Principle of tax neutrality and selected provisions of the Goods and Services Tax Act

The principle of neutrality is a fundamental right of the taxpayer, repeatedly emphasised in the case law of the Court of Justice of the European Union (hereinafter referred to as the TEU). EU rules specify the conditions for deduction of tax and determine the moment of acquisition of that right.

Despite the obligation to properly implement these regulations, the provisions of the Act of 11 March 2004 on tax on goods and services 1 (Next the VAT Act) contain records that not only indirectly, but directly violate this principle.

The present study presents examples of rules which make the input tax a real economic burden on the taxpayer.

Introduction

The neutrality of the value added tax for the taxpayer is expressed, among other things, by the desire to seek, implement and protect legislative solutions that provide a legal condition in which the value of the tax paid by the taxpayer does not constitute the ultimate cost to it.

The taxpayer must be able to recover the input tax associated with its taxed activities. Any beneficial consequences for the taxpayer resulting from the concept of tax neutrality are treated in the doctrine of Community law as a fundamental right of the taxpayer, not a privilege 2 .

If there is no regulation in Community law that would limit the right of taxable persons to deduct, the right to deduct should be respected 3 .

Please refer to content here Article 273 Directive 2006/112 Council 28 November 2006 on the common system of value added tax 4 (Further to the Directive 112), according to which Member States are authorised to adopt provisions to ensure correct collection of tax and to avoid tax fraud, provided that those provisions do not go beyond what is necessary to achieve those objectives, nor undermine the neutrality of the tax 5 .

The implementation of the principle of neutrality is expressed in the creation of such legislative arrangements, whereby the tax charged (paid) by the taxable person at the price of the goods and services purchased for the purposes of his activities taxed by that tax may be deducted, thus not constituting a cost charge for the taxable person.

The national law gives examples of provisions that do not fit into this idea. Without prejudice to the objectives referred to in that Article of the Directive 112, These provisions could be edited differently. In fact, this study is another appeal to the legislator to amend it accordingly.

The publication refers to a provision of a national law which is currently examined by a national administrative court in terms of its compliance with the provisions of the Directive 112 and a provision which, according to the author, should be subject to such an assessment.

Principle of neutrality in the light of the case law of the Court of Justice of the European Union

The need to comply with the principle of neutrality in the legislative systems of the Member States is particularly strongly stressed by the TEU, which has often stressed in its case law that the right to deduct has been introduced in order to completely free the entrepreneur from the costs of the tax paid or payable in the course of his business.

The system of deductions aims to completely relieve the trader of the VAT burden due or paid in the course of his entire business. The common VAT system thus ensures the neutrality of economic activities in terms of tax burden, regardless of their purpose and results, provided that such activities are, in principle, subject to tax on goods and services themselves 6 .

The Court of Justice of the European Union has ruled on several occasions that "the right of taxable persons to deduct from VAT which they are obliged to pay, VAT due or paid out of the title of goods and services resulting in the charge of tax is a fundamental principle of the common system of VAT established by Union law" 7 .

In one of its judgments, the Court stressed that the right to deduct, provided for under Article 167 and next Directive 112 is an integral part of the VAT mechanism and is in principle not subject to restriction and is directly liable to the entire tax chargeable transaction chargeable tax 8 .

The CJEU confirms that it is sufficient to comply with the conditions, in accordance with Union legislation, to implement this right: ‘In order to exercise the right to deduct, after first, the entity is to be a taxable person within the meaning of that Directive, and after second, the goods and services to be the basis of that right should be used by the taxable person at a further stage of trading for the purposes of his own taxed transactions, and those goods and services should be supplied by another taxable person at an earlier stage of trading.

Where those conditions are met, the right to deduct may not in principle be refused’ 9 .

The provisions of the Directive specify precisely the conditions for the formation and scope of the right to deduct taxes, and in the case law still under the Sixth Council Directive with 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment 10 (Further to the VI Directive), the view has been established that no margin of discretion is left for Member States to implement these regulations 11 .

