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Compliance of Polish regulations on the right to the deduct VAT with EU law


On 14 December 2018, the WSA (Voivodship Administrative Court) in Cracow handed down a ruling on compliance with EU law of the current regulations on the right to deduct VAT on intra-Community acquisition of goods, imports of services and domestic transactions covered by the reverse-charge mechanism (I SA/KR 11/18). 

By way of introduction, on 1 January 2017 a requirement was introduced into the Polish legal system that output VAT be settled within 3 months of the end of the month in which a tax obligation arose with respect to the transaction in question. Failure to comply with the statutory deadline will deprive one of the right to simultaneously settle the output tax and deduct the input tax in a given settlement period, resulting in VAT being no longer neutral for the taxpayer.

In the case at issue, resulting from an appeal against a private ruling issued by the Head of the National Tax Information, the petitioner argued that the above regulations were contrary to the principles of VAT neutrality and proportionality. Taxpayers often bear the economic burden of the output tax, and default interest due thereon, for reasons not attributable to themselves, such as a supplier issuing or delivering an invoice late, or an invoice being defective, which is contrary to the essence of VAT and its fundamental principles.

In analysing the relevant CJEU case law and the provisions of the VAT Directive, the court affirmed the petitioner’s position holding that an autonomous shift in time of the right to deduct input VAT by a taxpayer meeting all substantive legal requirements, the only failure being breach of the formal requirements for deduction, was in violation of EU law. The controversial provisions, insofar as their implications are concerned, represent an unjustified economic burden for taxpayers applied regardless of the weight and scale of breach of the formal requirements, regardless of any risk of fraud or intentional tax evasion. The court indicated that although Member States are allowed to implement sanctions for failure to comply with the formal requirements for the right of deduction, they cannot go beyond what is necessary and suitable for the attainment of the goals pursued and must respect the tax neutrality principle in implementing their respective legislative solutions.

Rulings favourable to taxpayers have been handed down recently in that respect. Nevertheless, given a lack of a cohesive line of rulings before an unambiguous ruling is issued by the Supreme Administrative Court or the CJEU, in order to avoid any risks of adverse implications, it is recommended that settlements of ICAG, imports of services and domestic transactions covered by self-settlement of tax be made within the statutory three-month period from the moment the relevant tax obligation arose.


Ewa Pyrkosz, Tax Consultant, ATA Tax Sp. z o.o.

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