason, attempts to impose the ‘duty’ in question on the taxpayer are opposed both by the Constitutional Tribunal38 and some representatives of the legal doctrine.393. Burden of proof in tax legislationIn the first section of this paper, the views of doctrine and jurisprudence that generally refer to the burden of proof and the duty to proof in tax proceedings were presented and commented upon. It is therefore appropriate here to discuss those exceptional cases in which the legislator explicitly imposes the obligation to prove certain facts on the taxpayer, frequently using the term burden of proof in the text of laws.40 Examples of this legislative practice can be found in the provisions of the Tax Ordinance Act concerning the liability of members of the management board of capital companies for the company’s tax arrears, as well as in several provisions of income tax acts. It is worth identifying these substantive law norms in order to determine their impact on the distribution of the burden of proof.The first chronological example of such regulation is the provision of Article 116 § 1 of the TOA, in force since 1.01.1998.41 The provision defines positive and negative prerequisites for the liability of a member of the management board of a capital company for the company’s tax arrears. According to the literal interpretation of this provision, the tax authority that conducts proceedings under this article should first examine the existence of positive prerequisites for conditioning the liability of a member of the management board. Once these have been established, the member of the management board should demonstrate at least one premise exempting him or her from liability. He or she may, for example, point to the fact of timely filing of a bankruptcy petition or the absence of fault in not filing a bankruptcy petition. As the administrative courts point out in their rulings, the member of the management board bears the burden of proving the circumstances exonerating him or her from liability and the associated evidentiary risk, and the role of the authority is limited to assessing the evidence presented by the member of the management board.42 In the opinion of the adjudicating panels, this understanding of the provision in question is also supported by considerations of expediency.43However, the issue of proving facts that exonerate a member of the management board from liability is not as clear-cut as the case law presents it. As the representatives of the doctrine of law aptly point out, the formula used by the legislator in the provision in question may be misleading for several reasons.44 Firstly, the formulation that the member of the management board is to prove a circumstance is imprecise. That is, the subject may only address relevant requests for evidence to the authority. Secondly, due to the exceptional nature of third-party liability, it is the role of the authority to examine all the circumstances that give rise to it. The boundaries between the positive and negative prerequisites for liability are blurred in practice, making it difficult to separate the claims that should be proven by the member of the management board from the claims that the tax authority is obliged to prove.45 Thirdly, the provision in question does not abrogate the general rules of evidence. The tax authority should still seek to establish the material truth and take into account all the evidence gathered in the case. The taxpayer cannot bear the burden of taxation on the basis of fictitious facts, as this would go beyond the constitutionally guaranteed scope of taxation.46 Therefore, if a person other than the member of the management board would present documents prejudging the existence of a negative condition for liability, the tax authority should take them into account and, consequently, release the member of the management board from liability for the company’s tax arrears.A second example of the explicit imposition of the burden of proof on the taxpayer is the provision of Article 25g of the Personal Income Tax Act,47 which is related to cases of taxation of income from undisclosed sources. As indicated by the doctrine of law, the proceedings in these cases are of a special nature. This is because the provision is aimed at taxing income that has not been disclosed by the taxpayer. The tax authority determines that the taxpayer has obtained a certain amount of income thanks to information on the amount of his or her expenses. This way of making factual findings raises a number of problems in the course of evidence proceedings. In particular, the need to prove the fact that the taxpayer incurred expenses from previously disclosed income (taxed or exempt) raises difficulties.48 A practice has become established among the tax authorities of putting the onus on the taxpayer to prove from what source and in what amount the income was used to finance his or her expenses. As the legal basis for this practice, the authorities accepted Article 20(3) of the Personal Income Tax Act, which stated that the amount of undisclosed income is determined on the basis of expenses incurred by the taxpayer in the tax year and the value of property accumulated in that year, if such expenses and values are not covered by the property accumulated by the taxpayer. This practice has been accepted by the administrative courts, considering that only the taxpayer has the knowledge in this respect. Thus, a line of case law unfavourable to taxpayers was formed, according to which the existence of a legal presumption regarding the existence of undisclosed income was assumed.49 This practice ended by the 2013 judgment of the Constitutional Tribunal.50 The main theses of this judgment will be presented in section three of this paper. At this point, it is sufficient to point out that the Tribunal declared the provision of Article 20(3) unconstitutional. As a result of this judgment, the legislator was forced to introduce new provisions on the taxation of undisclosed income, which came into force on 01.01.2016. Among other things, the legislator introduced the aforementioned Article 25g into the Personal Income Tax Act, in which it expressly placed the burden of proof on the taxpayer to demonstrate the income that constitutes the coverage of the expense. Thus, the legislator prejudged that the tax authority is not obliged to look for the source and amount of the income used by the taxpayer to finance certain expenses. However, it should be emphasised that this provision does not abrogate the duties of the tax authority in relation to the conduct of the evidence proceedings, particularly the duty to seek to establish the material truth. Therefore, if the authority