Polish Municipality Must Charge 23% VAT When Re-Invoicing Electricity Costs

• A Polish municipality’s re-invoicing of electricity costs to a user of premises provided under a lending arrangement is subject to VAT.
• The recharge is treated as a separate supply of electricity where consumption can be identified and attributed to the user.
• The municipality must apply the standard 23% VAT rate rather than treating the reimbursement as a non-taxable recovery of costs.

Extended article

The re-invoicing of electricity costs by a Polish municipality to the user of premises provided under a lending arrangement is subject to VAT at the standard 23% rate.

The conclusion concerns a situation in which the municipality purchases electricity from an energy supplier and subsequently charges the cost attributable to the party using the premises. Although the municipality may not add a margin, the reimbursement is not automatically outside the scope of VAT.

For VAT purposes, the decisive question is whether the electricity recharge constitutes an independent supply or merely forms part of a broader service relating to the use of the premises. Where electricity consumption is separately measured or otherwise objectively allocated to the user, and the user bears the cost according to actual consumption, the supply may be treated separately from the underlying arrangement.

Electricity is treated as tangible property for VAT purposes. The municipality’s onward supply is therefore subject to the VAT rate applicable to electricity, even if it is described contractually as reimbursement, cost allocation or re-invoicing.

The standard Polish VAT rate is 23%, which currently applies to supplies of electricity unless a specific reduced rate or temporary relief applies. Poland returned electricity supplies to the 23% rate following the expiry of the temporary anti-inflation reduction. [invoicify.dev], [polishtax.com]

The absence of a profit margin does not alter the VAT treatment. When a taxpayer purchases a supply in its own name and subsequently passes that supply on to another person, the onward transaction must generally be assessed according to its own VAT characteristics.

Municipalities should therefore ensure that:

• electricity consumption is measured or allocated using a supportable methodology;
• the underlying agreement allows the electricity cost to be charged separately;
• the taxable amount reflects the consideration payable by the user;
• the applicable VAT rate is correctly applied; and
• the transaction is reported in the municipality’s VAT records and invoicing process.

The result may be different where electricity is not separately measured and forms an inseparable element of a single property-related service. Each arrangement should therefore be reviewed in light of the contractual terms, invoicing method and the user’s ability to control consumption.

External articles

• Rzeczpospolita – Re-invoicing electricity by a municipality and VAT
• Rzeczpospolita – Practical VAT issues associated with re-invoicing costs
• Intertax – Polish VAT treatment of electricity following the expiry of temporary reduced rates