The right to deduct VAT from invoices received prior to registration
The Value Added Tax Act does not divest the taxpayer of the right to deduct tax from purchase invoices received prior to registration. However, it is crucial that the purchases be closely related to the intended business activity. In this case, the business acquires the right to deduct input tax upon the receipt of the invoice; however, active VAT payer status is necessary in order to enjoy the possibility. Such a standpoint has been presented by the Head of the National Revenue Information Service in a private tax ruling issued on November 27, 2020 (case no. 0114-KDIP1-3.4012.530.2020.1.KP).
In the application in question, the taxpayer purchased three hotel suites in order to let them later. Not being familiar with the tax regulations, the applicant had no knowledge concerning the possibility of deducting 23% VAT while the investment was still under construction. As a result, he wrongly assumed that the tax refund is possible only after the suites have been taken over and the first remuneration connected with their rental has been received. In consequence, he was not registered as active VAT payer at the time of receipt of the purchase invoices,. The Applicant did file a completed VAT-R form with an application for registration; however, he did so only after he had discovered his mistake.
The Head of the National Revenue Information Service in its ruling confirmed that the Applicant was right in that he could deduct input VAT on investment outlays made several years before the formal registration of the business. The authority pointed out “that the Act doesn’t divest the taxpayer of the right to deduct VAT on purchases, provided that there are grounds for assuming that the purchased goods and services will be used for current (or future) taxable activity”. However, it should be mentioned that the legislator imposed on taxpayers wishing to deduct the tax an obligation to register as active VAT payers. Therefore, according to the Head of the National Revenue Information Service (KIS) “the right to reduce the amount of output tax by the amount of input tax is vested when certain conditions are met, i.e. a deduction is made by a VAT payer and that the goods and services whose acquisition resulted in the input tax are used for taxable transactions". Furthermore, it should be mentioned that there are no regulations in the Act stipulating that one must be an active VAT taxable person at the time of receipt of a relevant invoice in order to be entitled to deduct the input VAT amount. Thus, it should be remembered that the moment the right to deduct input VAT arises does not coincide with the acquisition by the taxpayer of the possibility to exercise this right.
It should be mentioned that the letter of November 27, 2020, is yet another favourable ruling in connection with the right to deduct VAT from invoices received prior to registration. Thus, we can observe that tax authorities are approaching the subject unanimously, resulting in a consistent interpretational line that is favourable for taxpayers.
Kinga Duszna, Tax Consultant, ATA Tax Sp. z o.o.
Interested in the topic?