Tax deduction on goods and services from invoices issued by non-registered entities as VAT payers

The Court of Justice of the European Union has repeatedly pointed out in its case law that the right to deduct input tax, as set out in Directive 2006/112 to 28 November 2006 on the common system of value added tax 1 , is an integral part of the VAT mechanism and is not in principle restricted 2 . Minister of Finance of Poland in response to one it explains from the parliamentary appeal that the non-registration of the supplier of the goods or services as an active VAT taxable person does not deprive the buyer of the goods or services concerned of the VAT deduction.

Introduction

Mr Sitarski asked a question to the head of the Ministry of Finance in his interview 3 : „Where can a company deduct a tax from invoices issued by non-registered entities as VAT payers?’ He also stated that the deduction of the tax on goods and services is the law of a company which, among others, uses the goods purchased for tax operations, has the right to deduct the tax resulting from the invoices received.

It is worth recalling that the Court of Justice of the European Union (hereinafter the TEU) states in its judgments that, in order to exercise the right of deduction, first, the entity is to be a taxable person within the meaning of Directive 2006/112, a second, goods or services which are indicated as 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 these goods or services should be supplied by another taxable person at an earlier stage of trading 4 . The Court referred to its specific decisions in this reference 5 .

According to Article 96(4) Act on 11 March 2004 on tax on goods and services[6] (hereinafter ‘the VAT Act” or ‘the Act’) the head of the tax office shall, after verification of the data given in the registration declaration, register the taxable person as an active VAT taxable person and in the case of the taxable persons concerned Under section 3 – as a VAT taxable person exempt, and at the request of the taxable person, confirms this registration.

But in thought Article 96b(1) the VAT Act The Head of the National Tax Administration (hereinafter: KAS) shall keep electronic lists of entities: 1) in respect of which the head of the tax office did not register in accordance with Article 96(4a) or which have been removed by the head of the tax office from the register as a VAT payer in accordance with Article 96(9) or (9a); 2) whose registration as VAT taxable persons has been reinstated.

These lists can be found in the Public Information Bulletin on the Ministry website. Where the Head of KAS removes the entity from the list in question Under section 1 point 1, where the head of the tax office returns the registration of the entity as a VAT taxable person on the basis of Article 96(9h-9j).

In such a situation, the entity shall be included in the list referred to Under section 1 point 2. Head of the KAS, according to Article 96b(7) Delete the entity from the list after expiry 5 years from the end of the calendar year in which the entity was listed.

What will change in the deregistration of VAT taxable persons?

Some regulations relating to the removal from the VAT register and the EU VAT register were to change from 1 July 2018, following the changes proposed in the draft amendment the VAT Act 7.

Namely the new sound was to receive section 9h under Article 96 the VAT Act: „The head of the tax office shall restore the registration of the taxable person concerned Under section 9a point 2, as an active VAT taxable person without the need to submit a registration declaration if the taxable person makes the missing declarations.

Recovery shall be made at the request of the taxable person within the time limit two months from the date of removal from the register as a VAT taxable person.’ By Added Power section 9ha This provision will also apply where the sale or purchase of goods or services with deductions is not indicated in the declarations submitted, and this fact results, as explained by the taxpayer, from the specificity of the economic activity carried out’.

8 . The Ministry of Finance explains in the explanatory memorandum of the project that such a change is intended to eliminate doubts that the deletion should concern taxable persons making so-called zero declarations – in which neither sales nor purchases have been shown.

Right to deduct due tax

Paweł Gruza, Undersecretary of State in the Ministry of Finance, answered the question of Krzysztof Sitarski 9 He pointed out that the right to deduct input tax was a fundamental and fundamental right of the taxpayer, resulting from the construction of the value added tax on goods and services.

This is due to Article 168 point (a) Directive 2006/112.

This provision clearly states that the deduction is only due to the tax resulting from an act carried out by another taxable person, and for the exercise of that right it is necessary to have an invoice issued in accordance with Article 220, Article 236, Article 238, Article 239 and Article 240 The directives.

As the Under-Secretary of State explained in his reply, the invoice itself does not create the right to deduct the tax shown in it – it is due when the tax included in it is linked to the actual taxed activities.

He also referred to the Court of Justice's ruling[10], according to which the taxable person may exercise the right to deduct VAT provided for in the VI Directive 11 in respect of the supply of goods or services by another taxable person only in respect of taxes actually due, payable in respect of taxable activities or paid, if they were due.

This rule does not apply to a tax which is due only because it has been shown on the invoice. The buyer's ownership of the invoice issued by the seller is only a formal condition for exercising that right.

In response to the parliamentary appeal, it is also pointed out that in order for a right of deduction to be created, VAT must be chargeable to the issuer of the invoice, which means that a tax obligation has been created for the activities subject to that tax and that there is also a tax base for the implementation of the tax one from VAT operations. It is not sufficient for this right only to establish that the service has been performed if it is not demonstrated that the activity documented by this invoice resulted in the acquisition of the service.

