A standpoint recently expressed is that the tax on some financial institutions, despite its name, was also supposed to apply to entities whose professional activity is not connected with finance. In particular, it was supposed to apply to those state enterprises and international concerns which grant loans to employees or cooperating persons, or which offer consumers a delay in the payment deadline for goods and services, if they only have assets over the statutory limit of PLN 200 million. The purpose of this article is to analyse applicable regulations and attempt to dispel any doubts arising.
The source of the problems here is that the tax law (the Act on Tax on Some Financial Institutions of 15 January 2016) refers to the act regulating the rights and obligations of parties to a consumer credit agreement (the Act on Consumer Credit of 12 May 2011). In effect, the catalogue of bank tax payers includes “loan institutions”, defined in the Act on Consumer Credit, as a result of which determining the catalogue of entities obliged to pay tax requires reference to be made to the regulations of both acts of parliament.
Definition under the Act
The definition of a “loan institution” in the Act on Consumer Credit in principle covers those entrepreneurs which, as part of their business or professional activities, grant or give a promise to grant credit to a consumer and are not at the same time classed in another category of financial institutions (e.g. as banks or credit institutions).
It is true that consumer credit covers not only loans but also cases of delaying payment of the price or remuneration in exchange for remuneration, but it follows from Article 5 par. 2a of the Act on Consumer Credit that a loan institution cannot be an entity which grants consumer credit in the form of a delay in payment of the price or remuneration for the purchase of goods and services offered by it. This exclusion therefore applies to many cases of sale by instalment or deferring payment.
Employers excluded
It also follows from Article 4 par. 1 pt. 5 of the Act on Consumer Credit that this act does not apply to loans granted to an employee by an employer as part of additional activity, without remuneration or below market costs. This means that granting such loans does not cause an entrepreneur to be regarded as a “loan institution”.
In our assessment, the definition of a “loan institution” also should not cover those entities which, in an incidental manner, grant loans (credit) to consumers, i.e. when “granting or giving a promise to grant” consumer credit does not fall within the scope of their business activity.
Bringing order to the market
The definition discussed was introduced recently, as part of the update of 9 August 2015, and was intended to impose restrictions, on loan companies among others, concerning the maximum non-interest costs they had a right to collect from consumers, i.e. in payday loans. In the first drafts of the law the definition referred to entities “whose activities being the source of most of their revenue involve granting loans from their own funds”. The legislator’s intention was to bring order to the extra-bank loan market and to professionalise it. The need was also pointed out to protect consumers and for all lenders on the market to fulfil certain rigorous measures. The definition was finally conceived rather broadly, in such a way that in principle it covered all entities that grant short-term financing to consumers. However, it can still be maintained that the legislator’s intention was to primarily have the definition cover professional entities granting consumer loans in the scope of business activity conducted, and not providing such services additionally, incidentally or by chance.
The regulations of the Act on Consumer Credit also bear witness to this, as they impose many requirements on loan institutions, including requirements to cover share capital, elect corporate authorities and file a statement with the National Court Register that “the company intends to conduct business activity in the scope of granting consumer credit as a loan institution”. Even assuming that failure to fulfil these requirements does not disqualify a given entity from the category of “loan institutions”, the very existence of such requirements indicates that it is a question of entrepreneurs providing credit services professionally, within the scope of their business activity, and not of companies granting consumer credit incidentally and on a one-off basis.
Opinion of the Office of Competition and Consumer Protection
In determining whether a given loan (credit) is granted within the scope of business activity, entrepreneurs can refer to an opinion published in the Office of Competition and Consumer Protection’s Official Journal, which was published still on the basis of the previous Act on Consumer Credit (with similar wording), referring the reader to the regulations on conducting business activity. It explains that “the scope of an entrepreneur’s activity will be conducting business activity within the meaning of the Act on Business Activity (i.e. profit-making activity which involves manufacturing, trading, construction, services and prospecting for and exploiting natural resources, performed in an organised and continuous manner) by an entrepreneur within the meaning of that act (i.e. a natural or legal person or a commercial law company without legal entity status, which professionally and on its own behalf undertakes and performs business activity” (Official Journal of the Office of Competition and Consumer Protection 2003.1.241 of 19 September 2002). The legislator must therefore have had in mind professional financing activity conducted by an entrepreneur, and not incidental cases of granting loans to natural persons. Furthermore, it was stated unequivocally in this document that “the act’s provisions will not apply in a situation where, for example, an employer grants loans to its employees from a social benefits fund. It is an entrepreneur, but granting loans to employees does not fall within the scope of its business activity”. The standpoint of the Office of Competition and Consumer Protection therefore confirms that loans granted from a social benefits fund will not be subject to regulations of the Act on Consumer Credit, and consequently employers granting them should not be regarded as loan institutions.
