It is 11 July 2022. We invite you to the next episode of the “Weekly Tax Review” prepared in cooperation with tax experts in KPMG in Poland.
In today's episode:
- VAT on chain transactions
- Polish excise duty regulations are in compliance with the Directive
- No possibility to charge the costs of an indisputably unlawful act into tax-deductible costs
- Tax paid by a taxable person with no intermediation of a remitter cannot be treated as a tax overpayment
- Punitive Article 108 of the VAT Act cannot be applied if no fraud took place
- Interest rates going up
- Deputies’ draft bill on Belka’s tax suspension
VAT on chain transactions
On 7 July 2022, the Court of Justice of the European Union issued the decision in the case C-696/20, in which it held that Article 41 of the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax shall be interpreted as not precluding legislation of a Member State under which an intra-Community acquisition of goods is regarded as having been made within the territory of that Member State, where that acquisition, which constitutes the first stage in a chain of successive transactions has been wrongly classified as a domestic transaction by the taxable persons involved, who have used their VAT (value added tax) identification number allocated by that Member State for that purpose, and the subsequent transaction, which has been wrongly classified as an intra-Community transaction, has been subject to VAT as an intra-Community acquisition of goods by the purchasers of the goods in the Member State in which the transport of the goods ends. However, that provision, read in the light of the principles of proportionality and fiscal neutrality, precludes such legislation of a Member State where the intra-Community acquisition of goods which is regarded as having been effected within the territory of that Member State results from an intra-Community supply of goods which has not been treated as an exempt transaction in that Member State.
Polish excise duty regulations are in compliance with the Directive
On 7 July 2022, Advocate-General of CJEU, A. Collins, delivered his opinion in the case C-166/21 (European Commission v Republic of Poland), stating that the Commission's complaint should be dismissed. In a letter of formal notice, the Commission alleged that, by imposing the requirement that ethyl alcohol used for the production of medicines is moved under a duty suspension arrangement in order to benefit from the exemption from excise duty, Poland breached Article 27(1)(d) of Directive 92/83 and infringed the principle of proportionality. To apply the exemption from excise duty to ethyl alcohol, Poland subjects this exemption to the requirement that the aforementioned product is moved under a duty suspension arrangement. In the Commission's view, this requirement infringes the principle of proportionality because the duty suspension procedure is more burdensome for traders than the refund system. Yet, according to the Advocate-General, the Commission has adduced no evidence to support this opinion. Questioned on that point at the hearing, the Commission asserted that it was not obliged to provide such evidence. The Advocate-General’s noted that it is difficult to see how a Member State can be expected to demonstrate that a system that it has not implemented is less restrictive than one that it has implemented.
No possibility to charge the costs of an indisputably unlawful act into tax-deductible costs
In its ruling of 5 July 2022 (case file II FSK 3006/19), the Supreme Administrative Court held that the costs related to an indisputably unlawful act (damages paid under the settlement in connection with the infringement of a Community design), as supported by decisions of Italian courts, cannot be treated as an expense incurred to earn revenue or secure sources of revenue. By referring to Article 15(1) of the CIT Act, the Court overruled the decision of the court of first instance and dismissed the taxpayer's complaint about an unfavourable individual ruling.
Tax paid by a taxable person with no intermediation of a remitter cannot be treated as a tax overpayment
In its ruling dated 7 June 2022 (case file II FSK 478/19), the Supreme Administrative Court stated that where a taxpayer discloses the entire taxable base in their annual tax return, including the taxable base “undisclosed” by the remitter, and pays the total tax (including the portion to be collected by the remitter), it means that this taxpayer declared and paid the entire tax due, pursuant to Article 45(1)and(6) of the PIT Act. Consequently, payment effectuated in this mode shall not be treated as the taxpayer’s tax paid unduly or in excess under Article 72(1)(1) of the Tax Code.
Punitive Article 108 of the VAT Act cannot be applied if no fraud took place
In its ruling dated 1 July 2022 (case file I FSK 1006/18), the Supreme Administrative Code held that tax authorities can seek the payment of tax under Article 108 of the VAT Act only when a fraud has actually taken place. The Court referred to the previous decisions issued by domestic authorities and to past CJEU rulings. The case at hand related to the obligation to pay VAT indicated in the invoices issued by the wife to her husband. Tax authorities challenged the validity of such invoices stating that they did not document the actually performed activities (dummy invoices) and demanded the payment of the tax indicated therein pursuant to Article 108 of the VAT Act. It was found that the husband became a VAT payer already in 2000, while the wife submitted a registration application eight years later. Therefore, it cannot be that the tax authorities accept a defective registration application, accept the tax returns made, refund the excess VAT, and then recognize that the same taxpayer has issued dummy invoices for all that period.
Interest rates going up
During the meeting of the Monetary Policy Council held of 7 July 2033 further, 0.50 pp, increase of NPB interest rates was announced. The Lombard loan interest rate was also raised to 7% annually, which means an increase in the interest rate on tax arrears to 16% per year. The increase is to affect the limit of notional costs of external financing and means a reduction in the amount of tax liability in the event of payment of VAT in full from the VAT account earlier than the deadline for paying the tax. The Council’s resolution shall enter into force on 8 July 2022.
Deputies’ draft bill on Belka’s tax suspension
Another deputies’ draft bill on suspending a levy commonly referred to as “Belka’s tax” was submitted before the Sejm. The relevant bill amending the Act on Personal Income Tax was submitted before the Sejm by the politicians of Polska 2050 [Poland 2050], Polskie Sprawy [Polish Affairs], Porozumienie [Agreement], Polska Partia Socjalistyczna [Polish Socialist Party] and Koalicja Polska [Polish Coalition] on 5 July 2022. Belka’s tax is a 19% lump-sum levy imposed, inter alia, on interest received and other revenue earned from the funds held in a taxpayer's account or by means of other forms of saving, securing, or investing.