Thorough verification of a seller is the tax authorities’ duty rather than that of the purchaser of the goods
This conclusion follows from a judgment of the Voivodship Administrative Court (WSA) in Łódź of 25 June 2019, case no. I SA/Łd 218/19. Combating tax abuse is a duty of tax authorities rather than of the taxpayer. One cannot require the taxpayer to verify the other party to a transaction to such an extent as is performed by the tax authorities in the course of a tax audit.
In the case at issue, a company purchased goods directly from sellers having stands in a shopping centre with the goods being handed over to the purchaser on the spot or delivered by the seller to the place of the purchaser’s business. Moreover, the goods were paid for in cash. In the opinion of the tax authorities, the taxpayer did not purchase the goods from the companies that were indicated on the disputable VAT invoices as sellers, and the invoices made out by the suppliers failed to reflect the actual economic reality, which leads to the conclusion that such entities were not in a position to supply the goods to the purchaser.
The Director of the Revenue Administration Chamber in Łódź upheld the position of the lower authority as regards a lack of right to deduct input VAT from the invoices documenting purchases of the goods. According to the appellate authority, the taxpayer’s conduct, in particular the apparent unfamiliarity of the other parties to the transactions in question as well as an unusually high level of confidence between the contracting parties, justifies the conclusion that the taxpayer must have been aware of participating in transactions aiming at VAT fraud. In addition, accepting invoices merely bearing the seller’s common seal without being able to howsoever identify the person selling and handing over the goods, who signed illegibly relevant documents, attested to a lack of due care on the part of the taxpayer in entering into the transactions. Furthermore, according to the tax authorities, the fictional character of the transactions was further corroborated by the payments being made in cash.
This position of the tax authority and such practices met with an opposition from the WSA in Łódź. The court held, in analysing the CJEU’s case law, that combating VAT fraud belongs to the duties of tax authorities and it is upon them that the primary responsibility rests for protecting the interests of the State Treasury. The court emphasised the fact that a tax authority is required to demonstrate, on the grounds of objective evidence, that the taxpayer knew or should have known that the transaction based on which the deduction was to be made entailed an offence committed by the issuer of the invoice or another entity acting at an earlier stage of the transaction process. And specifically to explain what the fraud mechanism consisted in, what financial benefits were gained and what specific obligations were breached by the contracting party.
The WSA pointed out that circumstances that could arouse a taxpayer’s suspicions as to the unreliability of the sellers only include those that associate the transaction itself, and these do not include payments in cash as such form of payment is admissible in direct sale of goods in a designated place in a shopping centre, including B2B transactions where the value of the transaction, regardless of the number of payments it would involve, does not exceed PLN 15,000.
The WSA’s judgment in question should serve as a guideline to tax authorities indicating that when purchasing goods, whether in a direct sale or otherwise, a taxpayer is not under any additional obligations that are administrative in nature nor is he required to thoroughly verify the other contracting party’s tax settlements as to whether or not the output tax on account of the purchase transaction in question could have been settled by the seller in his tax return.
Paulina Andrzejczyk, Tax Consultant, ATA Tax Sp. z o.o.
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