(Unofficial translation)
Scope of the application for an individual interpretation
On June 20, 2023, your application for an individual interpretation was received, which concerns the lack of the right to reduce the amount of tax due by the amount of input tax in connection with the expenses incurred for the implementation of the project entitled ” (…”) .
The content of the application is as follows:
Description of the facts
The Foundation (…) conducts business activities to finance pro-social activities and pro-social activities. The Foundation (…) is an active VAT payer. He deals with, among others:
- initiating and animating joint ventures of groups of entrepreneurs, research and development and scientific units and organizations from the non-governmental sector from Poland and abroad in the field of implementation of joint projects, creation and management of the organizational structure of cooperative links, preparation of joint development plans and management of investments carried out by cooperating entities necessary for functioning and development of cooperation links;
- promoting the idea of cooperation based on information and communication technologies focused in the area of innovation development, e-business, e-services, egovernment, e-learning, business process automation and other solutions that increase the efficiency of information exchange cooperation;
- initiating and supporting innovative solutions in various areas of social life, including networks of private investors and venture capital, public-private partnerships, financial and capital services and ownership transformations, as well as assistance and advice in matching partners between the small and medium business, research and science, non-governmental organizations and local government units;
- developing and strengthening attitudes focused on active cooperation in the development of civil society using advanced information and communication technologies by activating young entrepreneurs, students and youth in rural and urban areas and combating digital exclusion;
- activities for the cooperation of organizations whose statutory objectives are: development of innovation, scientific and research and development activities, scientific and technical activities, cultural and educational activities, activities related to environmental protection, activities related to health care and social assistance, activities related to aid and activation of people with disabilities.
The Foundation is implementing a project entitled: ” (…)”Support for the implementation of operations under the community-led local development strategy”, excluding grant projects and operations in the field of starting a business covered by the Rural Development Program for 2014-2020. The implementation of the project consisted in the purchase of equipment, thanks to which it was possible to prepare professional video materials related to the social and economic promotion of the LAG ZZ area. As part of the project, 7 film materials about selected LAG ZZ communes were made. The aim of the promotion process was to increase interest in the area among investors, as well as to create an attractive image. It is important that the operation was non-commercial and did not generate any profit for the Foundation. Activities coordinating and supporting the production of the films were carried out by volunteers. In addition, the film materials on memory carriers will be transferred to individual Commune Offices free of charge. Subsequently, the remaining promotional activities related to the films made will also be aimed solely at attracting investors to the given areas.
Question
Does the Foundation, as the unit that implements the project entitled “(…)” under sub-measure 19.2 entitled “Support for the implementation of operations under the community-led local development strategy” of RDP 2014-2020, will the right to deduct input tax be granted when purchasing goods and services purchased for the purpose of project implementation?
your position on the matter
According to Art. 86 sec. 1 of the Act of March 11, 2004 on tax on goods and services (Journal of Laws No. 54, item 535, as amended), the Foundation will not be entitled to deduct input tax on the purchase of goods and services that were purchased for the purpose of project, as they will not be used for taxable sales. Services under the implemented project are aimed at promoting the investment area in the area of the Local Action Group (…)and are free of charge. In addition, the prepared materials will be forwarded to individual Commune Offices. The Foundation does not expect the project to generate any income in the future. The basic principle for the exercise of the right to deduct input tax is the existence of a link between this tax and taxable activities within the meaning of Art. 5 of the Act on tax on goods and services, therefore the Foundation will not deal with turnover within the meaning of the Act on tax on goods and services, therefore the Foundation will not be able to deduct input tax included in the prices of goods and services from the tax due, that were purchased for the project.
Job evaluation
The position you presented in your application is correct.
Justification of individual interpretation
According to Art. 86 sec. 1 of the Act of March 11, 2004 on tax on goods and services (i.e. Journal of Laws of 2022, item 931, as amended), hereinafter referred to as the Act:
To the extent that the goods and services are used to perform taxable activities, the taxpayer referred to in art. 15, has the right to reduce the amount of tax due by the amount of input tax, subject to art. 114, art. 119 sec. 4, art. 120 sec. 17 and 19 and Art. 124.
Pursuant to Art. 86 sec. 2 point 1 of the Act:
The amount of input tax is the sum of the tax amounts resulting from the invoices received by the taxpayer for:
- a)purchase of goods and services,
- b)making all or part of the payment before purchasing the goods or providing the service.
It follows from the above-cited provisions that the right to reduce the amount of tax due by the amount of input tax is granted when certain conditions are met, i.e. the deduction is made by a registered, active VAT payer and when the goods and services for which the tax is has been accrued, are used to perform taxable activities. The condition enabling the taxpayer to exercise the right to deduct the input tax is the relationship between the purchases and the taxable activities performed.
The rule presented above therefore excludes the possibility of reducing the amount of tax due by the amount of input tax related to goods and services that are not used to perform taxable activities, i.e. when they are used for activities exempt from VAT and not subject to VAT.
The legislator provided the taxpayer with the right to deduct input tax in whole or in part, provided that he meets both the positive conditions under Art. 86 sec. 1 of the Act and the absence of negative premises specified in Art. 88 of the Act. This provision specifies a list of exceptions that deprive the taxpayer of the right to reduce the amount of tax due by the amount of input tax.
One of such restrictions was indicated in Art. 88 sec. 3a point 2 of the Act, according to which:
Invoices and customs documents do not constitute grounds for lowering the output tax and refunding the tax difference or refunding the input tax if the transaction documented with the invoice is not subject to taxation or is exempt from tax.
