The issue of VAT taxation of the amount of subsidies received by the company as a project partner to cover eligible expenses

Unofficial translation

In the judgment issued on July 28, 2021, the Provincial Administrative Court in Białystok decided that the co-financing received by the company, as a project partner, to cover eligible expenses, does not constitute a turnover subject to VAT. 

The criterion for recognizing the subsidy as increasing the turnover is the statement that the subsidy is made to finance a specific activity subject to VAT. Only the subsidies in question up to the selling price of the supplier of the goods or services are subject to taxation. However, the subsidies in question are not taxable up to the purchase price. In the case under consideration, the co-financing granted for the implementation of the project was deliberate – it was the total amount to cover all costs of the project, regardless of the fact of its current internal division between the project leader and partners. The link between the subsidy and the price of the service (lack thereof) for the beneficiary that would require an increase in turnover for VAT purposes, then it would take place if the subsidy was calculated individually and transferred with the specification of the specific purpose. In the case described, it was impossible to establish such a calculation.

Source PwC

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