Supreme Administrative Court Allows Ancillary Financial and Insurance Intermediation to Be Excluded from the VAT Pro-Rata

• Poland’s Supreme Administrative Court has reportedly held that a car dealer did not have to include turnover from insurance and credit intermediation in its VAT deduction pro-rata where those services were ancillary to its core vehicle-sales activity.
• The dispute concerned Article 90(6) of the Polish VAT Act, which excludes turnover from certain ancillary financial transactions when calculating the deductible proportion.
• The judgment reinforces the need for a fact-specific assessment of whether exempt financial or insurance activities constitute an independent business activity or merely support the taxpayer’s principal taxable supplies.

Extended article

The Polish Supreme Administrative Court, Naczelny Sąd Administracyjny, has reportedly ruled in favour of a car dealer in a dispute concerning the VAT deduction pro-rata applicable to insurance and credit intermediation income.

The case was included in Przegląd prasy podatkowej, the Polish tax press review received on August 20. The report states that turnover from insurance and credit intermediation did not have to be included in the dealer’s VAT pro-rata where those activities were ancillary to the dealer’s principal vehicle-sales business.

The dispute concerned Article 90(6) of the Polish VAT Act. Under the proportional-deduction rules, a taxpayer carrying out both transactions that grant a right to deduct input VAT and exempt transactions that do not grant such a right must generally calculate a deductible proportion. Certain ancillary financial transactions are excluded from the turnover used in that calculation.

The key question is therefore not simply whether the taxpayer receives exempt financial or insurance income. The analysis must determine whether the activities are ancillary to the principal taxable business or constitute a regular, independent and economically significant part of the taxpayer’s operations.

For a vehicle dealer, insurance and financing arrangements may facilitate the sale of vehicles without becoming a separate principal line of business. If the exempt activities are genuinely ancillary, including the related turnover in the pro-rata denominator could distort the taxpayer’s input VAT recovery.

The decision is relevant beyond the automotive industry. Businesses that earn incidental exempt income alongside a predominantly taxable activity should review:

• the commercial relationship between the exempt service and the principal activity;
• the regularity and scale of the exempt transactions;
• the resources and assets used to perform them;
• whether customers acquire the service independently; and
• whether exclusion of the turnover would provide a more accurate reflection of the use of input costs.

The publicly accessible report does not provide the court’s case number or the complete reasoning. The conclusion should therefore be applied cautiously until the written judgment is available and reviewed.

Additional information is available in the Polish-language report, Car dealer wins VAT pro-rata dispute concerning insurance and credit intermediation. Some content may require a subscription. [edgp.gazetaprawna.pl]