- The case involved the Romanian company Weatherford Atlas Gip, part of the Weatherford group specializing in oil services
- The company provided auxiliary services for oil and natural gas extraction and purchased administrative services from other entities within the same capital group
- Romanian tax authorities denied the company the right to deduct VAT for these services, arguing they were also provided to other group entities and were not essential for the company’s business activities
- The European Court of Justice (ECJ) ruled on December 12, 2023, in case C-527/23, stating that national regulations or practices that deny VAT deductions for services acquired from other entities within the same group, on the grounds that the services were not necessary or reasonable, are contrary to EU law if it is demonstrated that the services were used for the taxpayer’s own taxable transactions
- The ECJ emphasized that tax authorities should base their decisions on an objective analysis of documentation and the actual use of services in the taxpayer’s activities, rather than a subjective assessment of the expenditure’s purpose or necessity
- The court noted that the burden of proof lies with the taxpayer to demonstrate their right to VAT deductions, and tax authorities should consider all facts and circumstances to determine the link between purchased services and taxable transactions
- The ruling does not exempt the taxpayer from the obligation to accurately document the acquired services and their connection to taxable activities
- The ECJ’s decision could significantly influence the resolutions of Polish administrative courts and tax authorities
- Tax authorities should not interfere with business decisions of entrepreneurs, and the refusal to grant VAT deductions should not be based on a subjective assessment of the rationality of the taxpayer’s expenses
- The criterion for assessing whether a taxpayer is entitled to a VAT deduction is not the necessity of the expense but its actual use in the business activity
- Following the ECJ’s interpretation, tax authorities may require more detailed and accurate documentation demonstrating the link between services and taxable activities
- In case of disputes with tax authorities, taxpayers should be prepared to present evidence to justify VAT deductions from purchases, although many entrepreneurs may lack such documentation or records, which could lead to issues
Source: mddp.pl
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Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
