Service-Tax

Deduction of VAT from an invoice issued by an unregistered entity

Individual ruling of February 13, 2009, file ref. IPPP2 / 443-1757 / 08-3 / KK, Director of the Tax Chamber in Warsaw

Does the Company have the right to deduct input tax included in an invoice issued by a taxpayer of value added tax, which is not formally registered for VAT purposes - if the invoice documents actually performed activities?

Based on Article. 14b § 1 and § 6 of the Act of August 29, 1997. Tax Ordinance (i.e. Journal of Laws of 2005, No. 8, item 60, as amended) and § 7 of the Regulation of the Minister of Finance of June 20, 2007. on the authorization to issue interpretations of tax law (Journal of Laws of 2007, No. 112, item 770 as amended), the Director of the Tax Chamber in Warsaw, acting on behalf of the Minister of Finance, states that the Company's position presented in the application of November 24, 2008 . (date of receipt on December 1, 2008) for an individual interpretation of the tax law regarding value added tax in the scope of deduction of input tax resulting from VAT invoices issued by an unregistered VAT payer is incorrect.

JUSTIFICATION

On December 1, 2008. an application has been submitted for an individual interpretation of tax law provisions regarding value added tax,

In the facts described below.

From December 1, 2004, the Company used the services of an entrepreneur conducting individual business activity. The cooperation agreement concluded by the Company contained, inter alia, the entrepreneur's declaration that he is an active VAT taxpayer authorized to issue VAT invoices. As part of the services provided, the entrepreneur issued VAT invoices to the Company. The company repeatedly asked the contractor to provide the NIP-5 certificate (instead of NIP-4), but to no avail. The tax office with territorial jurisdiction over the entrepreneur informed that the entrepreneur is not an active VAT taxpayer. The company sent an inquiry to the Director of the Tax Chamber in Warsaw for a written interpretation of the tax law regarding value added tax in terms of the situation, the tax authority in the issued individual interpretation (of August 11, 2008, ref. IPPP1-443-1056 / 06 -2 / AK) negatively assessed the position of the Company and pointed out that, in its opinion, it is not possible to deduct the input tax shown in the invoices issued by a taxpayer who is not an active VAT taxpayer. The company did not take legal steps to change the issued interpretation.

At present, the Company does not cooperate with this entrepreneur. The company did not correct the VAT-7 declaration, as it still believes that the interpretation issued by the Director of the Tax Chamber in Warsaw is unjustified due to the incompatibility of Polish legal regulations in this respect with Community law.

In the opinion of the Company, it is permissible to apply for an individual interpretation again in the case in question - in the same factual state. Pursuant to Art. 14b § 3 of the Tax Ordinance Act of August 29, 1997 (Journal of Laws of 2005, 8, item 60, as amended, hereinafter referred to as the Tax Ordinance), the person submitting an application for an individual interpretation is obliged to comprehensively present the actual state of affairs or a future event and to present their own position on the legal assessment of this factual state or a future event. Pursuant to § 4 of this article, the applicant for an individual interpretation submits a declaration under the pain of criminal liability for false statements that the elements of the facts covered by the request for interpretation on the day of submitting the application are not the subject of pending tax proceedings, tax inspection, inspection proceedings of the tax inspection authority. and that in this respect the matter has not been resolved as to its essence in a decision or order of the tax authority or the tax inspection authority. In the event of a false declaration, the issued individual ruling does not have legal effects. The Company points out that the above provision does not mention individual interpretations among administrative acts. The Tax Ordinance, however, contains a legal definition of an individual interpretation (Article 14b § 1 of the Tax Ordinance).

The confirmation of the above thesis is also the content of Art. 14b § 5 of the Tax Ordinance, according to which no individual interpretation is issued with regard to those elements of the facts which, on the day of submitting the application for interpretation, are subject to pending tax proceedings, tax inspection, inspection proceedings of the tax inspection authority or when in this respect the case was resolved as to its essence in a decision or order of the tax authority or fiscal control authority.

