The transfer of the right to dispose of goods is most often due to the physical transfer of goods. But is it always necessary?
According to Article 7 Act of 11 March 2004 the tax on goods and services by the supply of goods referred to in Article 5(1)(1) the transfer of the right to dispose of goods as the owner is understood. The Act covers the provision of goods which can be referred to in principle if there is a link between the activities performed and the amount of remuneration based on the commercial relationship of the entities, while at the same time the remuneration expressed in money.
The fact that ownership also consists of the right to destroy things only confirms the contracting authority.
In the case in question, the company involved in the production, storage and sale of packaging applied to the Minister of Finance for an interpretation of the individual tax legislation on the tax on goods and services.
The application indicated that, should the production process of the goods be completed, it is transported to the warehouse and is awaiting receipt of a letter from the contracting authority on the place of delivery. As an exception, the procedure for destroying the goods ordered is applicable, due to the low demand for the product.
In this case, the destruction of the goods shall take place at the express command of the contracting authority. The Contracting Authority shall bear the cost of destruction corresponding to the price specified in the contract.
When presenting its own assessment of the legal status, the company concluded that the destruction did not satisfy the conditions for the recognition of the activity as a paid supply of goods or for the provision of services, because the purchaser did not obtain any benefit, i.e. it could not use and dispose of packaging.
This action is not equivalent. According to the company, the above activities constitute, in the opinion of the company, the damage resulting from the breach of obligations by the counterparty due to the failure to receive the goods ordered.
The liability paid by the counterparty is therefore compensation, which is sufficient to document by means of a corrective note – the company claims.
With this argument he did not agree, acting under the authority of the Minister of Finance – Director of the Tax Chamber in Łódź. The Authority considered the order for the destruction of the goods ordered to be the provision of services which its source is in a contract concluded between the parties.
He stated that the transaction in question could not be regarded as compensation within the meaning of the Civil Code but should be treated as a form of remuneration for the services provided. A complaint was brought before the administrative court against that interpretation.
The Provincial Administrative Court dismissed the complaint for reasons different from those accepted by the Director of the Tax Chamber. When assessing the facts, he concluded that both when the applicant supplies the goods to the contracting authority and when it is destroyed, the delivery of the goods is paid.
The contracting authority’s declaration is therefore a decisive element in the destination of the goods concerned. The purchaser is the owner of the goods produced and the purpose of the goods depends on his will. The fact that ownership also consists of the right to destroy things only confirms the contracting authority.
The Chief Administrative Court and examining the cassation complaint brought by the company against the sentence of the Provincial Administrative Court dismissed the appeal and upheld the position of the Court of First Instance.
The NSA considered that the content of the undertaking linking the party is to produce the goods and leave them at the disposal of the contracting authority. He considered it particularly important to have economic power over things since the product was produced.
This concept is linked in an inseparable way to the definition of the supply of goods. In a similar case, the Court of Justice of the European Union stressed that economic criteria are decisive for determining the tax consequences of VAT.
In the present case, the NSA considered the destruction of the goods to be not in conformity with the conditions for injury on the part of the complainant. The Court considered that the company did not bear the economic burden of the transaction due to the remuneration received from the counterparties. In addition, it is argued that at the time of the order for destruction or delivery, the goods were not in the assets of the applicant company.
In conclusion, the above considerations should be considered as being the supply of goods within the meaning of the Goods and Services Tax Act at the time of the transition to the purchaser of economic power, which was developed by the case law of the TEU. It does not combine in every case with remaining things in physical possession of the buyer. The transaction must therefore be documented by the applicant with a VAT invoice.