What is very important and what is confirmed by the judicature, the fundamental principle of tax neutrality requires that the right to deduct input tax be granted if material conditions are met, even if taxpayers fail to comply with certain formal requirements. For example, in the judgment C-385/09 The Court held that: ‘(...) interpretation Directive 2006/112 it must be so argued that the VAT taxable person who satisfies the substantive conditions for deducting VAT may be deprived of the possibility of exercising his right of deduction by national legislation which prohibits the deduction of VAT paid on purchase of goods where that taxable person has not made the identification for VAT purposes prior to the use of those goods in his taxable activity’ 12 .

In another judgment, which is valuable for assessing the compliance with EU law of the selected provisions of the national law, the TSEU considered that it had an invoice containing the data provided for under Article 226 Directives 112 is a formal requirement, not a substantive condition, for the right to deduct: ‘The substantive conditions for the creation of the right to deduct are mentioned under Article 168 point (a) this directive.

In order to exercise this right, first, the entity must be a taxable person within the meaning of that Directive, and after second, the goods and services to be the basis for the right of deduction should be used by the taxable person at a later stage of trading for the purposes of his own taxed transactions. (...).

With regard to formal requirements for the right to deduct from Article 178 point (a) Directive 2006/112 it follows that the exercise of that right depends on the holding of an invoice issued in accordance with Article 226 this Directive’ 13 .

Right to deduct under EU rules

According to Article 167 Directives 112, the right to deduct arises when the tax to be deducted becomes chargeable. An event resulting in a tax obligation occurs and VAT becomes chargeable, as it states Article 63 Directives 112 – when the goods or services are supplied.

According to the case-law of the CJEU, the provisions of the Directive 112 determine the earliest point from which the right to deduct may be exercised. This right should not be temporarily restricted by Member States. Where there are no rules in Community law to restrict the right of deduction, that right must apply immediately 14 .

According to Article 168 Directives 112, where the goods and services are used for taxable transactions of the taxable person, the taxable person shall be entitled, in the Member State in which the transactions are carried out, to deduct the following amounts from the amount of VAT which he is obliged to pay: (a) the VAT due or paid in that Member State on the goods and services which have been supplied to him or to be supplied to him by another taxable person (...). Article 178 Whereas the directive laying down the formal conditions provides, in turn, that in order to make the deduction in question under Article 168 point (a), in respect of supplies of goods and services, the taxable person must have an invoice drawn up in accordance with Article 220-236 and Article 238(239)(240) (…).

By Sound Article 179 paragraph first Directives 112, The deduction shall be made by deducting from the total amount of tax due for the tax period in question the amount of VAT ‘giving the right to deduct in the same period applied in accordance with Article 178”. It would therefore seem that from the provisions of the directive set out above 112 it is clear that the right to deduct arises for the period during which the tax became chargeable (Article 167 the directive) and only in order to deduct (as a formal requirement) the taxable person must have an invoice at the time of its execution (Article 178 point (a) Directives 112).

In one of the judgments of the Court of Justice states, however, that the right to deduct VAT should in principle be exercised for a period during which, after first, This law arose, and after second, in which the taxable person has an invoice 15 .

It must be stressed here that the case in which the judgment was brought concerned a taxable person who did not have an invoice at the time when the right to deduct was exercised.

The Court did not recognise the situation in which the taxable person had an invoice which he had received in a period other than that in which he acquired the right to deduct.

It seems that the transfer of the exercise of the right to deduct the tax to the period during which the taxable person received the invoice constitutes in fact a breach of the principle of neutrality. The right to deduct should be exercised immediately, as referred to above and as confirmed by other decisions of the TEU.

If the taxpayer, when making the settlement for the period during which the tax is due, is in the possession of an invoice, i.e. having fulfilled the formal requirement, why would he bear the economic burden of the tax for the next accounting period?

Right to deduct input tax — position of national courts

At one time, namely in the legal state in force until the end 2013, Provincial Administrative Court in Bydgoszcz faced a similar dilemma 16 . The purpose of the proceedings was to ask whether a taxable person who holds an invoice before the date on which the tax was paid for the previous period may show the tax resulting therefrom to be deducted in the declaration for the period during which the tax due was incurred by the supplier, even if such a document was received during the following period but before the settlement for the past period.