The individual interpretation is neither a decision nor an order of the tax authority. Therefore, in the opinion of the Company, there are no formal obstacles to submitting another application for an individual interpretation - with the indication in its content that the indicated facts were already subject to individual interpretation. In view of the above arguments, the Company submits another application for an individual interpretation, at the same time applying for recognition of its position on the matter.

The following question was therefore asked:

Does the Company have the right to deduct the input tax included in the invoice issued by the taxpayer of value added tax, which is not formally registered for VAT purposes - if the invoice documents actually performed activities ...

The company is of the opinion that it is entitled to add input tax resulting from invoices documenting activities actually performed - received from an unregistered taxpayer of value added tax.

Pursuant to the provisions of Art. 88 sec. 3a point 1 lit. and the Act of March 11, 2004, in the event that the sale of goods or services has been documented with invoices or corrective invoices issued by an entity that does not exist or is not authorized to issue invoices or corrective invoices, these invoices do not constitute grounds for reducing the tax due and refunding the tax difference or input tax refund. It should be noted that the regulation of Art. 88 sec. 3a point 1 lit. a of the Act of March 11, 2004 is clearly contrary to the provisions of Directive 112. Pursuant to the provisions of Art. 168 of this Directive, if the goods and services are used for the purposes of taxable transactions of the taxpayer, the taxpayer is entitled to deduct the tax in the Member State in which it carries out these transactions. The Directive does not make this right conditional on registration.

The discussed restriction of the right to deduct input tax resulting from a defective invoice (issued by an unregistered entity), in the opinion of the Company, constitutes a breach of the principle of neutrality of value added tax. In Rompelmann and E.A. Rompelman-Van Deelen v. Minister Van Financien, the ECJ stated that the common system of value added tax is intended to ensure the complete neutrality of the taxpayer of that tax. However, Community law does not make the right to deduct input tax dependent on the fulfillment of formal requirements for registration by the taxpayer. Therefore, this requirement cannot be extended to the issuer of the invoice as long as it meets the conditions to be considered a taxpayer (despite the lack of registration). In the jurisprudence of the ECJ, it is emphasized that in Community law the concept of a taxpayer is an objective category, which means that the status of a taxpayer is influenced by the pursuit of economic activity within the meaning of Art. 9 of Directive 112, and not the fact of formal registration (which is of secondary importance and does not in itself create the status of a taxpayer).

In its judgment of 21 March 2000 in joined cases C-110/98 to C-147/98 Gabalfrisa and Others v Agencia Estatal de Administracion Tributaria, the ECJ stressed that, as the Commission rightly pointed out, Art. 22 of the VI Directive imposes on taxpayers only the obligation to inform when their activity begins, changes or ends, and in no way authorizes the Member States, in the event that such a declaration has not been submitted, to defer the exercise of the right to deduct until real time. commencement of the regular execution of taxable transactions or to prevent the taxpayer from exercising such a right. Moreover, it should be noted that measures that Member States may adopt under Art. 22 of the VI Directive, in order to ensure the correct imposition and collection of tax and to prevent infringements, may not go beyond the scale necessary to achieve such objectives. Therefore, they cannot be used in such a way that they would result in systematic undermining of the right to deduct VAT, which is a fundamental principle of the Community VAT system established by Community legislation. In the judgment in case C 400/98 Finanzamt Gosiar v Brigitte Breitsohi, the ECJ stated that the right to deduct VAT paid on previous investment expenditure does not therefore depend in any way on the formal recognition of the taxable person's status by the tax authority. The only effect of such recognition is that, once recognized, this status cannot, except in cases of crimes or abuses, be withdrawn from the taxpayer with retroactive effect, without violating the principles of protection of legitimate expectations and certainty of legal transactions.

