In the judgment dated 22 March 2022 (II FSK 1688/19), the Polish Supreme Administrative Court presents its standpoint on the taxation of exchange of a cryptocurrency for another cryptocurrency.
First, the taxpayer applied for a private ruling, indicating in the application that he does not run a business but trades in cryptocurrencies. He was exchanging one cryptocurrency for another on online exchanges and asked for the confirmation that, in the case of an exchange, the obligation in personal income tax arises only at the moment of obtaining traditional money or at the moment of payment with cryptocurrency for goods or services.
The tax authority did not share the taxpayer’s position and stated that income arises also when there is an exchange of one cryptocurrency for another, since the exchange of virtual currencies should be treated like the exchange of any other property right.
The taxpayer appealed against the negative ruling, and the Provincial Administrative Court in Wrocław upheld the taxpayer’s complaint (I SA/Wr 906/18). The Court:
- agreed that the income arises at the moment of its conversion into a traditional currency, when the taxpayer receives certain monetary values or at the moment of payment with a cryptocurrency for goods or services,
- referred to the amendment of the Personal Income Tax Act of 23 October 2018, which introduced a comprehensive regulation on the taxation of cryptocurrency trading – the legislator included the paid disposal of virtual currency in the income from monetary capitals and explicitly indicated that a paid disposal of cryptocurrency is understood as its exchange for legal tender, goods, services or property right other than cryptocurrency or regulation of other obligations with it,
- confirmed that the mere exchange of cryptocurrencies does not create an obligation in personal income tax.
Finally, the position presented by the Provincial Administrative Court was accepted on 22 March 2022 by the Supreme Administrative Court, indicating in its reasoning that:
- no tax obligation arose due to conversion of cryptocurrencies because the taxpayer did not obtain any gain,
- the conversion of a cryptocurrency into another cryptocurrency is not subject to income tax, and – what is particularly important – that this was also the case before 2019 (i.e. before the law was clarified within this scope).
Please note also the decision taken by the Polish Supreme Administrative Court on 15 March 2022 in a different case (II FSK 1602/19).
The Court addressed to the Court of Justice of the European Union (CJEU) a preliminary question concerning the compliance of the Polish provision limiting the right to interest on overpayments (art. 78 paragraph 5 point 1 and 2 of the Tax Ordinance).
Here, a foreign investment fund with its registered office in the United States claimed a refund of interest on an overpayment of withholding tax. The overpayment arose as a result of the landmark judgment of CJEU of 10 April 2014 (C-190/12) Emerging Markets Series (the “EMS Judgment”).
The essence of the matter is the (currently) limited right of taxpayers to interest on tax, if the tax collection is contrary to EU law. The legal basis for taxpayers to obtain interest is art. 78 par. 5 points 1 and 2 of the Tax Code. This provision limits the end date of the interest accrual period for taxpayers whose overpayment arises as a result of a CJEU judgment to 30 days after the publication of the judgment.
This is in conflict with CJEU jurisprudence, which requires taxpayers to be remunerated with interest for the entire period of deprivation of their right to dispose of capital when the tax was collected in breach of EU law.
The need to refer the question to the CJEU for a preliminary ruling was agreed upon by the Supreme Administrative Court, indicating in the oral justification of the decision that foreign funds from third countries have no basis in the CIT Act to prevent the taxpayers from collecting the tax themselves. Additionally, there was a high number of cases of such funds claiming interest on overpayments collected after the EMS Judgment, which ultimately prompted the Court to refer the case to the CJEU.
The CJEU response will be of great importance for funds from non-EU countries that overpay taxes in Poland, in the context of the interest they are entitled to on the tax unduly withheld.
Furthermore, the CJEU judgment will be relevant even if the taxpayers’ proceedings have already ended with a final decision of the tax authority or a final judgment of an administrative court. In such a case, taxpayers may apply for the resumption of proceedings in their case regardless of the stage at which the cases have ended, within deadlines specified by the law.
If you wish to discuss these topics, please contact: WTS Saja, Warsaw
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