In response to this question, the Court of First Instance referred to the judgment of the Court of Justice (judgment of the Court of First Instance) above.

C-152/02), in which the Court interprets Article 17 and Article 18 VI Directives (now Article 167 and next Directive 112) stated that the deduction of input tax should be made in the accounts for the period during which the conditions listed are met under Article 18 VI Directives, i.e.

the execution of the supply of goods or the provision of a service and the possession of an invoice or other document which may fulfil the function of an invoice in accordance with national legislation.

Establishment of the right to deduct input tax under Article 17(1) VI The Directive has not yet provided a basis for its deduction in the assessment of the WSA, unless the conditions specified are met under Article 18.

The right to deduct input tax can be exercised after the conditions laid down under Article 18 in settlement for the period during which those conditions were met.

The Provincial Administrative Court in Bydgoszcz stated that, however, in the VI Directive separately, the creation of the right to deduct (Article 17), and separately the conditions for the deduction to be fulfilled are those laid down under Article 17 and 18 VI The Directives boil down to the fact that it is practically possible to exercise the right of deduction in settlement for the period during which certain conditions were met, e.g.

an invoice (a formal condition).

Such a conclusion cannot be drawn directly from the previously mentioned EU legislation. The invoice is necessary to exercise the right to deduct, but its receipt should not affect the moment of acquisition of that right, which is quite clearly and precisely defined in the provisions of the Directive 112.

All the more so, the application of such a structure clearly affects the neutrality of this tax. Apart from the fiscal objective (improvement of the financial liquidity of the state budget – cash flow), such a solution is not intended, for example, to combat fraud or to counter fraud.

The sentence was passed during the period of application of the national law, the content of which was amended.

The content of the current provisions provides for a more similar structure to that provided for in EU regulations, and it is therefore appropriate to analyse the validity of the judgment of the national court in the context of applying the principle of tax neutrality to the current legal situation.

Neutrality of value added tax and selected national rules

In accordance with the provisions in force the VAT Act, the right to reduce the amount of tax due by the amount of input tax arises in settlement for the period during which a tax obligation arises in respect of goods and services purchased or imported by the taxable person 17 .

Right to reduce the amount of tax due by the amount of input tax in the cases in question under Article 86(2)(1) and point 2 point (a) 18 arises no earlier than in settlement for the period during which the taxable person received the invoice 19 .

In the light of the commented provisions of the Directive 112 the use by the legislator in the content should be considered as missed Article 86(10b)(1) the VAT Act the words ‘he gets up’.

It would be more appropriate to use e.g. the term "executed" or other identical terms. The doctrine often states that once the law is created, it lasts until it expires by deducting 20 .

If the law arises in settlement for the period during which a tax liability arises in respect of goods and services purchased or imported by the taxable person (equivalent) Article 67 Directives 112), It can't happen again. second on the date of receipt of the invoice, in the cases referred to under Article 86(2)(1) and point 2 point (a) the VAT Act – especially that regulations Articles 86(10) and 86(10b) point 1 the VAT Act be considered together.

Provisions Article 86(10b)(1) the VAT Act are in fact equivalent Article 178 point (a) Directives 112, in which receipt of an invoice is a condition for a formal deduction and its receipt does not indicate the moment when the right to deduct is acquired: “In order to exercise the right to deduct, the taxable person must fulfil the following conditions: ... must have an invoice drawn up in accordance with Article 220-236 and Article 238(239)(240)”.

If the legislators wanted to fully implement the principle of tax neutrality, taking the example of solutions in some Member States 21 , it should allow, by amending the rules, the possibility of deducting the tax for the period during which a tax obligation arises in respect of goods and services purchased or imported by the taxable person, provided that the taxable person receives an invoice before submitting a declaration for the same period of account.

Then, according to the case-law of the CJEU, the right to deduct would be exercised immediately. The current legislation de facto limits the principle of neutrality.

