In today’s issue of the Rzeczpospolita daily you can read an interview by Paweł Rochowicz with our Dorota Szubielska about double taxation of some business entities. Below you can read the full text of the conversation. Enjoy the reading.
THE LIMITED PARTNERSHIP ACT SHOULD BE REFERRED TO THE CONSTITUTIONAL TRIBUNAL
Double taxation of limited partnerships creates inequalities in business, limits the freedom to conduct business and thus violates the Constitution, says Dorota Szubielska, legal advisor, Partner at the law firm Radzikowski Szubielska i Wspólnicy.
INTERVIEW – PAWEŁ ROCHOWICZ
In the proposed amendment to personal income tax (PIT) and corporate income tax (CIT), the Ministry of Finance looks to tighten up the tax system and level the playing field for business entities. Will it really be that way?
It’s been a long time since I’ve seen such a mendacious justification of a legal act. It seems that even blatantly unfair solutions can be introduced under the slogan of tightening up the system. Limited partnerships are a commonly used form for family businesses. These are often undertakings in which all family members participate and only some persons, who feel better as managers, take on the risks as general partners. In the countries of Western Europe, precisely such family businesses, set up several dozen years ago, have given rise to large corporations existing today. Perhaps it would be more understandable if CIT was imposed on limited partnerships with the participation of legal persons. However, according to the draft amendment, double taxation will apply to all of them. I will not even mention the relief mechanism because it is illusory. The new regulations will discriminate against limited partnerships.
Could such inequality violate the Polish Constitution?
Yes, at least four of its provisions. The prohibition of discrimination results from the principle of the democratic state ruled by law as referred to in Article 2 of the Constitution. In addition, making it unprofitable to run a limited partnership limits the freedom to conduct business resulting from Article 22. These provisions will introduce unequal treatment of citizens, which is prohibited by Article 31(3) of the Constitution. What is more, Article 64 of the Constitution provides for the protection of ownership. And the additional levy will be a form of expropriation of those partners who are natural persons.
The legislator wants to curb abuse, maybe this is the right thing to do?
But these goals can be achieved in a number of other ways. There is the general anti-abuse rule (GAAR) and a few other rules neutralizing the tax effects of company transformations made for optimization purposes. There are also transfer pricing laws and the anti-abuse restrictions resulting from international tax treaties. The Ministry of Finance prefers not to notice that fact. Neither did it inform the public that it wants to increase taxation of persons who are partners of a registered partnership and limited partnership, changing the source of revenues from the limited partnership.
Should, for example, employers’ organizations bring an action against this Act to the Constitutional Tribunal?
I think that’s what they should do if they care about fair treatment of undertakings. The Constitutional Tribunal is not bound by any time limits and it is uncertain when it would look into that Act. However, if the Constitutional Tribunal did so and was consistent in its ruling, it would take into account the fact that entities operating under comparable conditions should be treated similarly. Such a similar situation can be seen in the case of limited partnerships with the participation of natural persons and registered partnerships. But before the Act goes to the Constitutional Tribunal, perhaps you can still look to the Parliament and the President for reason and fair treatment.