KPMG Weekly Tax Review 05 JUN - 12 JUN 2023

On 05 June 2023, a raft of amendments to the Value-Added Tax Act and certain other acts, containing the SLIM VAT 3 package, was published in the Journal of Laws. The amendments are to further simplify and accelerate VAT settlements, thus improving companies’ liquidity, and to reduce formalities for businesses in international trade. In principle, new provisions are to become effective on 01 July 2023, but many of them have a separate date of entry into force. 

Following the meeting held on 05-06 June 2023, the Monetary Policy Council declared that the NBP interest rates would remain unchanged i.e.

• reference rate at 6.75% annually
• lombard loan interest rate at 7.25% annually
• deposit rate at 6.25% annually
• rediscount rate at 6.80% annually
• discount rate on bills of exchange at 6.85% annually.

On 31 May 2023, the Supreme Administrative Court referred a case (ref. no. III FSK 228/22) to an extended panel of seven SAC judges.

The case pertained to whether, pursuant to Article 116(1)(1)(b) in conjunction with (a) and Article 2 and 4 of the Polish Tax Code, in conjunction with Article 11(1-2) and Article 21(1-2) of the Bankruptcy and Restructuring Law, board members can be held liable for failing to exercise due diligence, in situation where they fail to submit a bankruptcy petition in due time, there are no tax arrears of the company that could be enforced in this period, and it has not been proven that the understatement of the tax liability in the return was the fault of the board members.

In its judgment dated 31 May 2023 (case ref. no. II FSK 13/21), the Supreme Administrative Court assessed whether funds received in the form of damages or compensation should be treated as revenue from business activity conducted in a Special Economic Zone (SEZ). According to the Court, “tax-exempt income” should be solely understood as income earned from business activity conduced in SEZ within the scope of the relevant zone exemption decision. Consequently, damages or compensation cannot be treated as revenue (income) from business activity conducted in SEZ. Similarly, satisfying a counterparty’s claim cannot be treated as expense under Article 16(1)(22) of the CIT Act. This is because the above-referenced provision clearly relates to penalties and damages for improper performance, and not to penalties and damages related to non-performance or partial non-performance.

In its judgment dated 01 June 2023 (case ref. no. I FSK 2121/19), the Supreme Administrative Court examined the case of a company acting as a party to cross-border transactions in which it purchased services from non-residents. The entity inquired whether it could deduct the input VAT in the same accounting period in which the tax liability for imported services arose, also in situation where the output VAT would be included in the appropriate tax declaration submitted within three months following the end of the month in which the tax liability arose in relation to the purchased services. The Court referred to the judgment issued in the case C-895/19, where the CJEU confirmed that the provisions of the EU 112 Directive are to be interpreted as precluding national legislation which makes the exercise of a taxable person’s right to deduct input tax in the same accounting period as that in which the tax due was payable on the transaction subject to the tax due on those transactions being entered in the appropriate tax declaration submitted within three months following the end of the month in which the tax liability arose. According to the Court, this should also apply to the presented facts and shape interpretation of Article 86(10b)(3) of the VAT Act.

In its judgment dated 02 June 2023 (case ref. no. I FSK 542/19), the Supreme Administrative Court examined the case of a joint-stock company planning to enter into lease agreements for residential premises, which would then be made available to the company’s employees, contractors or counterparties. According to the Court, the jurisprudence has developed an interpretation, in line with which non-existence of a specific taxable transaction does not always have to mean the loss of the right to deduct VAT. Although in the case of expenses classified as general overhead there is no direct link between purchasing goods/services and taxable sales, in situation where they constitute a price component of products offered by the taxpayer, thus remaining in direct relationship with that taxpayer’s taxable business activity, the right to deduct expenses incurred on account of such a purchase should be granted to the taxpayer to the extent that such general activity gives the right to deduct VAT. This means that although expenses incurred in connection with renting residential premises for the company’s employees and contractors are not directly reflected in the company’s turnover, incurring them is a condition for obtaining VAT-taxable turnover by securing the source of revenue. Consequently, the company should be eligible for deducting input tax related to incurring such expenses.

On 08 June 2023, the CJEU issued a judgment in a case (C-322/22) referred for a preliminary ruling by the Supreme Administrative Court (SAC) by way of decision dated 15 March 2022. The SAC inquired whether the rules for calculating interest on overpayments laid down by Article 78(5)(1-2) of the Polish Tax Code are compatible with EU law. The above-mentioned Article provides that interest on overpaid tax is not due to the taxable person for the period after the expiry of 30 days from the date of publication in the Official Journal of the European Union of the judgment of the Court of Justice, where the request for a declaration of that overpayment was submitted by the taxable person after that time limit and the provisions of national law relating to the collection of the tax continue to be incompatible with EU law despite the judgment. The CJEU confirmed that such provisions are incompatible with EU law.