This means that a taxable person cannot exercise a right of deduction in respect of tax which is due solely because it is invoiced in a situation where the transaction is not taxable or exempt from tax.
Pursuant to Art. 88 sec. 4 acts:
Reduction of the amount or refund of the difference of tax due also does not apply to taxpayers who are not registered as active VAT payers, in accordance with art. 96, excluding the cases referred to in Art. 86 sec. 2 point 7.
Pursuant to the above regulation, only taxpayers who are registered as active VAT payers may exercise the right to deduct the tax.
It should be emphasized that in order for the entity to be able to exercise the right to reduce the tax due by the input tax related to the purchased goods and services, it should first meet the conditions enabling it to be recognized – for this activity – as a taxable person of tax on goods and services, operating within business activity.
Pursuant to Art. 15 sec. 1 of the Act:
Taxpayers are legal persons, organizational units without legal personality and natural persons who independently carry out the economic activity referred to in par. 2, regardless of the purpose or result of such activity.
Based on Article. 15 sec. 2 acts:
The term economic activity should be understood as any activity of producers, traders or service providers, including entities extracting natural resources and farmers, as well as the activity of freelancers. Business activity includes, in particular, activities involving the use of goods or intangible assets on a continuous basis for profit purposes.
The description of the case shows that you are an active VAT payer. You are implementing a project entitled: ” (…) ” under sub-measure 19.2 “Support for the implementation of operations under the community-led local development strategy”, excluding grant projects and operations in the field of starting a business covered by the Rural Development Program for 2014-2020 .
The implementation of the project consisted in the purchase of equipment, thanks to which it was possible to prepare professional video materials related to the social and economic promotion of the LAG ZZ area. As part of the project, 7 film materials about selected LAG ZZ communes were made. The aim of the promotion process was to increase interest in the area among investors, as well as to create an attractive image.
The operation was non-commercial and did not generate any profit for the Foundation. Activities coordinating and supporting the production of the films were carried out by volunteers. In addition, the film materials on memory carriers will be transferred to individual Commune Offices free of charge .
Against the background of the presented circumstances of the case, your doubts concern the issue of the right to deduct input VAT in connection with the implementation of the above-mentioned operation.
As it follows from the above-mentioned legal provisions, the settlement of input tax on the principles set out in Art. 86 sec. 1 of the Act is conditional on the purchased goods and services being used by a registered, active VAT payer, as part of business activity, to perform activities taxed with the tax on goods and services.
In the discussed case, one of the conditions entitling to deduct input tax is not met, as the operation was of a non-commercial nature and did not generate any profit for the Foundation, moreover, the materials produced will be provided free of charge. It follows from the circumstances of the case that the goods and services purchased in order to implement the project will not be used for activities subject to VAT.
Therefore, with regard to the goods and services purchased by you under the project entitled ” (…) “, you are not entitled to reduce the amount of tax due by the amount of input tax, pursuant to art. 86 sec. 1 of the Act.
Your position is correct.
Additional information
Information on the scope of the decision
The interpretation applies to the factual state that you have presented and the legal state that was in force on the date of the event.
Instruction on the protective function of interpretation
- The protective function of individual interpretations is determined by the provisions of Art. 14k-14nb of the Act of August 29, 1997 – Tax Ordinance (Journal of Laws of 2022, item 2651, as amended). The interpretation will be able to play a protective role if: your situation is consistent (identical) with the description of the facts and the future event and you comply with the interpretation.
- According to Art. 14na § 1 of the Tax Ordinance:
the provisions of art. 14k-14n of the Tax Ordinance Act do not apply if the facts or future event being the subject of an individual interpretation is an element of activities that are the subject of a decision issued:
1) with the application of Art. 119a;
2) in connection with the abuse of the right referred to in Art. 5 sec. 5 of the Act of 11 March 2004 on tax on goods and services;
3) using measures limiting contractual benefits.
- According to Art. 14na § 2 of the Tax Ordinance:
the provisions of art. 14k-14n shall not apply if the tax advantage found in the decisions listed in § 1 is the result of compliance with established interpretation practice, general interpretation or tax explanations.
Instruction on the right to lodge a complaint against the interpretation
You have the right to challenge this individual interpretation to the Provincial Administrative Court in (…). The rules for challenging individual interpretations are regulated by the Act of August 30, 2002, Law on Proceedings before Administrative Courts (Journal of Laws of 2023, item 259, as amended; hereinafter referred to as “PPSA”).
A complaint to the Court is lodged through the Director of the KIS (Article 54 § 1 PPSA). The complaint should be filed within thirty days from the date of delivery of the individual interpretation (Article 53 § 1 of the PPSA):
- in paper form, in two copies (original and copy) to the following address: Krajowa Informa- tion Skarbowa, ul. Warszawska 5, 43-300 Bielsko-Biała (Article 47 § 1 PPSA), or
- in the form of an electronic document, in one copy (without a copy), to the address of the Electronic Inbox of the National Treasury Information on the ePUAP platform: /KIS/SkrytkaESP (Article 47 § 3 and Article 54 § 1a PPSA).
A complaint against an individual interpretation may be based only on the allegation of violation of the provisions of the procedure, misinterpretation or incorrect assessment of the application of a provision of substantive law. The court is bound by the allegations of the complaint and the legal basis invoked (Article 57a PPSA).
Legal basis for issuing the interpretation
The legal basis for issuing this interpretation is Art. 13 § 2a and art. 14b § 1 of the Act of August 29, 1997 – Tax Ordinance (Journal of Laws of 2022, item 2651, as amended).
Source: gov.pl
