Poland Starts Work on Steps to Combat VAT Fraud

By Jan Stojaspal

Snapschot

Official presentation of due-diligence criteria planned for end of October
Verification could include checking counter-party's EU VAT number, website, mailing address

A working group appointed by the Polish Finance Ministry holds its first meeting Sept. 22 with the goal of drawing up an official list of due-diligence requirements to protect taxpayers’ rights to deduct input VAT in cases ultimately connected with VAT fraud.

Meetings are scheduled on a weekly basis through the middle of October. The goal is to finalize and present the list by the end of that month, Michal Borowski, a member of the working group and tax partner at Crido Taxand, told Bloomberg BNA Sept. 20.

The first order of business is to determine whether to conceive the list as a simple checklist or a more complex solution, possibly using a weighted criteria matrix—maybe even tailored to specific sectors, he added.

It isn't yet clear what legal form the list will take or what will be on it, Borowski said. It is clear, however, that it will only concern domestic acquisitions of goods and services, and will not extend to trades between Poland and other European Union member countries, or so called intra-community transactions, he added.

Due Care Criteria
The need to formalize the due-diligence requirements has grown increasingly acute in Poland in recent years as value-added tax fraud cases multiply and the tax authorities become increasingly reliant on the denial of the right to deduct input VAT to collect what they are owed.

Given an absence of official criteria for what constitutes due care, disputes often result in lengthy litigation.

“Nowadays, we have a situation where no one knows how a taxpayer should behave or what should he do in order not to be challenged by the tax authorities that he did not act in a due care or in good faith,” Borowski said. “And the tax inspectors are really very, very, very creative in saying what you should have done, and since you did not do it, you will bear the VAT of other entities.”

Maria Kukawska, a Warsaw-based tax adviser and partner at Stone & Feather Tax Advisory, said she has seen situations where tax inspectors insisted on video footage as proof that deliveries of goods were actually made.

“Sometimes these criteria for documenting the supply are getting out of hand, and they go way beyond verifying the legal status of the supplier,” she told Bloomberg BNA Sept. 20.

Basic Verification Steps
An Aug. 1 letter from the Polish ministry of finance, in response to a question by a member of the Polish parliament, hints at what might fall under the due-diligence requirements, local tax practitioners said.

According to the letter, basic verification steps include checking a counter-party's VAT registration in Poland, confirming its EU VAT number, and checking whether it is listed as having made the required security deposit.

Other verification steps, according to the letter, may include checking the counterparty's website and mailing address and making sure they aren't fictitious; using extra caution when trading in goods with higher risk of VAT fraud, such as phones, scrap metal or calling cards; and securing a written statement that traded goods don't come from a crime nor are part of a VAT carousel.

Any type of a formal list is preferable to the status quo, according to RSM Poland tax consultant Piotr Wyrwa.

“This is positive because we will have something we may stick to and try to argue according to,” he told Bloomberg BNA Sept. 19. “So far, we have not had anything. When we argue with the tax authorities, we point to other similar cases. But in many situations, the tax authorities say that these cases are not the same and, therefore, our argumentation is not valid. The ability to point to a list will help.”

No Cure-all
“I think it will help in some smaller cases, when, for example, only a small part of transactions with contractors have been identified as tax fraud,” he said. “But in bigger, more complex cases, I don't think it will help. In these cases I expect the tax authorities to act as they do today, which is to look for a way to make something stick.”

Krzysztof Ugolik, indirect tax manager at PwC in Warsaw, echoed those sentiments.

“If this list is published and some guidance is offered, it has a chance to create more certainty for taxpayers and hopefully minimize situations where the tax authorities are coming after legitimate taxpayers,” he said, because they are the only ones from whom tax authorities can get any money. “Fraudulent companies disappear long time ago, and there are no assets to be seized and penalties to be executed.”

But the challenge will be how to make the requirements general enough to be broadly applicable and specific enough so as their application is easily verifiable, he added.

“A lot of voices are saying that we need to at least try to sectorize them, that is to publish due diligence requirements for like the fuel rector, the retail sector, etc, so as to have more specific lists tailored to particular sectors,” he said.

To contact the reporter on this story: Jan Stojaspal in Prague at correspondents@bna.com
To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

For More Information

Text of the Aug. 1 letter of the ministry of finance is available, in Polish, at https://orka2.sejm.gov.pl/INT8.nsf/klucz/658C47F0/%24FILE/i14059-o1.pdf