The Court of Justice of the European Union has ruled on the conditions for bad debt relief under the Polish VAT Act (Article 89a and 89b). The court considered them too stringent as compared to what was agreed by all EU Member States in the directive. Thus, Polish taxpayers have now gained an ally in their disputes with the tax authorities, and can now invoke the rules of the EU law directly.
On October 15th, the CJEU issued a very important ruling in case C‑335/19, where it ruled that the Polish regulations on bad debt relief are inconsistent with Directive 2006/112/EC.
As indicated by the CJEU, referring to the principle of proportionality, any actions taken to implement the directive should be in keeping with the aim pursued by this directive and must be limited to what is necessary to achieve it.
Thus, the CJEU decided that the following condition set forth in the Polish regulations is inconsistent with the directive: on the day of the supply or service performance, and on the day preceding the date of submitting an adjusted tax return aimed at exercising the right to reduce the tax base by the amounts of the unpaid invoices, the debtor was registered as a VAT taxpayer and is not in the course of bankruptcy proceedings or liquidation, whereas the creditor was still registered as a VAT taxpayer on the day preceding the date of submitting an adjusted tax return.
The tribunal did not rule on the option of the debtor’s undergoing restructuring proceeding, because the case that was being considered arose at a time in which the Polish legislation did not provide for this type of proceeding. However, it can be reasonably assumed that such circumstances do not preclude the possibility of applying bad debt relief.
There is also a condition set forth in the Polish regulations that you can apply the benefit before the lapse of 2 years counted from the end of the year when the unpaid invoice (either in total or in part) was issued. This limitation was not subject to the Court’s ruling in this case; however, considering the rules and their implementation pointed out by the CJEU, there are no indications that this specific condition can ever be considered inconsistent with the directive. The same goes for any sale of overdue receivables.
This ruling of the CJEU is good news for all those taxpayers who do not receive timely payments from their contractors and thus have been forced to declare bankruptcy or have made a decision to liquidate their businesses. If that is the case with you, we encourage you to contact our experts who will analyse the options and suggest a tailor-made solution.
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