Substitute Performance Services and VAT Deduction Rights

• The Opole Provincial Administrative Court held that a contractor may deduct VAT on “replacement contractor” services bought to complete or repair work for a customer, because those services are directly linked to the taxpayer’s taxable business activity.
• The tax authority had denied deduction on the theory that the reimbursement sought from the negligent subcontractor was compensatory and outside VAT, and therefore the replacement services were not linked to taxable supplies; the court rejected this automatic link.
• The court relied on the Supreme Administrative Court’s 5 March 2025 ruling, which distinguished between reimbursement limited to the net amount of replacement work and reimbursement covering gross amounts.
• The ruling suggests that compensatory treatment of a claim against a negligent subcontractor does not by itself bar input VAT deduction on the related replacement services, and the structure of the settlement may be decisive.

Source: mddp.pl

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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