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Legal regulations making VAT deduction dependent on the timely filing of a tax return correction contrary to Directive 112?


Legal regulations effective as of 1 January, which make the right to deduct VAT in the case of reverse charge mechanism transactions dependent on the observance of a 3-month deadline for the filing of a tax return, remain the point of dispute with tax authorities. Two judgments of Regional Administrative Courts were given over the recent weeks, each taking a different position to compliance of the Polish regulations in this regard with the VAT Directive.

Pursuant to the new regulations, taxable persons have the right to settle input tax and output tax under intra-Community acquisition of goods, importation of services and domestic transactions covered by the reverse charge mechanism in the same tax return, provided that within a deadline of 3 months from expiry of a month when the tax became chargeable (tax point), they will settle the output tax in a proper tax return. Consequently, if the deadline is not observed, taxable persons must disclose the output tax in the tax return for the tax point period, and the input tax in the current tax return.

In the assessment of the Regional Administrative Court in Warsaw (judgment of 15 May 2018, case ref. no. III SA/Wa 2488/17) the above regulations of the VAT Act violate the principle of VAT neutrality and proportionality under Directive 112. Similar position was expressed by the administrative court in Cracow in its judgment of 29 September 2017 (case ref. no. I SA/Kr 709/17).

The Regional Administrative Court in Warsaw noted that implementation of the regulation under discussion resulted in a situation where the obligation to disclose the input tax and the possibility to deduct the output tax failed to meet in time. In consequence, default interest has to be accrued. The Court emphasised that the objective of the implemented regulations was to prevent tax fraud, but there is no such risk if a VAT taxable person is the purchaser. In its argumentation the Court referred to the case law of the CJEU, among others in Case of Senatex (C-51/14), where the CJEU found that there were no grounds to punish a taxable person with postponement in time of the right to deduction with interest due to non-observance of formal conditions, provided that substantive and legal conditions were satisfied. Summing up, if an invoice is received at a later date than indicated in the VAT Act, the taxable person has the right to settle the input tax in the same period in which the output tax is disclosed, and not in the current settlement.

The Regional Administrative Court in Opole came to contrary conclusions in its judgment of 30 May 2018 (case ref. no. I SA/Op 113/18). The Court found as wrong the assertion by the company that a three-month deadline set for the settlement of the output tax and input tax under domestic transactions covered by the reverse charge mechanism is contrary to the Directive. So the company has no right to deduct the input tax in the same period in which the output tax is disclosed, regardless of the fact that correction of the VAT return will be filed later than within three months from expiry of the tax point month.

Because there is no unison in the positions of administrative courts, taxable persons should observe the development of the case law in this regard and consider whether not to apply for an individual binding ruling.

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Anna Skórska, Tax Advisor Assistant