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Right to deduct VAT if the transferred input tax surplus over the due tax has not been questioned before the expiry of the limitation period

If the transferred input tax surplus over the due tax has not been questioned before the expiry of the limitation period, the taxpayer retains the right to deduct it (judgment of the Supreme Administrative Court of February 24, 2021, file no. I FSK 126/20)

The case concerned a company which, since 1994, had accumulated a surplus of input tax over due tax and for almost 20 years transferred it to subsequent accounting periods in which it reported taxable activities or, in some periods, transferred it in an unchanged amount. In 2018, the tax authorities decided that the surplus declared by the company had expired and corrected the company’s settlements for the periods from December 2012 to January 2015. The company, disagreeing with the decisions of the tax office, filed a complaint with the Provincial Administrative Court in Warsaw.

The court of first instance overturned the authority’s decision, stating that the provisions providing for the possibility of transferring the excess input VAT to subsequent accounting periods do not provide for any time limit for the transfer of this amount. The Supreme Administrative Court shared this position and, dismissing the cassation appeal of the tax authority, pointed out that the correction of the company’s settlements – in terms of the surplus transferred – is not admissible, since the authority had not done so before the expiry of the limitation period for tax settlements related to VAT surpluses. In the opinion of the Supreme Administrative Court, the surplus of input VAT, as a result of its transfer to the next settlement period, becomes a component of the tax liability in the new settlement period.

The Supreme Administrative Court added that the existence of a permanent surplus of input tax over the due tax cannot be an argument to question the right to deduct already after the expiry of the limitation period. In the opinion of the Supreme Administrative Court, the failure to regulate the deadline for transferring VAT surpluses to subsequent settlement periods may not deprive the taxpayer of the right to deduct VAT in a situation where a taxable activity has taken place, and the effectiveness of the transfer of the surplus in subsequent settlement periods has not been questioned by the tax authorities within an appropriate period.

Source Deloitte

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