What case did the CJEU examine?
In its judgment of 18 March 2021, the Court of Justice of the European Union (CJEU) considered a request for a preliminary ruling from the Regional Administrative Court in Gliwice. The case concerned whether the conditions for deducting input tax on intra-Community acquisitions of goods (WNT), set out in Article 86 of the Polish Act of 11 March 2004 on Tax on Goods and Services (the ‘VAT Act’), were compatible with Articles 167 and 178 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (the ‘VAT Directive’).
The Polish VAT Act provides for the deduction and accounting of input and output VAT connected with intra-Community acquisitions. However, to do so in the same accounting period, the taxpayer must meet both of the following conditions:
(1) receive an invoice documenting the intra-Community acquisition within three months after the end of the month in which the tax became chargeable on the goods acquired;
(2) amend the tax return and report the output VAT due on that acquisition within the same period.
After the statutory three months have expired, the taxpayer may still amend the return. They have five years from the end of the year in which the right to deduct input VAT on the intra-Community acquisition arose. In that case, however, output VAT must be accounted for retrospectively and interest on the tax arrears must be paid. As a result, input VAT can only be deducted in the current accounting period.
CJEU judgment: Article 86 of the VAT Act is incompatible with the EU Directive
The operative part of the judgment held that the VAT Directive precludes national provisions such as Article 86 of the VAT Act. Under the Directive, the right to deduct is, in principle, exercisable when the tax becomes chargeable. Applying Article 86 delays the exercise of the right to deduct VAT due on intra-Community acquisitions solely because a formal requirement has been breached. It thus temporarily places the VAT burden on the taxpayer and contradicts the principle of tax neutrality for the purchaser in an intra-Community acquisition.
What does the CJEU ruling mean for taxpayers? Who can recover unduly paid interest, and how?
The CJEU judgment offers the possibility of recovering unduly paid interest on tax arrears arising because a VAT taxpayer exceeded the three-month deadline for amending a return. This concerns cases where output and input VAT on the same intra-Community acquisition were reported in different accounting periods. The judgment directly concerns intra-Community acquisitions of goods, but many tax advisers emphasise that it may also be used to recover interest arising, for example, from intra-Community imports of services, because the provisions for accounting for these transactions are analogous.
To recover the undue interest, the taxpayer must amend the tax return or Standard Audit File (JPK) in which output VAT on the intra-Community acquisition was reported. The next step is to apply to the competent head of the tax office for recognition of the overpayment, under Article 72 of the Polish Tax Ordinance.
