Summary of the Case
- Case Background: The Naczelny Sąd Administracyjny (Supreme Administrative Court of Poland) referred a question to the Court of Justice of the European Union (CJEU) regarding the interpretation of EU VAT Directive 2006/112/EC in relation to Polish VAT law, specifically concerning the right to deduct input tax.
- Legal Question: The court seeks clarification on whether Articles 167, 168(a), and 178(a) of Directive 2006/112/EC, along with principles of fiscal neutrality, effectiveness, and proportionality, preclude a national law provision that denies the right to deduct input tax in a return for a period when the substantive conditions were met but the invoice was received later.
- Applicant’s Position: I. S.A., the applicant, argued that it should be entitled to deduct input VAT for the period during which the tax obligation arose, even if the invoices were received in the following tax period but before the submission deadline for the return.
- Authority’s Position: The Director of the National Tax Information Service (the authority) held that the right to deduct VAT arises only when the invoice is received, aligning with Article 86(10b)(1) of the Polish Law on VAT, which they believe is consistent with Directive 2006/112/EC.
- Court’s Reasoning: The Supreme Administrative Court highlighted that under EU law, holding an invoice is a formal condition for exercising the right to deduct VAT, not for its arising. They expressed doubts about whether the Polish provision, which delays the right to deduct until the invoice is received, is consistent with EU law and principles of fiscal neutrality.
Articles in the EU VAT Directive
Articles 167, 168(a) and 178(a) of Council Directive 2006/112/EC
Article 167
Right of deduction:
“A right of deduction shall arise at the time the deductible tax becomes chargeable.”
Article 168
Deductions allowed:
“In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person.”
Article 178
Conditions under which the right of deduction may be exercised:
“In order to exercise the right of deduction, a taxable person must meet the following conditions:
(a) for the purposes of deductions pursuant to Article 168, in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Articles 226 to 230.
Facts
- Parties Involved: The case involves I. S.A., a company engaged in clearing and settlement activities related to gas and electricity trading, as the applicant, and the Dyrektor Krajowej Informacji Skarbowej (Director of the National Tax Information Service) as the defendant.
- Advance Ruling Request: I. S.A. sought an advance ruling regarding its right to deduct VAT on purchases of electricity and gas, specifically in a situation where it received the corresponding invoices in a subsequent tax period, but before the deadline for submitting its VAT return.
- Director’s Ruling: On 12 November 2019, the Director ruled against the applicant, stating that the right to deduct VAT arises only upon receipt of the invoice, thereby denying the applicant’s claim to deduct input tax for the period in which the tax obligation arose.
- Judicial Proceedings: The Regional Administrative Court in Warsaw dismissed I. S.A.’s appeal on 9 October 2020, supporting the Director’s interpretation that the right to deduct input VAT requires holding an invoice at the time of submitting the VAT return.
- Supreme Court’s Inquiry: The Supreme Administrative Court of Poland raised concerns about the compatibility of the Polish VAT law with EU VAT Directive 2006/112/EC, questioning whether the requirement to hold an invoice to exercise the right to deduct violates principles of fiscal neutrality and the substantive conditions outlined in EU law.
Question
Must Articles 167, 168(a) and 178(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, as amended) and the principles of fiscal neutrality, effectiveness and proportionality be interpreted as precluding a provision of national law, such as Article 86(10b)(1) of the [Ustawa o podatku od towarów i usług (Polish Law on VAT)], under which a taxable person may not assert the right to deduct input tax in a return submitted for a period in which that person met the substantive conditions for exercising that right if, during that period, he or she had not yet received an invoice, even though that person did receive the invoice before submitting the return?
Source
- Join the Linkedin Group on ECJ/CJEU/General Court VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
