Tax authorities in Poland recently made a radical change in their interpretation of provisions concerning application of the appropriate VAT rates on import or intracommunity movement of goods – one that may have damaging implications for the pharmaceutical and grocery distribution markets.
The authorities questioned the full deduction of VAT on the acquisition or import of goods in situations in which the distributor applies the 22-percent VAT rate, as a precaution, to the acquired goods, unsure of whether the lower rate of 7-percent VAT is the correct rate.
In the authorities' opinion, the difference between the 22-percent tax deducted in the case of acquisition and the correct tax calculated at 7 percent constitutes outstanding tax. Under VAT legislation, tax incorrectly stated on an invoice (even an internal invoice) regarding payment of tax on acquisition or import of goods is not deductible in full.
In our opinion, there are insufficient grounds for this practice, and it is still possible to defend the position of a taxpayer who assumes that tax is deductible in full with respect to the acquisition of distributed goods. However, the new, aggressive stand adopted by the tax authorities may lead to a greater tax risk for entities active in the pharmaceutical and grocery distribution markets, where inconsistencies in classification can most frequently be seen.