Poland: EU VAT Directive precludes Polish measures on period for deducting input tax (CJEU judgment)

Poland: EU VAT Directive precludes Polish measures

The Court of Justice of the European Union on 18 March 2021 issued its judgment addressing whether the Polish tax authorities can demand interest when the taxpayer, through the fault of the supplier, declares the value added tax (VAT) on an intra-Community acquisition of goods after the three-month period following the month in which the transaction was conducted.

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The CJEU confirmed that the provisions of the EU VAT Directive are to be interpreted as precluding national law that makes the exercise of a taxable person’s right to deduct input tax in the same accounting period as that in which the tax due was payable on the transaction (assuming the tax due on those transactions was entered in the appropriate tax declaration submitted within three months following the end of the month in which the tax liability arose).

Poland’s VAT law amendments

At issue was whether Poland’s amendments to the VAT law (effective in 2017) were consistent with the EU principles of VAT neutrality and proportionality—those that provide that for a right to deduct input tax, a VAT-payer must be relieved of the economic burden thereof. In principle, for intra-Community acquisitions of goods or supply of services, the obligation to settle the input and output tax rests with the purchaser. For the purchaser, the output tax is, at the same time, the input tax to be deducted—meaning that from the purchaser’s point of view, the transaction becomes tax neutral.

Yet, under the amended VAT provisions in Poland, the right to deduct the amount of input tax from the amount of tax due would be available only when the VAT-payer includes the output tax for such transactions in a return no later than three months following the month in which the tax liability arose in relation to the acquired goods or services.

Thus, the Polish VAT rules provide for postponement of the moment of time when the right to deduction arises—thus possibly adding an interest assessment in situations when a foreign contractor provides the VAT-payer with the invoice recording the acquisition later than three months following the month in which the tax liability arose.

Request for CJEU’s judgment

The issue presented to the CJEU by the Polish court (Gliwice) related to a Dutch company with transactions in Poland.

The Dutch company’s position was that, as a result of an adjustment to a VAT declaration submitted for the period in which the tax liability arose, it could deduct input tax paid on the intra-Community acquisition of goods for the same accounting period in which the tax due was included—even if the adjustment was not made within three months following the month in which the tax liability arose in relation to the acquired goods.

In principle, the right to deduct the amount of input tax from the amount of tax due arises in the same accounting period as that in which the tax liability arose in relation to the acquired goods or services. However, this benefit is contingent on submitting a declaration within a three-month period. When the period is exceeded, the taxable person must adjust the declaration submitted previously and at the same time may pay the tax due on the intra-Community acquisition of goods only on an ongoing basis.

As part of the pending proceedings, the District Administrative Court in Gliwice decided to refer a question to the CJEU for a preliminary ruling—whether the three-month period provided for by the Polish VAT regulatory framework was in line with the principle of proportionality and whether the resulting limitation did not infringe the tax neutrality principle.

CJEU’s judgment

According to the CJEU, the Polish provisions were contrary to the EU VAT Directive.

The CJEU concluded that the provisions of the EU VAT Directive do not preclude the possibility of an EU Member State introducing mandatory limitation periods for making VAT deductions into national legal systems, but such limitation periods may not infringe the principle of tax neutrality and must be proportionate—meaning that they must not introduce formalities that are disproportionate to the aims pursued, and are not to put additional burden on the taxable person.

In assessing the foregoing in the context of the two principles, the reasons for non-compliance with the mandatory period must be taken into consideration—those independent of the taxable person and those dependent on the taxable person.

According to CJEU, any national legislation that makes the exercise of a taxable person’s right “in good faith” to deduct input tax in the same accounting period as that in which the tax due was payable and does not take into account all the facts that may arise, goes beyond what is necessary to allow for the correct collection of VAT and prevent tax fraud.

KPMG observation

The CJEU’s action may provide opportunities for refunds of interest paid on VAT on intra-Community acquisitions by taxpayers that were forced to pay interest in instances of settling VAT after a three-month period following the end of the month in which the tax liability arose.

For these purposes, unduly paid interest constitutes an overpayment within the meaning of the Polish tax law, and the overpayment (pursuant to the CJEU judgment) is subject to refund with interest. An application for refund of such interest must be timely filed.


Read a March 2021 report [PDF 310 KB] prepared by the KPMG member firm in Poland

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