Poland: A Mutual Claim Set-Off Is Not A Form Of Settling Financial Accounts Allowing Taxpayers To Benefit From The Shortened Deadline For Processing VAT Refund Claims

Description

The Regional (Wojewódzki/Voivodship) Administrative Court in Gliwice ruled (in its judgment of February 10, 2016 (court file No. III SA/Gl 1957/15)), that paying invoices by setting off mutual claims does not provide a basis to request an accelerated refund of surplus input VAT in the shortened deadline of 25 days. An accelerated refund is only possible where a taxpayer has paid for the purchased goods and services in cash or by wire transfer.

Pursuant to Article 87 Sec. 2 of Tax on Goods and Services Act of 11 March 2004 (the "TGSA"), a refund of a surplus of the input over the output VAT is generally handled within 60 days. This deadline can be reduced down to 25 days provided that the taxpayer meets the prerequisites stipulated in Article 87 Sec. 6 of TGSA which provides that upon the taxpayer's request submitted along with taxpayer's filing of VAT return the revenue office is obliged to refund the resulting tax difference within 25 days counted from the date of filing the return containing the settlement provided that the sums of the input tax reported in the return arise in particular from invoices documenting sums payable which have been paid in full, all subject to Article 22 of Act on Freedom of Economic Activity of 2 July 2004 (Journal of Laws of 2010, No. 220, Item 1447, as amended) (the "AFEA"), which provides that in specific instances an entrepreneur (business entity) shall remit or receive payments through a bank account.

In the abovementioned case examined by the Regional Administrative Court the taxpayer was expecting to have the surplus input VAT refunded within the 25-day deadline and they argued that they were settling his liabilities arising from the purchase invoices either by cash or by wire transfer, or by mutual setoff, which means that they were acting in conformity with Article 22 of the AFEA. The taxpayer applied to have the above stance confirmed in a tax ruling and after having obtained a negative tax ruling, they appealed against it to the Regional Administrative Court.

The Regional Administrative Court dismissed the taxpayer's complaint. The Court acknowledged that Article 87 Sec. 6 of TGSA was an exemption to the general principle concerning the refund of the surplus of the input over the output tax within 60 days. If we are dealing with an exception, the regulation (i.e. Article 87 Sec. 6 of the TGSA) should be interpreted strictly. Consequently, due to the fact that Article 22 of the AFEA contains no reference to the legal concept of setoff it needs to be recognized that settling accounts in this way will not allow benefitting from the accelerated processing of VAT refund claims.

Comment

Omawiany wyrok należy ocenić negatywnie. Wykładnia The ruling at issue should be assessed negatively. The interpretation followed by the Court is inconsistent with the literal reading of the legal regulations, the principles of systemic interpretation and the assumption of reasonableness of the legislative authority. Article 22 of the AFEA only provides for the situation where an entrepreneur (business entity) remits or receives payments via their bank account. A reference to this regulation in Article 87 Sec. 6 of the TGSA should be read so that a taxpayer who is settling an obligation by physically paying cash should, in the instances indicated in the AFEA, pay through a bank account. However, there are no grounds to conclude that a taxpayer regulating an obligation by setoff is acting contrary to or ignoring the provisions of the AFEA. A set-off is a legally admissible form of regulating obligations which gives an effect that is analogous to paying in cash or by wire transfer. Therefore, there are no legal or functional arguments to believe that a taxpayer performing set-off cannot benefit from the accelerated refund of input VAT.

The judgment in question is another ruling which is negative for taxpayers in this kind of situation. This approach adopted by the court may influence the standpoint taken by the fiscal authorities in individual taxpayer cases. We recommend it to those of our clients who structure transactions in a way that takes into account accelerated VAT refunds, that they avoid the set-off as a method of settling obligations, since there is a significant risk that the fiscal authorities will deny the right to an accelerated VAT refund in such a situation.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.