What is more important: the invoice contents or the actual subject matter of the transaction?
Can formal errors – like for example a mistake in the name of purchased goods or service – cause the lack of right to deduct the input VAT? According to tax authorities, by all means yes. The Court of Justice of the European Union will decide soon whether this is right.
In the case on which a request for a preliminary ruling is based the tax authority found that the purchase covered “gold scrap”, as such name was written on the invoice, whether the transaction subject matter was in fact “gold granulate”, which was evident from the evidence.
The Head of the Tax Office found that the taxpayer had no right to deduct VAT included on the invoice on which there was a wrong designation of goods.
The Director of Fiscal Administration Chamber who upheld the decision of the first instance authority stated that the right to deduct VAT was available when the invoice reflected the actual transaction in terms of its entity and subject matter. According to the appeal authority, a defect of the invoice as regards the name of the goods was so serious that it should result in denial of the right to deduct the input tax.
The case was referred to the Regional Administrative Court, which in its judgment of 20 February 2017 found the complaint justified. The Court noted that the transactions took place and covered gold, doubts concerned only its name indicated on the invoice. The Court found that incorrect name could not be equivalent to recognising the transaction as non-existent.
The tax authority lodged an appeal on a point of law to the Supreme Administrative Court, which in its judgment of 19 December 2017, ref. no. I FSK 1002/17, admitted the appeal and revoked the judgment. The Supreme Administrative Court found that one could not accept the situation where regardless of what was written on the invoice the tax office employees would be required to explain the actual subject matter of the transaction and make a proper settlement in that regard. The case was referred to the Regional Administrative Court in Wrocław for reconsideration.
This time the Regional Administrative Court in Wrocław decided to lodge a request for a preliminary ruling to the EU Court of Justice. In the rationale the Court made reference to the Polish and EU regulations on VAT, in particular the principle of tax neutrality and proportionality.
In our opinion, having regard to the position of the CJEU in similar cases, also this time we may expect a resolution to the advantage of the taxpayer.
For example, in the judgment of 11 December 2014 in Case C-590/13 it was resolved that if the tax authorities had information necessary to determine that substantive requirements have been satisfied, they could not deprive the taxpayer of the right to deduct the input VAT, despite of the failure to comply with formal requirements. In that verdict the CJEU referred primarily to the principle of neutrality and proportionality.
While in the judgment of 7 March 2018 in Case C-159/17, the CJEU noted that it was the national court’s responsibility to examine whether the tax authority had at disposal information necessary to demonstrate that the substantive requirements giving the taxpayer a right to deduct input put had been complied with, despite having accused the taxpayer of deficiency in the compliance with formal requirements.
It is beyond doubt that errors on invoices are often. Classification of goods, taking into account the name of goods entered on the invoice, is highly flagrant for entrepreneurs. A seemingly small error may cause huge tax consequences. Definitely the judgment of the CJEU will make the life easier for many entrepreneurs.
Paulina Andrzejczyk, Tax Consultant, ATA Tax Sp. z o.o.
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