In its judgment of 6 July 1995 in case C-62/93 BP Soupergaz Anonimom Etairia Geniki Emporiki-Viomichaniki Kai Antiprossopeion v. The Greek State, the ECJ stated that the provisions of Art. 11 (A) and B and define the rules for determining the tax base, while art. 17 I define the conditions for obtaining the right to deduct and the scope of this right. They do not leave the Member States any discretion and implementation. Consequently, they fulfill the above criteria and, therefore, confer on persons rights which they can rely on before the national court to challenge national rules that are incompatible with those provisions.

The view that registration for VAT purposes is of secondary importance in relation to the objective status of the taxpayer is also presented by the majority of Polish administrative courts. In the judgment of December 21, 2006, the Supreme Administrative Court ruled that the status of the taxpayer under the Act of March 11, 2004 is an objective category and is independent of registration (I FSK 378/06, this was also ruled by, among others, the Provincial Administrative Court in Wrocław of July 26, 2006, reference number I SA / Wr 1452/05). On the other hand, in the judgment of 5 September 2007, the Provincial Administrative Court in Szczecin stated that, since under EU law the concept of a taxpayer is an objective category, being a VAT taxpayer is independent of the fact of being registered as an active VAT taxpayer. Therefore, the exclusion of the taxpayer's right to deduct input VAT on an invoice issued by an unregistered entity is contrary to Community law. Consequently, the Court refused to apply the provisions of the national law containing this exemption (I SA / Sz 674/06, such a position was also presented by the Provincial Administrative Court in Szczecin in the judgment of 6 June 2008, ref. I SA / Sz 94/08).

In the judgment of March 20, 2007, the Provincial Administrative Court in Wrocław stated that the provisions of the VI Directive do not provide for registration in domestic transactions at all, using art. 22 with the notion of the obligation to notify the commencement, suspension of change or cessation of activity as a taxpayer. However, it is not possible to infer from this provision that failure to comply with the above-mentioned the obligation results in the loss of the taxpayer's status, which is related to the limitation of the right to deduct the tax or the lack of grounds for its payment in the event of taking the actions referred to in art. 2 under the conditions described in Art. 4 of the VI Directive. In the light of these regulations, the principle adopted by the Community law is the taxation of activities performed by a taxpayer acting in such a capacity, regardless of whether he has complied with the requirement to notify the commencement of activity to the competent authorities. At the same time, the case law of the ECJ has clarified that the concept of a taxpayer acting in this capacity should be understood as an entity carrying out transactions as part of its taxable activity (judgment of 4 October 1995 in case C-291/92 between Finanzamt Űlzen and Dieter Armbrecht). At the same time, as the Tribunal also emphasized in its rulings, for the assessment of whether a given transaction was carried out in the course of economic activity carried out by a taxpayer, it is irrelevant whether tax was actually paid on it, it is important whether it can be defined as due of a given activity, whether the tax authority is entitled to demand its payment. The issue of whether the VAT due on earlier or later sales transactions of the given goods has been paid to the state budget does not affect the right to deduct it (judgment of the ECJ of 12.01.2006 in joined cases C-354/03, C-355/03 and C-484/03: Optigen Ltd (C-354/03), Fulcrum Electronics Ltd (C-355/03), Bond Haus Systems Ltd (C-484/03) v. Comissioners of Customs Excise). (...)

Thus, it should be considered that, in the light of the above comments, the restriction of the right to deduct input tax contained in an invoice issued by an unregistered entity is not justified in the provisions of Community law, and if so, it is justified to refuse to apply a provision of national law containing such a restriction, i.e. Art. 88 sec. 3a point 1 lit. a of the Value Added Tax Act. To sum up, the tax authorities violated the law in this case by claiming that the complainant was not entitled to deduct the input tax included in the invoices issued by contractors not registered as VAT taxpayers for the mere fact of the lack of such registration (reference number I SA / Wr 1625/06).

