Yesterday (18 March), the European Court of Justice issued a judgement that is very important for Polish taxpayers. It is a preliminary ruling in case C-895/19, where it was ruled that the Polish regulations on VAT refund in the case of late recognition of ICA are in breach of EU regulations.
The situation thus far
Pursuant to Article 86 par. 10b and 10i of the Act of 11 March 2004 on Value Added Tax, in force since 1 January 2017, the right to a VAT refund on the intra-Community acquisition of goods arises to the extent that, within three months from the end of the month in which the tax obligation arose in respect of the acquired goods, the taxpayer receives an invoice certifying the supply of goods that constitutes an intra-Community acquisition of goods for them, and secondly, recognises the amount of output VAT on this acquisition in the tax return where it is supposed to be accounted for.
These regulations are quite troublesome for Polish entrepreneurs, because often – through no fault of their own – they receive invoices from suppliers with considerable delay. If the three-month time limit laid down in the Polish VAT Act is exceeded, the taxpayer is obliged to account for output VAT in the period in which the liability arose (i.e. retroactively), and account for input VAT in the current accounting period (on an ongoing basis), which results in tax arrears and the payment of interest, often in very high amounts.
Given the fact that taxpayers had doubts whether the provisions of Article 86 par. 10b and 10i of the VAT Act are in compliance with EU directives and whether they are not in breach of the principle of VAT neutrality, many administrative court proceedings have been conducted on this matter. Unfortunately, the court rulings were not uniform; hence taxpayers did not have clear guidance on how to account for ICA transactions properly.
Finally, the Provincial Administrative Court in Gliwice, in case ref. no. I SA/Gl 495/19, submitted a request for a preliminary ruling (i.e. before issuing the ruling) directly to the CJEU. The case was about a Dutch company making purchases in Poland, including ICA, that was not always able to account for output tax in the tax return submitted within 3 months after the end of the month in which the tax liability arose in respect of the acquired goods.
Position of the CJEU
In its ruling in case C-895/19, the CJEU took a position that is clearly in favour of taxpayers. According to the Court of Justice, Polish regulations on VAT refund in ICA interfere with the principle of neutrality and proportionality set forth in the VAT Directive: “Article 167 and 178 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, amended by Council Directive 2010/45/EU of 13 July 2010, shall be interpreted as precluding domestic legislation under which the exercise of the right to VAT refund on intra-Community acquisition of goods in the same period in which the VAT is due is conditional on accounting for output VAT in the tax return submitted within three months after the end of the month in which the tax liability arose in respect of the acquired goods”.
The Court of Justice unequivocally rejected the assumptions behind the Polish regulations, stressing that the right to VAT refund cannot be made conditional on obtaining an invoice or submitting a VAT return or settlement of output VAT due on acquisitions within a given time limit. Furthermore, in the justification of the judgement, the CJEU emphasised that forcing the purchasers to pay VAT on a transaction in respect of which the tax should not be due, merely because of a failure to meet some formal requirements and without taking other relevant circumstances into account (such as the good faith of the taxpayer), goes beyond what is necessary to ensure that the VAT collection system operates properly and to prevent tax fraud.
Consequences for taxpayers
The fact that the CJEU has asserted that output and input VAT should be settled in the same period makes it possible to conclude that taxpayers could not have incurred VAT arrears, which in turn means that the interest paid by taxpayers was undue. Thus, for taxpayers, the CJEU judgement is the basis for requesting this interest to be reimbursed. Given the expected large scale of requests for the reimbursement of overpaid VAT, we may anticipate that the tax authorities will not issue refunds automatically, but rather verify whether, among other things, the criterion of due diligence, referred to in the justification of the CJEU judgement, has been met. However, it can be safely stated that upon preparing relevant arguments, taxpayers stand a real chance of recovering the unduly paid interest. Any adjusted return may be filed at any time before the expiry of the statute of limitations on the right to deduct the input VAT. If, on the other hand, the right to refund has been denied in a final tax decision, a request for the resumption of proceedings in this case (already closed) must be submitted within a month after the publication of the conclusion of the judgement of the Court of Justice of the European Union in the Official Journal of the European Union (i.e. on 18 April this year at the latest).
The judgement also opens up an opportunity to account for the input and output VAT on ICA in the same month when it comes to future transactions. What is important, the judgement is about ICA, yet it may provide guidance for accounting for the import of services, by analogy.
Should you have questions or need to discuss the topic further, we encourage you to contact our expert, Przemysław POWIERZA:
phone: +48 61 8515 766
fax +48 61 8515 786
 Judgment of the CJEU of 18 March 2021 in case C‑895/19