Taxpayers can reclaim interest for failing to declare intra-Community acquisitions of goods on time. According to the Court of Justice of the European Union, Polish rules on the right to deduct VAT on intra-Community acquisitions of goods are in breach of EU rules. The CJEU ruled that the right to account for tax due and input tax in the same period should not be subject to any time limit. Furthermore, IC-acquisition must always constitute a tax-neutral transaction, which means that the tax authorities are not entitled to interest for a late declaration of the transaction.
The CJEU’s ruling, favourable to taxpayers, came in response to a referral from the Voivodship Administrative Court in Gliwice concerning a dispute between a taxpayer and the Director of National Tax Information on the conflict between national rules and the VAT Directive.
Provisions of national law on the right to deduct input tax
Since 2017, the provisions of the VAT Act have introduced an additional condition regarding the right to deduct VAT on intra-Community acquisitions of goods. The regulations allow the right to deduct input tax to be exercised in the same accounting period if the tax return is submitted within three months of the end of the month in which the tax liability for the acquired goods arose.
If a taxpayer fails to account for VAT on a transaction within this period, he loses the right to deduct input tax in the same period in which he must account for output tax on that transaction. In such a case, the input tax must be settled in the current VAT return and the taxpayer is obliged to pay default interest on the tax arrears. Thus, the IC-acquisition is no longer a tax-neutral transaction.
Taxpayer’s dispute with the Director of National Tax Information
A taxpayer requested an individual tax information to confirm the possibility of deducting input tax in the same period as the tax due after the statutory deadline. The authority issued a negative tax ruling in this regard, whereupon the dispute was referred to the Voivodship Administrative Court in Gliwice.
The court decided to examine whether the national provisions of the VAT
Act on the right to deduct VAT did not violate the VAT Directive. It therefore referred a question to the CJEU. It held that the provisions of the VAT Act violate the provisions of Directive 2006/112/EC by making the exercise of the right to deduct VAT in the same accounting period as the accounting of the tax due conditional on the submission of a return within the statutory period. The Voivodship Administrative Court also stated that the principle of good faith of the taxable person must be applied when assessing compliance.
Polish regulations affect the neutrality of intra-Community acquisitions of goods
On 18 March 2021, the CJEU issued a favourable ruling for VAT payers. The CJEU ruled that Polish rules on the right to deduct VAT on intra-Community acquisitions of goods are not compatible with EU rules, as the right to account for tax and input tax due in the same period should not be subject to any time limit. In the CJEU’s view, the provisions of national law burden the taxpayer, which undermines the neutrality of the IC-acquisition.
The treasury was not entitled to interest for IC-acquisition’s untimely declaration
According to the CJEU ruling, the interest paid by the taxpayer for tax arrears due to the untimely declaration of IC-acquisition was not attributable to the tax office. This means that taxpayers – if certain conditions are met – can apply for a refund of the interest paid on the above account. The ruling also has implications for current and future VAT settlements related to IC-acquisition. The Ministry of Finance has already confirmed that it is preparing amendments to the VAT Act to bring it into line with the CJEU ruling.
Taxpayers can reclaim interest paid due to IC-acquisition’s failure to file a timely return
Taxpayers should already analyse their previous settlement and consider neutral adjustments. By doing so, they can take steps to recover the interest paid along with the interest due. Reviewing a taxpayer’s individual situation and having an experienced tax advisor prepare the necessary documentation accordingly will allow for a successful refund application.
If you need assistance in this matter, we recommend that you contact the VAT department of our law firm.
Aleksandra Philips, LL.B., VAT Specialist