Another example of limiting the principle of neutrality of taxation is the content of the provision Article 86(10b)(2-3) the VAT Act According to Article 86(2)(4) the VAT Act, the amount of input tax is the amount of tax due for:

• (a) the provision of services for which pursuant to Article 17(1)(4)(8) the taxable person is their customer,
• (b) the supply of goods for which according to Article 17(1)(5)(7) the taxable person is their buyer,
• (c) the intra-Community acquisition of the goods in question under Article 9,

(d) intra-Community acquisition of the goods in question under Article 11.

The right to reduce the amount of tax due for the input tax arises in the settlement for the period during which a tax obligation arises for goods and services purchased or imported by the taxable person. However, according to content Article 86(10b)(2) the VAT Act, in the cases referred to under Article 86(2)(4) point (c) (intra-Community acquisition of the goods in question under Article 9 the VAT Act – the so-called intra-Community transactional acquisition of goods, i.e.), the right to reduce the amount of tax due by the amount of input tax arises according to section 10, provided that the taxable person:

(a) receive an invoice documenting the delivery of the goods constituting an intra-Community acquisition of the goods within the time limit three months after the expiry of the month in which the tax liability arose for purchased goods,

(b) take into account the amount of tax due for the intra-Community acquisition of goods in the tax return in which it is obliged to settle that tax no later than the time limit. 3 months after the expiry of the month in which the tax obligation arose for purchased goods.

In turn according to content Article 86(10b)(3) the VAT Act, in the cases referred to under Article 86(2)(4) point (a), (b and d) the right to reduce the amount of tax due by the amount of input tax arises according to the section 10, provided that the taxable person takes into account the amount of tax due in respect of these transactions in the tax return in which he is obliged to settle that tax no later than the time limit 3 the months following the expiry of the month in which the tax liability arose for the goods or services purchased.

It follows from the above provisions, inter alia, that the condition necessary to deduct input tax due in the same tax period is to take account of the amount of tax due in the tax return in which the taxable person is obliged to settle the tax, but not later than the time limit 3 months after the expiry of the month in which the tax liability arose for purchased goods and services. This condition applies to transactions in the import of services, WNT and domestic transactions in respect of which the purchaser is the taxable person 22 .

Where the three-month period referred to above is not observed, it shall apply Article 86(10i) the VAT Act 23.

According to its content, if the taxable person failed to take account of the amount of tax due in the relevant declaration, within the time limit indicated under Article 86(10b)(2) point (b) and Article 86(10b)(3) the VAT Act, that may include the amount of the input tax resulting from that transaction in the settlement for a period for which the time limit for the submission of the tax return has not yet expired.

At the same time, the tax due from the same transaction should be included in the declaration for the month in which the tax liability arose for the transaction in question.

The above provisions in force since 1 January 2017 to the extent that they postpone the right to deduct in time to a taxable person who has fulfilled all the substantive conditions of deduction and has not only observed the formal conditions of deduction (often not his own fault) have the effect of having to pay interest on the tax arrears arising under those conditions.

This backlog arises as a result of the inability to settle the tax due and charged in the same accounting period. The existence of an obligation to pay interest, as well as the exposure of the taxpayer to the consequences of finding irregularities at the time of the tax audit, causes the taxpayer not to be released from the costs of the tax paid or payable in the course of his business and constitutes a violation of the principle of neutrality 24 .

Court of Justice of the European Union In one of judgments 25 stated that the basic principle of tax neutrality requires that the right to deduct input tax should the basic requirements be met, even if the taxpayers did not comply with certain formal requirements.

Consequently, if the tax authorities have the information necessary to establish that the taxable person, as the recipient of the transaction in question, is liable for the tax, they may not impose additional conditions on the taxable person's right to deduct that tax, which could effectively prevent the exercise of that right or cause him to be burdened with the economic burden of that tax.

Summary

If the taxable person has actually purchased the goods or services which are used for the taxable activity (material charge for the acquisition of the right of deduction) and in addition has an invoice (formal charge), the right to deduct shall be ex tunc 26 .