As regards the deduction of VAT from invoices issued by non-registered parties, the reply also indicated another settlement of the TEU 12 , according to which Article 18(1) point (a) and Article 22(3) point (b) The VI EU Council Directive should be interpreted as meaning that the taxable person is entitled to deduct the value added tax paid for the acquisition of services rendered by another taxable person not registered as a VAT taxable person if the invoices contain all the information required under Article 22(3) point (b), and in particular the information necessary to identify the person who issued it and the type of services provided.

In accordance with the same judgment Article 17(6) the Directive must be interpreted as contrary to national rules whereby the taxable person is not entitled to deduct value added tax paid to another taxable person who is not registered for the purposes of that tax. Checking of the counterparty

It is worth recalling that in the assessment of the CSF[13] it is not contrary to Union law to require the entity to take all measures reasonably expected from it in order to ensure that the transaction it conducts does not lead to a participation in a tax offence.

Thus, the Undersecretary of State also referred to this judgment for a reason.

He also stated that the taxable person could be denied the right to deduct the tax due if it was proved on the basis of objective grounds that the taxable person who was the recipient of the services or supplies on which the right of deduction was based knew or should have known that the transactions involved a criminal offence committed by the supplier or another entity operating at an earlier stage of the trade 14 .

On the other hand, the Court pointed out other judgments in this regard: 27 September 2007, Teleos and Others, C 409/04, EU:C:2007:548, points 65 and 68; and 21 June 2012, Mahagében and Dávid, C 80/11 and C 142/11, EU:C:2012:373, point 54.

Summary

The conclusion contained in the explanation of the Ministry of Finance is as follows: the lack of registration of the supplier of goods/services as a VAT taxable person active in the implementation of the registration process as such does not automatically deprive the buyer of the right to deduct input tax. However, the buyer, in case of doubt about the counterparty – and the lack of registration of the counterparty is a significant circumstance which should be taken into account – should take special care and take all measures that can reasonably be expected from him to ensure that his transaction does not lead to a participation in a tax offence.

The taxpayer can, of course, always check the status of its counterparty by looking at the VAT registers posted by the Ministry of Finance. However, it should be borne in mind that the TEU has repeatedly ruled that a body may not require the taxpayer to carry out a comprehensive and thorough verification of its supplier, thus transferring to that taxpayer the obligation to carry out control activities 16 .

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1 Official Journal of the European Union L, No. 347. 2 Judgment of the Court of Justice of 19 October 2017, SC Paper Consult SRL v Direcţia Regională a Finanţelor Publice Cluj-Napoca and Administraţia Judeţeană a Finanţelor Publice Bistriţa Năsăud, C-101/16. 3 Question No 6970, 28 February 2018.

4 Judgment of the Court of Justice of 19 October 2017, op. cit. C-101/16.

5 See, in particular, Judgments of the Court of Justice: 27 September 2007, C-409/04, EU:C:2007:548, points 65 and 68, The Queen, at the request of Teleos plc and others against Commissioners of Customs & Excise; with 21 June 2012, C-80/11 and C-142/11, EU:C:2012:373, point 54, in the Joined Cases Māgében Kft v Nemzeti Adó- és Vámhivatal Dél-dunántúli Regionális Adó Főigazgatósága and Péter Dávid v Nemzeti Adó- és Vámhivatal Észak-alföldi Regionális Adó Főigazgatóságatága.

6 Journal of Laws of 2017, item 1221 as amended, i.e. 7 Project from 13 February 2018 on the amendment of the Tax Act on Goods and Services and some other laws, published in the Government Legislative Centre. 8 Op. cit.

9 Response to request No 6970 given 28 March 2018 10 Judgment of the Court of Justice of 13 December 1989, Genius Holding BV v Staatssecretaris van Financien,C-342/87.

11 VI EU 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, 77/388/EWG.

12 Judgment of the Court of Justice of 22 December 2019, C-438/09, Bogusław Juliusz Dankowski v Director of the Tax Chamber in Łódź, 13 Judgment of the Court of Justice of 19 October 2017, op. cit., C-101/16. 14 Judgment of the Court of Justice of 21 June 2012 in joined cases, op. cit., C-80/11 and C-142/11.

15 Judgment of the Court of Justice of 6 July 2006 in joined cases: C-439/04, Axel Kittel v Belgium and C-440/04, Belgium v Recolta Recycling SPRL. 16 Judgment of the Court of Justice of 19 October 2017, op. cit. C-101/16. This judgment refers to other similar judgments: 21 June 2012, op.

cit., C-80/11 and C-142/11, EU:C:2012:373, point 65 and 31 January 2013, C-642/11, EU:C:2013:54, point 50, Stroj trans EOOD v Director na direkcija "Prayed and growing on is pollinato" — Varna pri Centralno cropping on Naciennata agent for prichodite.