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During a tax investigation, the taxpayer can correct invoices with unduly shown VAT, if the invoices were issued in good faith

Invoices with unduly reported VAT can be corrected by a taxpayer acting in good faith, even during the course of a tax investigation. Consequently, the taxpayer is not obliged to pay VAT pursuant to Art. 108 of the Polish VAT Act.

This was the holding by the Court of Justice in UAB “P.” v Dyrektor Izby Skarbowej w B. (Case C-48/20), in its judgment of 18 March 2021, issued pursuant to a reference for a preliminary ruling by the Supreme Administrative Court of Poland of 15 November 2019 (case no. I FSK 1535/17).

Reference from the Supreme Administrative Court

The Supreme Administrative Court asked the Court of Justice to determine whether Art. 203 of the VAT Directive (2006/112/EC) and the principle of proportionality must be interpreted as precluding the application, in a situation such as that in the main proceedings, of a national provision such as Art. 108(1) of the Polish VAT Act to invoices with VAT incorrectly indicated, issued by a taxpayer acting in good faith, if:

- The taxpayer’s actions did not involve tax fraud, but resulted from an erroneous interpretation of the law by the parties to the transaction, based on an interpretation given by the tax authorities and a common practice in that respect at the time of the transaction, which incorrectly assumed that the issuer of the invoice was supplying goods when in fact it was providing a VAT-exempt financial intermediation service, and

- The recipient of the invoice incorrectly indicating VAT would have been entitled to claim a refund of the VAT if the taxpayer who actually supplied the goods to it had duly invoiced the transaction.

Background of the case

The case in which the Supreme Administrative Court turned to the Court of Justice concerned a company which mistakenly believed that by financing the purchase of fuel by its customers on the basis of fuel cards, it was actually supplying fuel to its customers. As a result, it was treated severely by the Polish tax office. Apart from denying the taxpayer the right to deduct input tax from invoices received by it from petrol stations, the tax authorities also found that the company was obliged to pay the VAT stated in the invoices issued to its customers.

In support of its reference for a preliminary ruling, the Supreme Administrative Court pointed out that the taxpayer’s good faith was supported by the fact that it acted on the basis of the practice of the Polish tax authorities, under which transactions such as those in dispute were considered as a chain sale of fuel to transport companies. As part of this practice, it was assumed that each of the entities participating in the fuel supply chain carried out a paid supply of goods, i.e. fuel, although in fact only one physical release of the goods took place. It was only after the Court of Justice issued its judgments of 6 February 2003 in Auto Lease Holland (C 185/01) and 15 May 2019 in Vega International Car Transport and Logistic (C 235/18) that this practice changed.

Court of Justice ruling

On those grounds, the Court of Justice (Sixth Chamber) ruled: “Article 203 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax and the principles of proportionality and neutrality of VAT must be interpreted as precluding national legislation which does not allow a taxable person acting in good faith to adjust invoices improperly indicating VAT following the initiation of a tax investigation procedure, even though the recipient of those invoices would have been entitled to reimbursement of that tax if the transactions which were the subject of those invoices had been duly declared.”

Gerard Goliasz
Tax Specialist

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