Poland became a member of the European Union on May 1, 2004, marking 20 years of membership in 2024. During this time, Polish courts, particularly the Supreme Administrative Court, have submitted 79 cases to the Court of Justice of the European Union (CJEU) for VAT-related matters. Additionally, the European Commission has initiated five infringement procedures against Poland, which were also decided by the CJEU. The decisions of the CJEU should allow for legal certainty, clarification of VAT concepts, lead to consistent interpretation of VAT concepts and ultimately reduce the number of disputes between tax authorities and businesses.
Importance of the CJEU cases
Under the Treaty on the Functioning of the European Union, the CJEU holds the authority to interpret the EU VAT legislative framework, and its decisions are binding on national courts. The decisions made by the CJEU are therefore not only important to create legal certainty in Poland but throughout the member states of the European Union. The principles applied in the arguments of the judges in CJEU decisions are reapplied in other CJEU cases and a strong basis to bring national legislation in the European Union in line with EU laws and the outcome of CJEU decisions. The result should be that businesses have more legal certainty on the interpretation and application of the EU law and should reduce the number of disputes between tax authorities and individuals/businesses.
VAT as a concept
VAT is a tax on consumption, the tax authorities can not gain more income from VAT than what the ultimate consumer pays as VAT to its retailer, service provider, etc. VAT is gradually collected by businesses throughout the supply chain, with the businesses charging VAT to their customers or consumers. Businesses are however able to deduct the amount of VAT they have paid to their suppliers from the amount they collected from their customers or consumers while paying the balance or the net amount of VAT to the authorities or claiming it back. Through application of the neutrality principle, VAT should not be a cost to companies operating in similar circumstances, it is ultimate customer who bears the cost of VAT.
VAT legislation
At the level of the European Union, VAT as a concept is regulated via VAT Directives and Implementing Regulations (referred to as EU VAT law hereafter). The member states should translate the VAT laws into their national legislation with the aim to achieve the common goal though leaving some options for the member states upon implementation. To allow businesses to operate in a simple and consistent way in the European Union, the VAT assessment of transactions which impact two or mere member states (e.g. the VAT treatment of a supply of goods from Poland to another European Union country) should be identical to ensure the same treatment from a VAT perspective as well as to avoid non-taxation or double taxation. It is precisely one of the objectives of the European Union to strengthen businesses operating in the European Union through equal and consistent treatment of business cases.
Strict interpretation of the VAT law leads to disputes
However, as the VAT treatment is to be assessed on a transactional basis, the particular facts of a business case may lead to different interpretation by businesses vs tax authorities. A typical example is the VAT rate apply to a given product due to the complex definition of products being subject to reduced VAT rates subject to different interpretation of the conditions to apply a reduced VAT rate. It is therefore that interpretation of VAT concepts lead to discussion between tax authorities and businesses while consumers ultimately bear the cost of the VAT. The disputes between tax authorities and business lead to a lot of court cases at national level. This may eventually lead to the national courts referring the case to the CJEU.
Importance of CJEU VAT Cases
The decisions of the CJEU are highly valued by businesses operating in Poland as they provide clarity on the VAT treatment of ambiguous transactions. These rulings help businesses navigate potential uncertainties and ensure proper compliance with VAT regulations in Poland. As CJEU VAT cases are an interpretation of EU VAT law, the decisions of the CJEU are applicable in the other member states of the European Union as well for same fact pattern. Therefore, the CJEU cases initiated by Polish courts to the CJEU are welcomed by businesses operating in the European Union.
Poland is a frontrunner in initiating VAT cases to the CJEU
Polish courts have consistently sought guidance from the CJEU since 2004 to ensure the consistency and compliance of Polish VAT law with EU law. The significant number of cases referred by Polish courts may indicate their respect for and their aim to apply and implement European VAT laws. However, it may also reflect the strict interpretation of VAT concepts by Polish tax authorities, leading to many conflicts between taxpayers and tax authorities and subsequent court cases in Poland. Some of these disputes are then referred by Polish courts to the CJEU.
The majority of the cases brought to CJEU is made by the Naczelny Sąd Administracyjny (NSA), also known as the Supreme Administrative Court, a constitutional judicial body in Poland. But also courts lower in the hierarchy may bring cases to the CJEU.
At the end of April 2024, courts across the European Union have brought approximately 1,170 VAT-related cases to the attention of the CJEU. Among the top countries in terms of case submissions, Germany leads with around 180 cases, followed by the UK with 109, the Netherlands with 108, and Italy with 92. Notably, Poland ranks fourth in this list, having submitted 79 cases. When considering the cases since Poland’s EU membership in 2024, Poland holds the second-highest number of CJEU VAT cases following Germany with 121 cases.
Nature of the CJEU cases
A majority of cases initiated by Polish courts to the CJEU deal with the questions whether a business has the Right to Deduct VAT. The discussion can be whether a business can still deduct if an invoice is missing or not fully compliant with what is considered as an invoice, the time limits to deduct VAT, businesses able to deduct VAT in case they are knowingly or unknowingly involved in fraud cases, etc.
Other topics discussed in CJEU cases launched by Polish courts deals with whether transactions are Exempted from VAT, the nature of the Taxable Transaction and whether there is even a Taxable transaction and where transactions are to be taxed (place of supply rules). The topics reflect the nature of the discussions in Polish courts and as a result mirroring the challenges faced by businesses to operate in Poland. As mentioned, VAT should be neutral for businesses but penalties and interest due to non-compliance eventually through correction years of the transaction has taken place can be huge cost for businesses.
The nature of the Polish CJEU cases is in line with the topics brought by other EU member states to the CJEU. There are only relatively more cases on Exemptions initiated by other Member States.
However, the nature of the CJEU cases (as well as cases brought before Polish courts) are due to the strict interpretation of VAT concepts as eg. what is considered a Fixed Establishment for VAT purposes, the restriction of the time limit to allow deduction of VAT, application of an exemption (eg. no exemption of VAT due to missing customs documents). etc.
Businesses welcome CJEU Cases … so thank you Poland!!!
The successful outcome of the CJEU for businesses is mixed, in some cases the ambiguity on CJEU cases remains and no egal certainty can be provided. Businesses operating in Poland are faced with a constant risk to be challenged by authorities on a very strict application of VAT regulations. This does necessarily lead to make Poland an interesting place to invest by globally operating companies.
Although, it can be observed that the CJEU decides in more and more cases in favour of the businesses just to ensure the neutrality of VAT, the ‘’substance over form’’ principle, etc. The positive outcome of CJEU cases should perhaps help to make Poland more attractive for international businesses who have no intention whatsoever to commit fraud but due to their complexity and the fact they face many different legal frameworks to operate can simply not be 100% compliant. At least, the European Commission supported by the CJEU, tax authorities and courts in the member states of the European Union should give them the legal certainty. The CJEU could and should play a key role to reach that objective.
Keep on rockin’ Poland.
Author: Luc Dhont
See also
- Poland bombarded the EU court with questions about VAT
- ECJ VAT Cases per country …. Germany, UK, Netherlands top – Malta and Cyprus nil cases
- Join the Linkedin Group on ECJ VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