The position indicating that the failure to comply with the registration obligations by the provider of the given services does not deprive the buyer of the services of the right to deduct input tax resulting from invoices issued by this entity was also presented, inter alia, by Provincial Administrative Court in Warsaw in its judgment of October 21, 2007.sign. III SA / Wa 1098/08. In addition, it is worth noting that, apart from the presented judgments, the theses favorable for taxpayers in this regard were also presented, among others, by Provincial Administrative Court in Warsaw, in its judgment of June 20, 2008, file ref. III SA / Wa 361/08, Provincial Administrative Court in Bydgoszcz in the judgment of October 8, 2008, file ref. I SA / Bd 369/08).

The company points out that there are many judgments indicating the right to deduct input tax resulting from invoices issued by an unregistered entity, which clearly indicates an established line of jurisprudence in this regard. It should be emphasized that this position is also presented by the tax authorities. For example, in the interpretation of the tax law of August 22, 2007, the Director of the Tax Chamber in Wrocław indicated that in the light of Art. 168 of Directive 112, the taxpayer is entitled to deduct input tax from invoices documenting purchased services subject to taxation of goods and services - also if the issuer of the invoice has not complied with the formal obligations related to registration for the purposes of tax on goods and services (reference number PPII4431761 / 07 / ŁM).

It is worth pointing out that in the judgment of 6 July 2006 in the joined cases Axel Kittel and Recolta Recycling SPRL (C-439/04 and C-440/04), the European Court of Justice ruled against burdening with negative consequences the unaware participants of transactions aimed at circumventing the law. The ECJ found that even if the activity is found to be illegal, the taxpayer will not be able to deduct VAT from it only if he was aware that he was circumventing the law.

It should also be emphasized that in the present case the Company was not aware that the contractor was not registered for the purposes of value added tax. Agreements concluded with this entity included the contractor's tax identification number (NIP) and a declaration of both parties that they have the status of an active VAT taxpayer. In the present case, it is extremely important that the invoices issued by the Company's contractor documented the activities actually performed, which constitutes the fulfillment of the premise specified in Art. 168 of Directive 112.

Taking the above into account, in the opinion of the Company, it is entitled to deduct input tax resulting from invoices received from an unregistered contractor documenting the actually performed activities.

In the light of the applicable legal status, the applicant's position on the legal assessment of the presented facts is considered incorrect.

Pursuant to Art. 5 sec. 1 point 1 of the Act of March 11, 2004 on the tax on goods and services (Journal of Laws No. 54, item 535 as amended), subject to taxation with the tax on goods and services, are subject to the paid delivery of goods and the paid provision of services within the territory of the country .

According to Art. 86 sec. 1 of the quoted act, to the extent that the goods and services are used to perform taxable activities, the taxpayer referred to in art. 15, has the right to reduce the amount of tax payable by the amount of the input tax, subject to article 22. 114, art. 119 paragraph. 4, art. 120 paragraph 17 and 19 and article. 124. However, in accordance with the provisions of Art. 86 sec. 2 of the quoted act, the amount of input tax is the sum of the tax amounts specified in the invoices received by the taxpayer, among others for the purchase of goods and services.

Pursuant to the provisions of Art. 88 sec. 3a point 1 lit. a) the quotation of the Act, do not constitute the basis for the reduction of the tax due and the return of the tax difference or the return of the input tax invoices and customs documents in the event that the sale has been documented with invoices or corrective invoices issued by an entity that does not exist or is not authorized to issue invoices or corrective invoices.

Pursuant to the provisions of Art. 106 sec. 1 of the quoted act, the taxpayers referred to in art. 15, are required to issue an invoice stating, in particular, the sale, date of sale, unit price without tax, tax base, tax rate and amount, the amount of the duty and the data of the taxpayer and the buyer, subject to paragraph 2. 2, 4 and 5 and article. 119 paragraph. 10 and art. 120 paragraph 16. Detailed rules for issuing invoices, the data they should contain and the manner and period of their storage are specified in Chapter 4 of the Regulation of the Minister of Finance of May 25, 2005. on tax refund to certain taxpayers, advance tax refund, issuing invoices, their storage and the list of goods and services to which VAT exemptions do not apply (Journal of Laws No. 95, item 798, as amended) ). Here, reference should be made to the disposition of § 8 sec. 1 of the quotation of the regulation, according to which registered taxpayers as active VAT payers, with a tax identification number, issue invoices marked with the words VAT INVOICE.

