The effects of the theft of goods in VAT - when is it necessary to correct the VAT?
The theft of goods may happen to a taxpayer despite all possible measures taken to prevent it. In business practice, the theft of goods is often caused by the fault of the taxpayer. The effects of the theft of goods in VAT depend on the manner of contributing to the loss.
What are shortages by definition?
The Act of March 11, 2004 on tax on goods and services (VAT) does not define culpable and non-culpable selection.
From individual interpretations and court decisions, it should be assumed that faults not attributable to fault are those that arose for reasons beyond the control of materially responsible persons or for natural reasons related to damage to goods during transport or poor storage conditions, over which the materially responsible person has no influence.
Non-fault shortages can be considered, inter alia, shortages resulting from random events, such as flood, flooding, fire or theft.
Deficiencies that arise as a result of failure to fulfill obligations by persons materially responsible for the property entrusted to them are treated as culpable deficiencies.
The same position is presented by the Director of the Tax Chamber in Katowice in the individual interpretation of September 24, 2012 (no. IBPP2 / 443-613 / 12 / WN).
Theft of goods - what do EU regulations say?
The VAT Act indicates activities subject to taxation, but the catalog of these activities does not include theft of goods. Let us remind you that the catalog of activities subject to taxation includes:
• paid delivery of goods or paid provision of services within the territory of the country,
• export of goods,
• import of goods into the territory of the country,
• intra-community acquisition of goods (WNT) for remuneration within the territory of the country,
• intra-community supply of goods (intra-community supply of goods).
The Director of the Tax Chamber in Katowice, in the individual interpretation of January 2, 2014 (IBPP2 / 443-929 / 13 / BW), stated that "it does not follow from (...) the provisions that the shortage of goods constitutes a supply of goods or a provision of services, therefore it is not subject to taxation with tax on goods and services. The finding of both culpable and non-culpable shortages does not result in any obligations related to the settlement of the VAT due”.
It should be noted that although EU regulations allow for the introduction by Member States of regulations on the correction of input tax in connection with the loss of goods, they have not been directly implemented into the legal order of the VAT Act. Art. 185 sec. 2 of Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax, provides that a correction is possible in the case of transactions that are wholly or partially unpaid and in the event of theft. The EU directive also indicates that the correction is not made, inter alia, in the case of duly documented or confirmed destruction, loss or theft of property.
The provisions of the VAT Act do not explicitly indicate the obligation to correct input tax in connection with the loss of goods as a result of theft.
The effects of the theft of goods in VAT - should the input tax be corrected?
The VAT taxpayer has the right to deduct the input tax on the purchase of goods and services, provided that the purchase is used for activities carried out by him subject to VAT. As a rule, the right to reduce the amount of tax due by the amount of input tax arises in the settlement for the period in which the tax obligation arose in relation to the goods and services purchased or imported by the taxpayer. This rule also applies to the payment of advances, down payments or installments.The deduction can be made not earlier than in the settlement for the period in which the taxpayer receives an invoice or a customs document.
The dominant view in jurisprudence is that when there are no faults, there is no need to correct the input tax (there is no loss of the right to deduct input tax).
The confirmation of the above position can be found, for example, in the judgment of the Provincial Administrative Court in Poznań of January 10, 2011 (file reference number I SA / Po 842/10), in which we read that "the loss, destruction or theft of goods are not generally considered as changing the right of deduction. Thus, if the lost, damaged or stolen goods were intended for a taxable activity and the input tax was deducted on their acquisition, no adjustment is required. Identified deficiencies of goods not attributable to the fault (e.g. as a result of damage or theft) will not result in the need to correct the input tax on the goods affected by the deficiencies if they are properly documented". Start a free 30-day trial period with no strings attached!
The same conclusion results from the judgment of the Court of Justice of the European Union of January 15, 1998 (C-37/95) between the Belgian State and Ghent Coal Terminal NV.
