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Poland: Extension of scope of bad-debt relief for VAT purposes (CJEU Advocate General)

Poland: Extension of scope of bad-debt relief

The Advocate General of the Court of Justice of the European Union (CJEU) on 4 June 2020 delivered an opinion finding that the Polish rules on bad-debt relief are not compatible with EU law.

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The case is: E. Sp. z o.o. Sp. k. (C-335/19).

Provisions of the Polish value added tax (VAT) law preclude a taxpayer from taking advantage of bad-debt relief if, on the date when the goods or services are supplied and on the day preceding the date when the tax return adjustment is filed, the debtor is subject to insolvency or liquidation proceedings.

The case was referred to the CJEU by the Polish Supreme Administrative Court, and specifically with regard to whether the provisions of Council Directive 2006/112/EC (the VAT directive) permit the introduction into national law of measures restricting or reducing the taxable amount if debtors are subject to insolvency or liquidation proceedings.

In the Advocate General's view, the fact that the recipient of the goods or services is subject to insolvency or liquidation proceedings only confirms the inability or failure to pay is final, and thus denying the taxpayer the right to take advantage of the bad-debt relief would constitute a breach of the principles of fiscal neutrality and proportionality. Thus, the VAT directive does not provide for an exclusion of the possibility for making a VAT adjustment (i.e., for applying bad-debt relief) on the sole basis that on the date when the goods or services supplied and on the day preceding the date when the tax return adjustment was filed, the debtor was subject to insolvency or liquidation proceedings.


KPMG observation

The Advocate General's opinion (if accepted by the CJEU in its judgment) may provide opportunities for taxpayers to apply the bad-debt relief and, consequently, to recover VAT in situations when the recipient is subject to insolvency or liquidation proceedings. The opinion of the Advocate General is not binding on the CJEU but some believe it may indicate the outcome in this case. Appropriate actions, such as filing timely refund claims, therefore need to be considered.


Read a June 2020 report [PDF 282 KB] prepared by the KPMG member firm in Poland

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