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Compliance of the Polish VAT Act with the EU VAT Directive | ECJ Judgement

July 6, 2023

On May 25 of this year The Court of Justice of the European Union (CJEU) handed down an important ruling, ref. C-114/22, regarding the consistency of the provisions of the Polish VAT Act with Council Directive 2006/112/EC (the VAT Directive).

The ruling resolved the issue concerning art. 88 par. 3a pt. 4(c) of the VAT Act. The provision in question prevents the deduction of input tax from invoices that show that the activities in the transaction are contrary to the Act and their purpose is to circumvent its provisions. However, the provision refers in this context to art. 58 (concerning absolute Invalidity) and art. 83 (concerning apparent Acts) of the Civil Code.

The basis for the preliminary question

The subject of the taxpayer’s dispute with the Polish tax authority was a case concerning the non-recognition of the right to deduct input VAT from an invoice documenting the purchase of trademarks on the basis of art. 88 par. 3a pt. 4(c) of the VAT Act. The decision was upheld by the Director of the Tax Administration Chamber (the DTAC) in Warsaw on October 11, 2018, who found that the sale of trademarks in question was a sham activity within the meaning of Article 83 of the Civil Code. The company appealed the decision in question to the Provincial Administrative Court (the PAC) in Warsaw, which, in a ruling on May 29, 2019, reversed this decision due to the tax authority’s failure to prove the ostensible nature of the disputed transaction.

The DTAC filed a cassation appeal against this ruling with the Supreme Administrative Court (the SAC). The SAC, having doubts about the convergence of the application of art. 88 par. 3a pt. 4(c) of the VAT Law with the VAT Directive, referred a preliminary question to the CJEU. The court asked whether art. 88 par. 3a pt. 4(c) of the VAT Law contradicts the EU VAT Directive and the resulting principles of tax neutrality and proportionality.

The Directive versus the Polish VAT Act

The CJEU pointed out that the Directive’s regulations, in the context of the principles of neutrality and proportionality, stand in the way of national legislation, since under them a Polish taxpayer is not allowed to deduct input VAT due to the fact that the taxed transaction is considered ostensible and invalid under Polish civil law. Moreover, the CJEU highlighted that under civil law, a given transaction is invalid:

  • without the necessity of proving that the relevant prerequisites under Community law have been met;
  • if the transaction actually took place then it is the result of VAT fraud or abuse of this right.

Evaluation of evidence in practice

The assertion by tax authorities and administrative courts that a transaction is bogus and invalid on civil law grounds is not sufficient to deny a taxpayer the right to deduct input VAT. This is because it is advisable to prove that the transaction carried out is the result of fraud or abuse of rights. In view of that point, the taxpayer is obliged to present objective evidence in the case before the authorities/courts. The ruling of the CJEU may be the basis for the resumption of tax or administrative court proceedings in rulings on the basis of which the right to deduct input VAT was denied due to the invalidity of the transaction.


Monika Gołębiewska
Tax Consultant | Accace Poland
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