Who does the new tax affect?
Although the Act on Consumer Credit seems above all to concern financial institutions, its literal content, particularly read in terms of a need to guarantee protection to consumers, might suggest a need to practically apply a broad definition of loan institutions. Automatically transferring such a definition to tax could potentially lead to the conclusion that each entity granting consumers – if only incidentally and on a one-off basis – loans (credit) connected secondarily with business activity conducted should be subject to taxation. However, it is the task of legal doctrine and practice to interpret the regulations in such a way that on the basis of an imperfect text of a legal act its objective can nevertheless be attained.
In putting regulatory provisions on a tax basis, one cannot give up a systemic and functional interpretation which, in our opinion, is opposed to taxation of all assets of a non-financial character of those entities for which activity with respect to granting consumer loans has an additional and secondary character.
An interpretation contradicting the purpose of the amendment
There is no doubt – as is indicated by, for example, the title of the act, i.e. the “Act on Tax on Some Financial Institutions”, and also by the comments of tax initiators (including the minister of finance) – that the purpose of the act in question was to be the taxation of strictly financial institutions, i.e. entities which in an organised and continuous manner conduct business activity on the market of financial services. It was not the act’s purpose to be applied to entities which unprofessionally and incidentally (and even by chance) grant loans (credit) to consumers.
It should here be pointed out that tax law should be characterised by a certainty and permanence of the concepts employed, and the taxpayer should be aware of whether – and to what extent – his activities are bound up with a tax obligation. In other words, it is not that an entrepreneur should be a taxpayer, but rather that he should know whether or not he is a payer of a given tax. The applicable regulation does not ensure this. This formally concerns the taxation of some financial institutions, but in practice it could cover any entity which decides to render specific financial services (i.e. to grant consumer credit). It seems irrational to include an entrepreneur in the catalogue of taxpayers for only that reason, particularly since providing these kinds of services to entrepreneurs (i.e. non-consumers) will not produce similar effects.
In this context it can clearly be seen that the subject of taxation (assets of entities which are remitters of taxes) and the taxation base (for loan institutions a surplus of the value of assets, not only those connected with financial activity, above PLN 200 million), which are regulated in the act, are not justified in the context of a potentially broad and fluid catalogue of entities subject to taxation. When applying a strict interpretation, even if receivables on account of consumer loans constitute a small part of the assets of a given entrepreneur, the tax would anyway have to be calculated on the value of assets not connected with that activity – e.g. property, machines and know-how, on a value exceeding PLN 200 million. There is no doubt that entrepreneurs can re-organise their activity so as to restrict the volume of consumer loans or assign them to be granted to another entity, but this does not alter the fact that an interpretation permitting the taxation – with tax on some financial institutions – of all assets of entities which only incidentally grant consumer loans could be a breach of the Polish constitution.
—Marta Ignasiak is a tax advisor at FKA Furtek Komosa Aleksandrowicz
—Bartłomiej Bronisz is an advocate at FKA Furtek Komosa Aleksandrowicz
legal basis: the Act on Tax on Some Financial Institutions of 15 January 2016 (Journal of Laws of 2016, item 68)
legal basis: the Act on Consumer Credit of 12 May 2011 (consolidated text Journal of Laws of 2014, item 1497 as amended)
Expert’s comment
Mariusz Aleksandrowicz, legal counsel, tax advisor and partner at FKA Furtek Komosa Aleksandrowicz law firm
The minister should issue a general interpretation
I think that, in the question being discussed, it is possible to issue a general opinion confirming that bank tax covers only those loan institutions which in a permanent and organised manner conduct professional activity involving granting or giving a promise to grant consumer credit. However, the incidental and (professionally) unorganised granting of loans to consumers, or granting loans to employees, or granting loans from the social benefits fund (to the extent to which they could be covered by the Act on Consumer Credit), cannot independently prove that an entity should be classed as a “loan institution”.
An alternative solution to the problem could be the amendment of the Act on Tax on Some Financial Institutions with respect to changing the taxation base, so that in actual fact it would correspond to the scope of activity conducted by a financial institution regarded as a taxpayer. In that event it would be necessary to consider taxing only assets directly connected with receivables of a financial character (e.g. on account of consumer credit granted).