Polish Constitutional Court rules certain MDR provisions unconstitutional as violating tax advisors' legal professional privilege

On 23 July 2024, the Polish Constitutional Court ruled that certain provisions providing mandatory disclosure rules (MDR) in amendments to the Tax Ordinance1 are unconstitutional (ref. K 13/20)2 to the extent that they violate the legal professional privilege of tax advisors.

From 1 January 2019, based on the Tax Ordinance,3 these provisions' MDR obligations have been imposed on promoters, beneficiaries and service providers, including those who are covered by legal professional privilege. The MDR provisions included (the highly controversial) possibility of release from legal professional privilege and, if not released from professional privilege, the obligation to notify beneficiaries and/or other obligated parties and submit an anonymized report.

Following the implementation of the MDR provisions in Poland, the National Council of Tax Advisors filed a complaint objecting to these regulations in December 2019, indicating a violation of a number of constitutional provisions, including those guaranteeing legal professional privilege for professions of public trust, as well as the right to privacy and protection of the secrecy of communications. Highlights of the Constitutional Court's 23 July 2024 judgment follow.

Provisions deemed inconsistent with the Constitution

Based on the Constitutional Court's judgment, the following MDR provisions were deemed as unconstitutional:

• Articles 86b, 86d, 86e and 86f in connection with Article 86a of Tax Ordinance and in connection with Article 37(4)(2) of the Act on Tax Advisory,4 insofar as they create an obligation for tax advisors covered by legal professional privilege to provide information on the tax arrangement and do not sufficiently specify the prerequisites and procedure for exclusion or exemption from the obligation of legal professional privilege, are inconsistent with Article 2 in connection with Article 17(1) and with Articles 49 and 51(2), in connection with Article 31(3) and Article 47 of the Constitution of the Republic of Poland.5

• Article 28(3) of the Act of 23 October 2018 amending the Personal Income Tax Act, Corporate Income Tax Act, Tax Ordinance Act, and certain other acts to the extent that it obliges a promoter who is a tax advisor to provide the Head of the National Revenue Administration with information on a tax arrangement within the meaning of Art. 86a section 1 item 10 of the Tax Ordinance (other than a cross-border tax arrangement within the meaning of Article 86a section 1 item 12 of the Tax Ordinance, which was implemented before the entry into force of the Act of 23 October 2018) is inconsistent with Article 2 of the Constitution of the Republic of Poland.

Currently, only an operative part of the judgment (as cited above) appears on the Constitutional Court's webpage, without the factual and legal basis for the judgment. As a result, there still might be some doubts as to the scope of the judgment.

According to the announcement published on the Constitutional Court's website6 and the verbal justification presented during the announcement of the judgment, the obligations regulated in Article 86b sections 5-6 of the Tax Ordinance should not apply to tax advisors7 (i.e., the requirement to inform other obligated parties and submit anonymized report MDR-2). Furthermore, the content of Article 86d section 5 of the Tax Ordinance should not apply to tax advisors8 to the extent that it imposes an obligation on them to inform entities other than clients to whom they are bound by legal professional privilege. Analogous effects should apply to the legitimacy of the obligations regulated in Article 86e and Article 86f of the Tax Ordinance. The judgment also provides that a client as such is not the disposer of the legal professional privilege of the tax advisor and there is no possibility for the client to release an advisor from their legal professional privilege.

Given that the Constitutional Court was bound by the scope of the application, the judgment related only to tax advisors and their legal professional privilege.