On March 18, 2021, the European Court of Justice (ECJ) issued a positive judgment in the Polish case C-895/19, stated…
On March 18, 2021, the European Court of Justice (ECJ) issued a positive judgment in the Polish case C-895/19, stated the Polish VAT Act regulations, which in a specific situation prohibit the recognition of output tax and input tax related to the intra-Community acquisition of goods (ICA) transaction in the same accounting period are contrary to the VAT Directive 2006/112.
In accordance with the rule expressed in the Polish VAT Act, which is the implementation of the principle of tax neutrality in art. 1 clause 2 of Directive 2006/112, to the extent that the goods and services are used to perform taxable activities, the VAT taxpayer has the right to reduce the amount of output tax by the amount of the input tax. As a rule, this right arises in the settlement for the period in which a tax obligation arose in relation to goods and services purchased or imported by the taxpayer.
From January 1, 2017, this right in Poland has been significantly tightened according to a new requirement consisting in a temporary limitation of the right to deduct.
Currently, according to the ICA transactions the taxpayers have the right to settle the input and output tax in the same settlement period, provided that: a tax obligation arose and they included the amount of output tax in respect of ICA in the VAT return in which they are obliged to settle this tax, no later than within 3 months from the end of the month in which the tax obligation arose in relation to the purchased goods.
As a consequence, exceeding the 3-month deadline for VAT settlement due to ICA, taxpayers are obliged to settle intra-community payments – but also other transactions settled on the basis of a reverse charge mechanism such as import of services – in a different month: the output tax in the period when the tax obligation arises (retrospectively), and the input tax in the current settlement (on an ongoing basis). This often results in tax arrears and tax interest.
The ECJ was asked by the Polish court:
Is article 167 in connection with article 178 of VAT Directive 2006/112 should be interpreted in such a way that it is contrary to national provisions which condition the right to deduct input tax in the same settlement period in which the output tax is settled, in relation to a transaction constituting an intra-Community acquisition of goods, from showing the output tax on such transactions in the relevant VAT return, submitted within the strict deadline (in Poland 3 months) from the end of the month in which the tax obligation arose in relation to the purchased goods and services?
The ECJ judgement
The ECJ held that Articles 167 and 178 of the VAT Directive must be interpreted as precluding the application of national provisions under which the right to deduct value added tax (VAT) relating to an intra-Community acquisition of goods during the same tax period, to which VAT is due, depends on reporting the output tax in the VAT return, submitted within three months from the end of the month in which the tax obligation arose in relation to the purchased goods.
Effects and opportunities
The ECJ judgment means that taxpayers registered for VAT purpose in Poland who settle the ICA transactions have now the possibility and should:
- analyse the settlements related to ICA transactions in order to correct them (from January 2017), leading to full neutrality if necessary;
- prepare the arguments and submit an overpayment application for VAT and interest refund;
- decided whether to start reporting the ICA transaction in neutral method regardless of the above described 3 months circumstances or wait until the provisions of the Polish VAT Act will be changed.
For more information, please feel free to contact:
Anna Szafraniec, CEE VAT Compliance Director, [email protected]
Łukasz Woźniak, VAT Compliance Manager, [email protected]