I acquired Treasury bonds by inheritance. I paid inheritance and gift tax on the acquired property (including the bonds), and the payer upon redemption of the bonds (the maturity of the bonds was in 2006) withheld 19% of lump-sum personal income tax. Is there no double taxation of the income received here? Is it legitimate to file a claim for an overpayment of the tax collected by the payer? - asks a reader from Zielona Góra.

As a general rule, the tax authorities take the position that income from the redemption of bonds is not exempt from income tax. Administrative courts uphold the tax authorities' position. However, among a number of judgments unfavorable to taxpayers on the taxation of bonds acquired under a gratuitous title, there was a different judgment of the WSA in Warsaw dated February 23, 2007, ref. III SA/Wa 3449/06. In this judgment, the Court interpreted the concept of discount in a different way than before. Although the verdict is not final (it has been appealed by the Director of the Tax Chamber in Warsaw to the Supreme Administrative Court), it has given hope that this type of case will be resolved in a similar manner.

The ruling concerns a case similar to the reader's, the taxation with a flat 19% personal income tax on Treasury bonds acquired by inheritance. The taxpayer also paid inheritance and gift tax on the acquisition of the bonds by inheritance. At the same time, when redeeming the bonds, the taxpayer withheld a flat 19% personal income tax on the discount and on the interest paid. Since the redemption of the bonds took place in 2005, the tax remitter, in collecting the tax, applied the tax in effect until December 31, 2006. (Article 5a(12) of the Personal Income Tax Law) the definition according to which the discount is the difference between the amount received from the issuer's redemption of a security and the purchase price of the security on the secondary or primary market. The tax payer considered that the purchase price, in a situation where the bond was acquired for free, was equal to "zero," and therefore collected tax on the face value of the bond. The tax authority confirmed the payer's position, refusing to declare an overpayment of the collected tax in a decision that was appealed by the taxpayer to the WSA.

In its judgment, the WSA agreed with the applicant, saying that the tax authorities' interpretation of discounting was not correct. The court pointed out the meanings of the term "price" in colloquial, economic and legal terms, and which, according to the dictionary definition, means a monetary amount that the buyer is obliged to pay for a good or service. In addition, it held that if the "purchase price" was equal to "zero" then there would be no contract of sale (purchase) and the contract entered into would be in the nature of a donation or exchange agreement, which without the payment of a price results in the transfer of ownership. Accordingly, the court concluded that the purchase price should have been taken as the "...the price that was paid for a security in the purchase transaction immediately preceding the issuer's redemption of that security."

In its reasoning, the court referred to the definition of discount in effect since January 1, 2007, according to which, in the case of the acquisition of securities by inheritance or donation, discount means the difference between the redemption price and the purchase price of the securities by the testator or donor. The court found that the change in the definition was clarifying, allowing it to issue a favorable ruling for the taxpayer, despite the fact that the bonds were redeemed in 2005 when a different definition of discount was in effect.

Admittedly, it is not known what the ruling of the Supreme Administrative Court will be in this case, however, with such a favorable ruling of the WSA, it is worth applying to the tax authorities for a declaration of overpayment.