Possibility to apply for VAT refund by a foreign entity after liquidation of its branch in Poland – decision of the Regional Administrative Court in Warsaw of 10 November 2015
In its judgment of 10 November 2015 (ref. no. III SA/Wa 118/15 i III SA/Wa 119/15), the Regional Administrative Court in Warsaw confirmed that a foreign entity performing tax chargeable transactions in the Polish territory through its branch which is subsequently liquidated may apply for VAT refund. The foreign entity as an active VAT payer retains in such situation the right to correct VAT returns, also those covering the period during which tax chargeable transactions were performed in the Polish territory through the branch.
In the factual situation underlying the proceedings, a company established in Germany conducted business activity in Poland through a branch of the foreign undertaking, although some transactions were performed by the company itself, without any involvement of the branch. At some point the company decided to liquidate the branch, but at the same time was not de-registered as a VAT taxable person in Poland. After the branch had been deleted from the National Court Register, the company came into possession of some documents which justified the correction of VAT returns for the time of operation of the branch and the application for VAT refund. The Head of the Tax Office refused, however, the tax refund and as a reason stated expiry of the tax identification (NIP) number, which in the opinion of the tax authority had been allocated to the branch and could not be used by the company after liquidation of the branch – the NIP number expires with the branch ceasing to legally exist. In the appeal proceedings, Director of the Tax Chamber came to other conclusions and found that, along with deletion of the branch from the National Court Register and cessation of performance of tax chargeable transactions in the Polish territory, the company had lost the status of a taxable person and therefore the right to correct VAT returns for the period when it had been registered as a VAT taxable person. In consequence of taking such a position, Director of the Tax Chamber in Warsaw upheld the decision of the Head of the Tax Office to refuse the VAT refund to the foreign company.
In oral rationale to the judgment of 10 November 2015 (ref. no. III SA/Wa 118/15 i III SA/Wa 119/15), the Regional Administrative Court in Warsaw confirmed as correct the position presented by the company in its complaint and reversed the challenged decision. The Regional Administrative Court agreed with the claim that the foreign company continued to be a taxable person within the meaning of Article 15.1 of the VAT Act. The definition of a taxable person should be understood broadly, which means that performance of tax changeable transactions in the Polish territory may not be treated as a condition necessary for treatment of the company as a taxable person within the meaning of the above provision. The fact that the company has not ceased to legally exist in Germany and performs there tax chargeable transactions allows the conclusion that it continues to have the status of a VAT taxable person within the meaning of Article 15.1 of the VAT Act. The branch in Poland was only an organisational unit of the foreign undertaking. When the branch is deleted from the National Court Register, it does not mean that the status of a VAT taxable person has been lost, since the taxable person is always the company and not its branch. This allows the conclusion that deletion of a branch of the foreign undertaking is not an obstacle for such undertaking to correct VAT returns which have been already filed. Refusal of the right to make correction would be in material breach with the principle of neutrality and proportionality. The Court also noted another flaw in the argumentation of the tax authority which alleged that the company did not have the right to correct tax returns because it had lost the status of a VAT taxable person. If we accepted the arguments of the tax authority as reasonable, we would have to come to an absurd conclusion that, in the opposite situation, where corrections were to result in the settlement of tax arrears, the taxable person would not have to pay the same, since the corrected filings would be rejected by the tax authority in view of the alleged loss of status of a VAT taxable person.
The judgment may be of key significance for other foreign taxable persons in whose cases the tax authority concluded wrongly that where a branch of the foreign undertaking has ceased to legally exist or tax chargeable transactions have been ceased to be performed in the Polish territory, the status of a VAT taxable person in Poland is automatically lost. The status of a taxable person is always enjoyed by the company, not by its branch on its own, and it is the company that retains the right to correct VAT settlements in relation to past periods.
The judgment is not final and unappealable.
In the dispute with the tax authorities in this case the foreign company has been represented by, inter alia, Marcin Sobieszek, Partner and tax advisor at ATA Tax Sp. z o.o.