It is also reflected in the jurisprudence of tax authorities - the Director of the Tax Chamber in Katowice in the interpretation of December 9, 2011 (No. IBPP1 / 443-1370 / 11 / AL) emphasized that "in a situation where the purchase of a given goods by the Applicant is made with the intention of using the goods for activities subject to tax on goods and services, then despite the loss of the goods for reasons beyond his control, i.e. without fault, or as stated by the Tribunal "for reasons beyond the control of the taxpayer », his right to deduct in connection with the above-mentioned the acquisition is retained, and thus there are no grounds for making any adjustments to the tax deducted”.
Due to the fact that the taxpayer bears the burden of proof in terms of documenting the theft and demonstrating due caution regarding its prevention, it is generally recommended that each theft be reported to the appropriate Police unit, while the taxpayer should have documentation of such notification. In any case, shortages should be confirmed with appropriate inventory documentation.
Consequences in VAT of goods theft through the fault of an individual - what about tax correction?
In the event of culpable deficiencies, i.e. those caused by the taxpayer's fault, the taxpayer loses the right to deduct the input tax, which results in the need to correct this tax.
The Provincial Administrative Court in Rzeszów, in its judgment of January 19, 2012 (case ref. I SA / Rz 785/11), points to the need to correct input VAT in the event of a lack of due care by the VAT payer, stating that "the collected evidence indicates that the Company insufficiently ensured the proper functioning of the warehouse, in particular due to the lack of proper supervision and sufficient control mechanisms, resulting in shortages”.
It is worth paying attention to the judgment of the Provincial Administrative Court in Kielce of April 27, 2014 (I SA / Ke 48/14), from which it follows that "the above was a consequence of the applicant's finding that the applicant had failed to exercise due diligence in the conduct of its activities in order to protect the property against losses. This is evidenced by the circumstances of the shortage indicated by the Company itself, i.e. small staffing of the main warehouse employees, inattention of employees, piling up of documents, mistakes in warehouse transfers, collecting components and spare parts for repairs and repairs from the warehouse, despite the lack of sufficient staffing of warehouse employees on Saturdays , ordering parts by the Company's branches from the supplier with collection directly from the ordering party outside the warehouse circuit. Meanwhile, it was the responsibility of the taxpayer to secure the conditions for the management of goods and materials and to organize the circulation of documents in a way that allows for full control of orders and deliveries in order to minimize losses”.
Based on Article. 91 paragraph. 7d VAT "in the event of a change in the right to reduce output tax by input tax on goods and services, in particular commercial goods or raw materials and materials purchased with the intention of using them for activities for which there is a full right to reduce the output tax or for activities in relation to which are not entitled to reduce the output tax, and are not used in accordance with such intention until the date of this change, the input tax adjustment is made in the tax declaration submitted for the accounting periods in which this change occurred”. The billing period in which the change took place should be understood as the month in which the shortage was found, which is confirmed, inter alia, by judgment of the Provincial Administrative Court in Olsztyn of March 4, 2010 (I SA / Ol 15/10). In a situation where the inventory is carried out on December 31, December will be the correction month.
The correction with a minus sign should be included in the VAT-7 return in part D.3. in item 48 Correction of input tax on other acquisitions.
As we read in the judgment of the Provincial Administrative Court in Łódź of June 9, 2016 (I SA / Łd 252/16) "in a situation where, for reasons attributable to the taxpayer (e.g. in the event of culpable shortages), the purchased goods or materials are not used for taxable activities, the taxpayer's right to deduct is lost. In such a situation, the deducted amount of tax for the acquisition of goods (materials) that were ultimately not used for taxable activities should be adjusted, pursuant to art. 91 paragraph. 7d u.p.t.u.”.
The Director of the Tax Chamber in Katowice, in the individual ruling of December 20, 2012 (IBPP2 / 443-992 / 12 / ICz), indicated that the input tax adjustment is made in part D.3 in the item: Input tax correction on other purchases in the declaration VAT-7.