The provisions on tax on goods and services do not explicitly specify who is authorized to issue invoices. Indication, in the above-mentioned Art. 106 sec. 1 of the quoted act, the entities obliged to issue VAT invoices, the legislator used the term entities referred to in Art. 15, while in the secondary legislation, in the quoted § 8 para. 1 of the regulation refers to active VAT taxpayers.

Pursuant to Art. 15 sec. 1 of the Act, taxpayers are legal persons, organizational units without legal personality and natural persons who independently carry out economic activity referred to in para. 2, regardless of the purpose or result of such activity. In the light of the above-mentioned Art. 15 sec. 1, the status of a given entity as a taxpayer of value added tax is independent of the registration for the purposes of this tax. It should be emphasized, however, that pursuant to Art. 96 sec. 1 of the Act, on the entities referred to in Art. 15, the obligation to submit a registration application to the head of the tax office, prior to the date of the first action referred to in Art. 5. Only tax-exempt entities that may submit the declaration in question, but are not required to do so, have been excluded from this obligation. At the same time, in art. 96 sec. 4 of the Act, a clear division of VAT payers into active VAT payers and VAT exempt payers was made, which is reflected in the different shaping of the rights and obligations of these two groups of taxpayers. The first of these groups was indicated in the above-mentioned in the regulation as authorized (and obliged) to issue VAT invoices.

Therefore, due to the above-mentioned provisions of the Act on tax on goods and services and executive regulations, it should be stated that in order to effectively implement the right referred to in Art. 86 sec. 1 of the Act, the taxpayer who derived such a right should document it with VAT invoices that meet the formal requirements specified in the regulation of the Minister of Finance. The above-mentioned provisions indicate that the entities authorized to issue VAT invoices are exclusively registered for VAT purposes, taxpayers of this tax.

Due to the above-mentioned provisions of the Value Added Tax Act and executive regulations, it should be emphasized once again that in the case of a transaction, including a transaction consisting in the provision of services, carried out by a seller who is not a registered taxpayer, one cannot talk about:

issuing an invoice by an authorized entity and the fact that the buyer has, in connection with the issuance of a document by an unauthorized entity, a VAT invoice entitling to deduct input tax. Document an invoice issued by an unauthorized entity, i.e. by an entity other than that indicated in art. 15 sec. 1 of the Act, who submitted the registration application referred to in Art. 96 sec. 1 of the Act is not a VAT invoice within the meaning of Art. 106 sec. 1 of the Act, and therefore input tax therein cannot be treated as input tax referred to in Art. 86 sec. 2 of the Act, which would be deductible from the output tax, in accordance with Art. 86 (1) of the Act.

It should also be emphasized that the provisions of domestic law do not provide for exceptions to their application in a situation where the taxpayer was not aware that the contractor was not entitled to issue a VAT invoice. Therefore, the legislator made it possible to verify contractors, deciding in Art. 96 sec. 13 of the quoted act that, at the request of the person concerned, the head of the tax office is obliged to confirm whether the taxpayer is registered as an active or exempt VAT payer. Both the taxpayer and a third party with a legal interest in submitting the application may be interested.

The description of the facts shows that the applicant submitted the above-mentioned application to the Head of the Tax Office after repeated attempts to obtain a NIP-5 certificate from the contractor instead of NIP-4. In response to the request, the Head informed the Party that the contractor was not an active VAT payer.

