The taxpayer must assess the business credibility of its counterparties in order to exercise the right of deduction.
According to the case-law of the administrative courts and the Court of Justice of the European Union, tax authorities are increasingly denying the taxable person the right to deduct VAT if, in the assessment of the tax authority, the conditions indicate that he knew or should have known that the transaction intended to form the basis for the right of deduction involved a VAT offence or abuse.
In the proceedings carried out by tax authorities, the examination is subject to the taxpayer's so-called "due diligence" and, if the taxpayer does not exercise caution in the conclusion of the transaction, the tax authority may challenge the taxpayer's right to deduct input tax from such a transaction.
An example of the importance of due diligence in business contacts is the NSA judgment of 27 August 2024 (reference no. I FSK 1662/20) for a company which has carried out standard checking operations to verify the counterparty, i.e. checked its VAT-EU number in VIES, verified the website and took note of the views of the counterparties. Contact with the counterparty was both in telephone and email form.
The Court of First Instance pointed out that the scope of the taxpayer’s verification of the counterparty, without prior cooperation, was not sufficient and that the absence of a written agreement demonstrated negligence.
It is also worth pointing out that the failure of the taxpayer to verify where the goods come from, whether the counterparties actually carry on an economic activity and where, whether they have organisational, local and limited conditions to the collection of invoices and contracts with the contractor, do not constitute due diligence, as the WSA in Szczecin stated in its judgment of 20 June 2024 (reference no. I SA/Sz 129/24).
Extensive verification of the counterparty, limited to verification of the registration of the counterparty in the KRS, the more cannot be considered sufficient, as confirmed by the WSA in Opole in its judgment of 18 February 2021
Nor does the statement of the legality of the origin of the goods or the receipt of the goods constitute in itself proof of due diligence as indicated by the WSA in Lublin in its judgment of 30 July 2020 (reference no. I SA/Lu 718/19).
In those judgments, the fact that the tax authority did not establish the origin of the goods remained irrelevant.
In view of the case-law of the administrative courts and of the Court of Justice of the European Union, the verification of the counterparty and its transactions should include in particular:
- verification of the registration data of his company (names, address, NIP, VAT number), - verification of VIES data - analysis of the reliability of the counterparty and the history of its activities - analysis of the business behaviour of the counterparty - audit of transaction documentation including verification of the correctness of formal source documents - archiving the source documentation or its digitisation.
Verification of counterparties, careful transaction documentation are basic steps that can help protect the company from unconscious participation in the so-called "tax fine".
It is worth to protect yourself from the negative effects of the wrong invoicing by counterparties and to develop a procedure for verification of the counterparty, which will allow errors to be minimised and problematic invoices identified at an early stage of cooperation.