Ruling description

Court of Justice of the European Union (CJEU) in its ruling of October 22, 2015 specified in detail the standards of diligence which influence the right to deduct the VAT.

A partnership conducted a number of purchase transactions of diesel oil used for business activity and deducted the input VAT on the purchase of the fuel. A tax authority after a tax inspection refused the Company’s right to deduct VAT because the invoices regarding the sale of fuel were issued by a non-existent entity. In particular it was determined that the said entity was not registered for VAT purposes, files no tax returns and pays no taxes, does not report its annual financial statements and has no license to trade in liquid fuel. In addition, the real property indicated in the commercial register as the registered office was devastated to the extent which made it impossible to conduct any business there and it was impossible to contact the said entity or the person recorded in the register as the President thereof. In addition the court of first instance found while dismissing the complaint that the Company failed to prove that it had exercised due diligence since it had failed to make sure that the transactions were not linked to the perpetration of any crime. The Company, in its final appeal filed with the Supreme Administrative Court (NSA), stated that it acted in good faith, i.e. received the documents from the contractor confirming that it was a legally operating entity (i.e. copy of the commercial register and certificates of NIP and REGON numbers). The NSA resolved to ask the Court of Justice of the European Union questions referred for preliminary rulings: whether in the case at hand supply of goods occurred and whether pursuant to 6th Directive it is legal to deprive a taxpayer of its right to deduct tax if the entity which was not the actual supplier of goods issued the invoice and it is not possible to determine the actual supplier of goods and order it to pay the tax, or it is not possible to determine the person responsible for the issuance of the invoice.

CJEU stressed that the substantive conditions of the right to deduct the input tax have been satisfied in the case at hand, namely the status of the taxpayer, the goods or services are to be used by the taxpayer at a later stage of the transaction for the purposes of its own taxable transactions and the said goods or services are to be delivered by another taxpayer placed at an earlier stage of the transaction. Formal premises justifying the right to deduct the VAT have also been satisfied, namely the taxpayer had the invoice including, among others, the VAT tax identification number of the supplier, the full name or first name and surname and address of the taxpayer and the quantity and type of the supplied goods.

In the opinion of the CJEU, the existence of a supplier or its right to issue invoices do not constitute premises justifying the right to deduct VAT. Consequently, the Company is entitled to deduct VAT even if the supplier is a taxpayer which was not registered for VAT, insofar as the invoices regarding the supplied goods include all information required by law.

A possible absence of the supplier’s right to legally dispose of goods cannot rule out the supply of the said goods, insofar as the said goods were actually delivered to the Company which used to them for the purposes of the taxed transactions. In addition the question whether the supplier paid the VAT due on the transaction to the tax collector or not has no influence on the taxpayer’s right to deduct the input VAT.

The tax authorities cannot in a general manner require the taxpayer to examine whether the entity issuing an invoice for goods or services to which deduction is to refer, has particular goods and is able to provide them and whether it satisfies the obligation to file tax returns and pays the VAT in order to make sure that the entities operating at earlier stages of the transaction do not commit irregularities or offences or that a given taxpayer was in possession of documents confirming any such state of affairs.


It is another important ruling handed down by the CJEU presenting a list of entrepreneurs’ good practices making it impossible for the tax authorities to question the right to a VAT deduction. The Polish tax authorities do not have effective methods to fight fiscal crime and it is often the case that all transaction participants are punished, including the honest entrepreneurs. The ruling unambiguously condemns this practice. Thus, if material and formal premises of the right of deduction are satisfied and the taxpayer did not know and could not have known that a supplier, as part of a particular transaction, committed a crime or that another transaction being part of the supply chain, whether earlier or later compared to the one which the said taxpayer performed, was carried out in breach of the VAT regulations, the taxpayer cannot be deprived of the right to a tax deduction. This ruling is significant for all pending cases and may constitute grounds to reopen proceedings which ended with negative resolution handed down by the tax authorities.