The Supreme Administrative Court commented on transactions involving tax frauds involving VAT fraud, known as tax carousels. The NSA's position may prove particularly relevant to taxable persons involved in the supply chain who show due commercial diligence.
Tax fraud, and in particular VAT carousels, has become a real burden of the Treasury over the last few years, which fights unevenly to reduce the tax gap. NSA judgment of 4 October 2018 is another ruling aimed at increasing the responsibility of operators for participating in the supply chain with tax fraud.
The NSA disagreed with the opinion that the applicant company had shown due commercial care required of a prudent merchant in brokering transactions, since it was unaware that at least one with its main suppliers from close two the years preceding the transactions were no longer a VAT taxable person, which is a basic condition for the taxpayer to exercise due diligence
Break-up of the VAT carousels in the marketing of rapeseed oil in 2017 was one with greater success in the fight against tax offences in Poland. According to the Ministry of Finance, several Polish and foreign entities from EU countries participated in these transactions 1 .
Some entities in which tax audits took place consider that they were not aware of their involvement in illegal transactions, as was the applicant company in the cassation complaint, which was not included by the Supreme Administrative Court in the judgment described below.
The company requested the annulment of the judgment of the Provincial Administrative Court in Gorzów Wielkopolski of 15 September 2016, accusing him of violating the rules of tax proceedings and undermining trust in tax authorities by, among other things, failing to provide adequate evidence of the company's awareness of participation in the supply chain in which tax fraud occurred.
The NSA dismissed the complaint by stating that the alleged infringements did not occur in the court of First Instance, as it was proved that:
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- the suppliers of the company were not, at the time of the transaction, registered VAT payers or themselves received goods from unregistered companies;
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in the case of sales invoices, irregularities occurred, mainly related to transport documentation. The transport company to deliver the goods indicated on the invoice declared that it does not have vehicles with registration numbers indicated on the documents of the WZ.
In addition, in the case of delivery to Slovakia, there was a discrepancy between the data resulting from CMR documents and the statements of the President of the Company concerning the handling of goods from the Czech supplier to the Slovak recipient.
In view of the above, the NSA disagreed with the company's assurances, trying to prove that it had paid due diligence in its dealings with its counterparties.
According to previous decisions of the NSA and the Court of Justice of the European Union, only the entity involved in the supply chain of VAT carousel which has given due merchant care and had no reason to be aware of participation in that carousel may be entitled to deduct the invoices for these transactions.
This due diligence shall apply in particular to the intermediary of the goods (purchaser for further resale) and thus not to the trader in a material manner. It is subject to a risk of irregularities in its transactions, which can be minimised through cooperation with trustworthy entities.
This requires particular care in the selection of counterparties, not only in terms of the conscientiousness of their supplies through them, but also in terms of the quality of the goods supplied, and the reliability of the recipients in regulating their claims.
In addition, there is an additional need for increased care resulting from the already common knowledge of VAT taxable persons about the effects of this tax on the acquisition of goods from unreliable counterparties, as well as the issuing of invoices not documenting transactions shown on them.
The composition of the ruling NSA disagreed with the opinion that the applicant company showed due commercial care required of a prudent merchant in brokering transactions, since it was unaware that at least one with its main suppliers from close two the years preceding the transactions were no longer a VAT taxable person, which is a basic condition for the taxpayer to exercise due diligence.
Moreover, there are no arrangements for the division of activities, risks, insurance and costs relating to the transactions and other delivery conditions.
This is particularly surprising when the Complainant made payments for oil, in the absence of any certainty that it would reach the recipient at all (the logistics issue was left to the company whose sole responsibility was to inform by e-mail about the introduction of transport).
The determination of the delivery conditions determines the final price of the goods and the obligations of the seller and the buyer, which requires precise determination in the contract between the parties.
If there were no lack of due diligence by the merchant company, the court ruling could be different, as experience suggests, courts often have a broader view of the case than tax authorities and if they do not find any indications that the taxpayer is actually involved in the tax carousel, they often stand in his defense, in accordance with the adopted case law of the NSA and the TSUE.
This judgment once again illustrates the importance of traders to properly verify the entities they deal with.
Author:
Damian Kuszewski, tax consultant Russell Bedford Poland
1 https://www.mf.gov.pl/ministerstwo-finansow/wiadomosci/aktualnosci/-/asset_publisher/M1vU/content/id/6199247