To sum up, from the provision of Art. 96 sec. 13 of the Act shows that, at the request of the person concerned, the head of the tax office is obliged to confirm whether the taxpayer is registered as an active or exempt VAT payer. None of the provisions of the Value Added Tax Act specifies the time limit within which the interested party may submit such an application. According to the local authority, the Company could submit such a request before starting cooperation with a new contractor (which it did not use) in order to secure its own interests.

The applicant, expressing its position on the inquiry presented in this application, referred to Art. 168 of Council Directive 2006/112 / EC.

Pursuant to the instruction of the indicated Art. 168 of Council Directive 2006/112 / EC of 28 November 2006. on the common system of value added tax (Journal of Laws EU L of 11 December 2006, No. 347/1 as amended) if goods and services are used for the purposes of taxable transactions of the taxpayer, the taxpayer is entitled in a Member State, in which he makes these transactions, to deduct the following amounts from the amount of VAT he is obliged to pay:

VAT due or paid in that Member State on goods and services supplied to him or to be supplied to him by another taxable person;

VAT due on transactions recognized as supplies of goods and provision of services in accordance with Art. 18 lit. a) and art. 27;
VAT due on intra-Community acquisitions of goods in accordance with art. 2 clause 1 lit. b) point (i);
VAT due on transactions considered as intra-Community acquisitions of goods in accordance with art. 21 and 22;
VAT due or paid in respect of the importation of goods into the territory of that Member State.

It should be emphasized that the regulations cited in the justification for the above interpretation, contained in the Act on tax on goods and services and its implementing regulation, correspond to the principle regulating the right to deduct expressed in Art. 178 lit. a) and b) above Directive 2006/112 / EC, which provides that the taxpayer in order to make the deduction referred to in art. 168 lit. a) and b), must have an invoice drawn up in accordance with Art. 220-236 and art. 238, 239 and 240 and comply with the formal requirements laid down by each Member State. Article 226 clearly indicates which elements should be included in the invoice, i.e. VAT identification number under which the taxable person has delivered the goods, the delivery or the services. Due to the above, in the case of a transaction carried out by a seller who is not a registered taxpayer, it cannot be said that an invoice has been issued by an authorized entity and that the buyer has an invoice entitling to deduct input tax. In the case of such a transaction, the taxpayer (buyer) will have a document that does not contain the data provided for in the provisions of Community law.

To sum up, it should be stated that if the Company received invoices issued by an entity which is not a registered VAT taxpayer and does not have the status of an active VAT taxpayer, it is not entitled to reduce the output tax by input tax resulting from the invoices in question, as indicated by the provisions of Art. . 86 sec. 1 and sec. 2 and art. 88 sec. 3a (1) (a) in connection with Art. 15 sec. 1 and art. 96 and art. 106 sec. 1 of the act on tax on goods and services.

The interpretation concerns the factual state presented by the applicant and the legal state in force on the date of the event in the presented state of affairs, i.e. the legal state in force until November 30, 2008.

The party has the right to lodge a complaint against this interpretation of tax law due to its inconsistency with the law. The complaint is to be lodged with the Provincial Administrative Court in Warsaw, ul. Jasna 2/4, 00-013 Warsaw, after a prior written request from the authority which issued the interpretation within 14 days from the date on which the complainant learned or could learn about its issuance until the violation of the law was remedied (Article 52 § 3 of the Act on on August 30, 2002, Law on proceedings before administrative courts, Journal of Laws No. 153, item 1270, as amended). A complaint to the Provincial Administrative Court shall be lodged (in two copies of Art. 47 of the above-mentioned Act) within thirty days from the date of delivery of the authority's response to the summons to remedy the infringement of law, and if the authority did not respond to the summons, within sixty days from the date of filing the summons. (art. 53 § 2 of the above-mentioned act). The complaint is lodged through the body whose action or inaction is the subject of the complaint (Article 54 § 1 of the above-mentioned Act) to the following address: Tax Chamber in Warsaw, National Tax Information Office in Płock, ul. 1 Maja 10, 09-402 Płock.