In its ruling of 30 July 2015 (case no. III SA/Wa 393/15), the Province Administrative Court in Warsaw (WSA) pronounced that, for the purposes of VAT, construction and construction-assembling services should be deemed to be performed at the moment of their physical completion and not at the moment of drawing up the acceptance protocol for the works.
Pursuant to the provisions of Art. 19a (5) point 3 letter a of the Act of 11 March 2004 on the tax on goods and services (hereinafter “VAT Law”), the VAT tax point for the provision of construction and construction-assembling services arises at the moment of issuing an invoice. Pursuant to Art. 106i of the VAT Law, an invoice for construction and construction-assembling services is issued no later than on the 30th day following the day of performing such services. Hence, the interpretation of the notion of the “provision of construction and construction-assembling services” is of key significance when determining the moment of issuing the invoice and, consequently, the occurrence of the tax point.
In the case analyzed by the WSA, a company was performing construction and construction-assembling services under contracts executed on the basis of FIDIC Terms and Conditions. The taxpayer asserted that the moment of completing the service takes place only when the services are accepted by the contracting authority. The acceptance of a service by the contracting authority takes place when the interim payment certificate is accepted or the final payment certificate is accepted, as the case may be. The tax authority that was addressed by the taxpayer with a request for a tax ruling pronounced the taxpayer’s position to be incorrect. The tax authority stated that the actual completion of works will be the pivotal factor used to determine the completion of construction and construction-assembling services instead of the acceptance of such services by the contracting authority on the basis of release and acceptance protocols or other documents (such as a take-over certificate, completion certificate, or interim or final payment certificate). The WSA shared the tax authority’s position.
The WSA ruling should be evaluated negatively. In the construction sector, the cooperation of the contractor and the contracting authority is needed to determine whether the works have actually been completed. The completion of construction work is not an objective event since the contracting authority must confirm that the contractor actually performed the commissioned work. Making the occurrence of the tax point and the moment of issuing the invoice contingent on the physical completion of works may lead to the situation where the contractor will be forced to issue an invoice and pay VAT despite the fact that the contracting authority does not accept the works and the invoice so issued. Hence, the contractor will be exposed to the risk of losing its liquidity due to the need to pay VAT to a revenue office at the time when no monies are remitted by the contracting authority. We recommend our clients from the construction sector to observe tax practice and act with prudence when drafting contractual provisions that determine the moment of completing construction works.