Deduction of VAT on purchases prior to VAT-R registration

The basic right of a taxpayer in settling tax on goods and services is the deduction of input VAT on the received purchase invoices. Doubts often arise as to how to proceed in a situation where the formal registration, i.e. submission of the VAT-R form to the tax office, has not yet taken place.

Deduction of VAT on purchases before registration - opinion of tax authorities

Very often, the taxpayer makes purchases when starting a business, but before submitting the VAT-R form to the tax office, which gives him the status of an active VAT taxpayer.

For a long time, tax offices held the position that the taxpayer was not entitled to deduct input VAT before registration.It was only after numerous court decisions that the tax authorities changed their mind on this issue. At present, it is considered that a taxpayer is to have the status of an active VAT taxpayer from the moment of showing the deduction (i.e. submitting a VAT return).

The basic condition, however, is meeting the criteria set out in Art. 86 (1) of the Value Added Tax Act. The provision states that the taxpayer has the right to deduct VAT on purchases of goods and services used for business purposes. Therefore, although the taxpayer makes purchases before registering for VAT-R, it does not deprive him of the right to deduct VAT.

VAT deduction on pre-registration purchases in practice

For example: a taxpayer registered a business activity on May 1, 2016. During the period from May to September, he made purchases necessary to run the established company. He did not submit VAT-R to the tax office until October, when he actually started his business.

A question arises: in such a situation, is the taxpayer entitled to a VAT deduction from purchase invoices received in the period May-September 2016?

Yes, the taxpayer can reduce the tax due by the input tax resulting from purchase invoices. This approach to the problem was presented by the Director of the Tax Chamber in Łódź in an individual interpretation of December 8, 2011. (file reference number IPTPP2 / 443-509 / 11-4 / BM). In justifying the interpretation, he cited Art. 86 sec. 1 and sec. 2 lit. and the VAT Act. Pursuant to this provision, the amount of input VAT is the sum of the tax amounts shown on purchase invoices.

Art. 88 (4) of the VAT Act, which stipulates that the reduction of the amount or refund of the difference in output tax does not apply to taxpayers who are not registered as active VAT taxpayers. At the same time, the Chamber explains that it does not follow from the content of this provision that having the status of an active VAT taxpayer was necessary at the time of receiving a purchase invoice.

VAT deduction without submission of VAT-R

Another example may be the situation when the taxpayer started his business activity on November 1, 2016. This month, he purchased goods closely related to his business, and also made a sale. In December, he settled the tax on goods and services on the VAT-7 declaration, which he submitted to the tax office on December 27, 2016. In January 2017, the taxpayer was notified by the tax office that he had not submitted the VAT-R form.

The question arises: in such a situation, did the taxpayer not have the right to deduct VAT for November 2016?

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The answer is no. As in the previous example, Art. 86 sec. 1 of the VAT Act. In this situation, the taxpayer should submit the VAT-R form to the tax office, and indicate November 2016 as the accounting period.

To sum up, the VAT Act does not deprive the taxpayer of deducting VAT from purchase invoices received before registration. It is important that the purchases made are closely related to the established business activity.