The principle of tax neutrality in practice is intended to mean that the tax cost should not constitute an economic burden for the taxpayer. The deduction of the tax at the time of receipt of the invoice, where the material conditions for deduction are met, does not fulfil that objective.

Often, only a specific judgment of the TEU, confirming the non-compliance of national regulations with EU law, leads to a final change of rules. In the second This seems to be the case.

Sources:

• 1 Journal of Laws of 2017, item 1221 as amended
• 2 VI VAT Directive. Commentary to the directives of the Council of the European Union on the common system of value added tax, ed. K. Sachs, C. H. Beck Publishing House, Warsaw 2004, p. 417.
• 3 Ibid. p. 418.
• 4 Official Journal of the European Union L, No. 347, p. 1 and next. as amended
• 5 Judgment of the Court of Justice of 9 July 2015, Radu Florin Salomie and Nicolae Vasile Oltean v. Direcția Generală a Finanțelor Publice Cluj, C-183/14, EU:C:2015:454, point 62.
• 6 Judgment of the Court of Justice of 22 October 2015 on C-277/14 PPUH Stehcmp, EU:C:2015:719, point 27 and the caselaw cited there.
• 7 Judgment of the Court of Justice of 6 December 2012 on C-285/11 Bonik, point 25 and the caselaw cited there.
• 8 Judgment of the Court of Justice of 13 February 2014, Max Pen EOO D v Director na direkcija "Prayed and Data-Osiguritełna praktika" Sofia, C-18/13, EU:C:2014:69,
• point 24 and the caselaw cited there.
• 9 Idem, point 25.
• 10 Official Journal of the European Union L, No. 145/1 as amended
• 11 Judgment of the Court of Justice of 10 March 2005, Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland, C-33/03.

12 see Judgment of the Court of Justice of 21 October 2010, Nidera Handelscompagnie BV v Valstybinė mokesči C-385/09, EU:C:2010:627, point 42 and the caselaw cited there, as well as from 1 March 2012, Discovery Mine of Poland Trawertyn P. G. Ranatowicz, M. Wąsiewicz public company against the Director of the Tax Chamber in Poznań, C-280/10, EU:C:2012:107, point 43.

13 Judgment of the Court of Justice of 15 September 2016, Senatex GmbH v Finanzamt Hannover-Nord, C-518/14, point 29.

14 Judgment of the Court of Justice of 21 September 1988, European Commission v French Republic, C-50/87.

15 Judgment of the Court of Justice of 29 April 2004, Terra Baubedarf-Handel GmbH v Finanzamt Osterholz-Scharmbeck, C-152/02, EU:C:2004:268, point 38: (…) right to deduct must be executed in respect of the tax period in which the two conditions required by that provision are satisfied,namely that the goods have been delivered or the services performed and that the taxable person holds the invasion (...).

16 Judgment of the WSA of 2 August 2005, reference no. I SA/Bd 337/05, valid.

17 Cf. Article 86(10) the VAT Act

18 In cases where the de facto ‘source of tax’ for deduction is the amount of tax shown on the invoice.

19 Cf. Article 86(10b)(1) the VAT Act

20 Yes: A. Bartosziewicz, R. Kubacki, VAT Commentary, ed. 3, Warsaw 2008, p. 784.

21 See UK Act – Value Added Tax Act 1994 section 6 Time of Supply and section 24 Input tax and output tax.

22 Article 86(10b)(2) point (b) and Article 86(10b)(3) the VAT Act

23 The wording of the proposed and current provisions of the Act was introduced on 1 January 2017 Act of 1 December 2016 amending the Goods and Services Tax Act and certain other laws (Journal of Laws of 2016, item 2024), which under Article 1(4) modified normative content Article 86(10b)(2) point (b) and point 3, giving them a new sound and added section 10i the above content.

24 Thus the sentence of the WSA in Kraków with 29 September 2017, reference no. I SA/Kr 709/17, Unvalid.

25 Judgment of the Court of Justice of 1 March 2012, Discovery Mine of Poland Travertyn, op. cit.

26 Yes in the judgment of the Court of Justice of 15 September 2016, Senatex GmbH v Finanzamt Hannover-Nord, C-518/14.