obtains data on the source and amount of undisclosed income from the office or from a third party, it should take this data into account when deciding the case. Furthermore, it should be noted that the legislator, despite the use of the term burden of proof in the wording of Article 25g of the Personal Income Tax Act, rather had in mind the obligation of the taxpayer to submit relevant documents. These documents are subject to a discretionary assessment by the authority conducting the case.It is worth mentioning that in the last two years, the legislator has introduced four further provisions in which it has used the term burden of proof. These are Articles 21(41) and 24(8dc) of the Personal Income Tax Act and Articles 12(12a–12b) and 28m(5) of the Corporate Income Tax Act.51 These provisions have not yet become the focus of legal doctrine and administrative courts. Nevertheless, it must be assumed that all the observations made in the previous paragraph apply to them.4. The burden of proof in tax proceedings in light of the Polish ConstitutionThe Polish Constitution does not contain a provision that explicitly refers to the burden of proof (or the duty to prove) in tax or administrative proceedings. This does not mean, however, that constitutional regulations are irrelevant to the issue of evidence proceedings (burden of proof) in tax cases. This issue was analysed by the Constitutional Tribunal in its ruling of 18 July 2013 (ref. SK 18/09).52 The judgment concerned the taxation of income from undisclosed sources (undisclosed revenue).53 The Constitutional Tribunal found that Article 20(3) of the Personal Income Tax Act and Article 68b(4) of the Tax Ordinance Act are inconsistent with Article 2 in conjunction with Article 64(1) of the Polish Constitution. He stated that the provisions are too laconic, vague and ambiguous. In addition, he voiced a number of criticisms of the distribution of the burden of proof in these cases and concluded that this last aspect was also the reason for declaring the regulation unconstitutional. He devoted extensive arguments to it in the justification of the judgment. These arguments are important because their significance goes beyond the specific case of taxation of undisclosed income.54 Indeed, the justification of this particular judgment is the broadest, most comprehensive statement of the Constitutional Tribunal on the subject of the burden of proof in tax matters. The Constitutional Tribunal emphasised the importance that the principle of objective truth has in tax proceedings. Pursuant to Article 122 of the TOA, in the course of the proceedings, the tax authorities must take all necessary measures to accurately clarify the factual situation and settle the case, while in light of Article 187 § 1 of the TOA, the tax authority is obliged to collect and exhaustively consider all the evidence. In the opinion of the Constitutional Tribunal, it follows from the cited legal provisions that the duty to prove the circumstances determining the possibility of taxation (i. e., in the case under consideration: taxation of undisclosed income) should be imposed on the tax authorities, with the reservation, however, that this should take place with the cooperation of the taxpayer. The Court stigmatised the situation existing in the area of tax assessment of income from undisclosed sources, where the burden of proof was shaped in a different way, and this did not happen by virtue of an explicit provision; rather, such a practice was formed in proceedings before the tax authorities and was approved by the administrative courts. The Court noted that, in practice, the tax authority is obliged to establish the amount of expenses incurred by the taxpayer and the value of the property accumulated by the taxpayer and to prove that they exceed the income declared by the taxpayer in his or her tax return. However, it is the taxpayer who must prove that his or her expenses were covered by income from specific sources (i. e., his or her income was previously taxed or was tax-exempt but came from a known source). The Constitutional Tribunal was critical of the fact that, in practice, the tax authorities were not obliged to look for evidence proving that the taxpayer had the means to cover all his or her expenses and, therefore, that he or she did not earn income from undisclosed sources. The Tribunal is not competent to exercise control over acts of law application.55 Therefore, an incorrect practice of the tax authorities could not in itself be the subject of a constitutional complaint.56 However, the Tribunal assumed that the provision challenged in the complaint has such a meaning as is assumed in the practice of law application, and thus arguments about its incorrect understanding and application by tax authorities and courts became one of the reasons for establishing the inconsistency of the legal regulation in question in regard to the Constitution.The Constitutional Tribunal found the existing practice inappropriate. It took the position that due to the provisions of the TOA, the tax authorities are obliged to collect evidence that enables the examination of the case, so they should consequently collect evidence both in favour of and against the taxpayer.57 The Tribunal recognised the fact that the taxpayer has the best knowledge of his/her income and assets, and without his/her cooperation, it may be impossible for the tax authorities to obtain certain information or evidence. It found, however, that the provisions relating to the taxation of undisclosed income and the provisions of the TOA governing the tax procedure did not provide a basis for imposing the burden of proof on the taxpayer. Such a situation was deemed inadmissible by the Constitutional Tribunal, and this is the first of the rules it enunciated in the judgment of 18 July 2013, the significance of which goes beyond the individual case considered in this judgment.The Constitutional Tribunal further stated that the principle expressed in Article 6 of the Civil Code – that the burden of proving a fact rests on the person who derives legal consequences from that fact – is not a system-wide rule (it is not a general principle of the Polish legal system). In the opinion of the Tribunal, if such a rule were to apply in tax proceedings, it would have to be expressed in the provisions of the TOA or substantive tax law.In the judgment under discussion, the Constitutional Tribunal criticised the practice of shifting the burden of proof to the taxpayer when this is not provided for by an express provision of law. At the same time, however, it is important to note that the Court did not rule out the admissibility of imposing the burden of proof on the tax