On 12 September 2018 The Court of Justice of the European Union issued an important, from the point of view of Polish taxpayers, VAT ruling on the right to deduct input tax for the period of removal of the taxpayer from the register. It is important that 1 January 2017 Governors of tax offices may, in certain circumstances, remove taxable persons from the register of active taxpayers. one the taxable person does not submit tax returns from such premises 6 months or 2 consecutive quarters.
A similar situation has become the subject of the TEU.
The case concerned the Romanian company Siemens Gamesa Renewable Energy România SRL, which in the period from 7 October 2010 to 24 May 2011 has been declared an inactive taxpayer (its tax number for the purposes of Vat has been cancelled), due to failure to comply with the obligation to make a declaration.
As a result of the tax audit carried out, the Romanian tax authorities denied the company the right to deduct input tax on goods and services made during the period of recognition as an inactive taxpayer.
For Polish taxpayers excluded from the VAT register, the Court of Justice's ruling may prove to be an effective weapon in disputes with tax authorities
The company challenged the decision to the Bucharest Court of Appeal, accusing tax authorities of violating the principle of proportionality and neutrality of VAT, arguing that it had completed all necessary formalities in order to reactivate its identification number.
In those circumstances, the court decided to suspend proceedings and to request the Court of Justice to decide whether the company has the right to deduct the input VAT, concerning the period during which its identification number for the purposes of the Vat was inactive, by submitting several VAT returns after its reactivation and issuing VAT invoices for that period.
The CJEU pointed out that ‘the taxpayer’s failure to comply with its accounting obligations and to declare that the right of deduction goes beyond what is clearly necessary to achieve the objective of ensuring the correct application of those obligations, where Union law does not prevent Member States from imposing penalties, where appropriate, for infringements of those obligations, fines or fines proportionate to the gravity of the infringement’.
The Court therefore considered that the national rules allowing tax authorities to refuse the right to deduct VAT on the grounds that the chargeable tax concerned the period during which the taxable person was declared inactive were incompatible with the VAT Directive.
Such a right shall be granted where the taxable person reactivates his tax number, issues the relevant invoices and makes tax returns for the period of removal from the register.
In the explanatory memorandum, the Court relied on the principle of neutrality and proportionality, stating that the taxable person could exercise the right to deduct if the substantive requirements were met and that the right to deduct was not raised in a fraudulent or abusive manner.
For Polish taxpayers who are excluded from the VAT register, the Court of Justice's ruling may prove to be an effective weapon in disputes with tax authorities.
Author:
Marcin Kołkowicz
Tax advisor, tax consultant at Russell Bedford Poland Sp. z o.o., graduate of the Administration, Management and Marketing of the Catholic University of Lublin named after John Paul II. The subject of tax law deals with from 2012. He gained experience in Lublin and in Warsaw tax advisory offices. Author and co-author of many tax publications, in particular for Tax and Tax Portal TaxFin.pl. In his career, he dealt with both direct and indirect taxation issues, with particular emphasis on VAT.