The sentence of the Polish Supreme Administrative Court (NSA) of 14 January 2020 introduced significant changes in the interpretation of tax regulations concerning the carry forward the tax surplus to the following accounting period. The Polish Supreme Administrative Court (NSA) ruled that the 5-year limitation period applies also to the surplus of input tax, with the consequence that it cannot be carried forward endlessly.
The previous regulations of the VAT Act and the construction of VAT returns provided for two possibilities in the case of a surplus of input tax:
- the taxpayer could apply for a refund to a bank account or
- carry forward the surplus to the following accounting period.
It happened that the application for a refund to the taxpayer’s bank account resulted in the initiation of checking activities, tax control or tax proceedings to verify the legitimacy of the refund. This caused an extension of the deadline for returning the surplus and many taxpayers decided to make the so-called indirect return, carrying the surplus to the next accounting period. The regulations of the VAT Act do not directly provide to the start of the limitation period of the surplus of input tax, so the question arose as to whether it may be time-barred.
Consequences of the sentence
The sentence of the Polish Supreme Administrative Court concerns a company conducting business activity in the field of real estate trade which generated a surplus of input tax in connection with a building of apartments buildings. Until the moment of sale of one of them, the company did not have taxable transactions and the surplus of input tax was shown in settlements to be carried forward to the next accounting period.
The Polish Supreme Administrative Court ruled that the regulations of the general tax code about limitation period of tax liabilities five years, counting from the end of the calendar year in which the deadline for tax payment expired, apply also in the case of carrying the surplus to the next accounting period.
According to the sentence, none of the VAT settlements, regardless of whether it is a tax liability or surplus of input tax, may be changed after the expiry of the limitation period for a given accounting period. The limitation makes the tax liability or surplus of input tax final and cannot be verified or changed.
How to calculate the limitation period for the surplus of input tax?
Carrying forward the surplus of input tax to the next accounting period is an indirect refund, settled in following periods. The five-year limitation period for the surplus of input tax should be calculated from the end of the year, taking into the month in which the surplus was settled, regardless of the outcome of this settlement, and therefore also as part of the subsequent settlement of such surplus of input tax to be carried forward to the next accounting period.
Taxpayers carrying forward surplus of input tax should check and monitor on an ongoing basis whether their long-term carry forward surplus of input tax has not been time-barred. A simplification and alternative for taxpayers could be the recent addition of the possibility to request the deduction of surplus of input tax from the future tax liabilities directly in the declaration JPK_V7/V7K file. Should you have any questions in this case, please to not hesitate to contact our VAT department.
Aleksandra Philips, LL.B., VAT Specialist