VAT paid in another EU country - can it be a cost?


In the interpretative line presented so far, the tax office took the position that VAT paid in another EU country is a tax-deductible cost for a Polish entrepreneur. This issue was understood completely differently in the light of the judgments of administrative courts. However, recently we can observe a change in the approach of the tax authorities in this matter. It is worth taking a closer look at the issue presented.

VAT paid in another country as a tax cost

First, let's present the most important tax regulations.

Pursuant to Art. 22 sec. 1 of the PIT Act, tax deductible costs are the costs incurred in order to achieve income or to maintain or secure the source of income, with the exception of the costs listed in art. 23.

However, pursuant to Art. 23 sec. 1 point 43 of the Act is not considered to be tax-deductible costs of the tax on goods and services, except that it is a tax-deductible cost:

  1. input tax:

  • if the taxpayer is exempt from tax on goods and services or purchased goods and services in order to produce or resell goods or provide services exempt from tax on goods and services,

  • in the part where, in accordance with the provisions on tax on goods and services, the taxpayer is not entitled to a reduction in the amount or refund of the difference in tax on goods and services - if the input tax on goods and services does not increase the value of a fixed asset or intangible and legal value,

  1. tax due:

  • in the case of import of services and intra-Community acquisition of goods, if it does not constitute input tax within the meaning of the provisions on tax on goods and services; However, the tax due in the part exceeding the amount of tax on the acquisition of these goods and services, which could constitute input tax within the meaning of the provisions on tax on goods and services, is not a tax deductible cost,

  • in the case of the transfer or consumption of goods or services by the taxpayer for the purposes of representation and advertising, calculated in accordance with separate regulations,

  • on the goods provided free of charge, calculated in accordance with separate regulations, if the only condition for their transfer is the prior purchase by the recipient of goods or services from the transferor in a specified quantity or value.

What is important, however, in the previous reasoning of the tax authorities, the dominant view was that the above-mentioned the provision applies only to Polish, and not to EU VAT.

An unambiguous statutory definition of the concept constituting the content of the legal norm contained in Art. 23 sec. 1 point 43 of the above-mentioned of the act precludes any other understanding.

The argumentation of the tax office was based on the assumption that the value added tax should be understood as the tax referred to in the Value Added Tax Act. The above means that the Act on Value Added Tax clearly distinguishes the concept of value added tax and the concept of tax on goods and services.

The wording "value added tax" is a definition of value added tax applicable only in Poland and not in other Member States. Thus, the value added tax in force in a Member State other than Poland cannot be equated with the tax on goods and services in force in our country.

This, in turn, means that the quoted Art. 23 sec. 1 point 43 of the PIT Act does not apply because the concepts of value added tax and value added tax are not identical. As a result, the VAT paid abroad is a tax deductible cost in the Polish tax settlement.

The position indicated above was confirmed by the Director of the National Tax Information in the interpretation of May 19, 2017 (No. 0113-KDIPT-1.4011.65.2017.1.MAP).

Until recently, tax authorities were of the opinion that VAT paid in another EU country is not the same as Polish VAT. Consequently, this type of expense incurred abroad should be tax-deductible.

A different position of the tax authorities regarding foreign VAT

This issue was dealt with completely differently by administrative courts, which recognized the identity of Polish and foreign VAT.

In the judgment of the Supreme Administrative Court of May 8, 2018 (II FSK 926/16), the court indicated that there is no reason why the terms "value added tax" and "value added tax" should not be treated as semantically equivalent.

This, in turn, means that there are no arguments to make the possibility of reducing the income due and taking advantage of the exclusion from tax deductible costs provided for by these provisions conditional on the distinction between the two above-mentioned provisions operating under the VAT Act. concepts. The fact that the terms in question are not literally identical cannot legitimately put the taxpayer in a worse position because he incurred the cost in the same tax essentially, but defined differently.

Administrative courts presented a different view from the tax authorities and emphasized that also foreign EU VAT should be neutral for the Polish taxpayer, and therefore it is unjustified to include it in tax deductible costs.

Adjusting the position of the tax office to the views of the jurisprudence

Although the regulations we are discussing have in no way been amended, a change has occurred in their reasoning on the part of the tax office itself.

The currently issued individual interpretations show that Art. 23 sec. 1 point 43 of the PIT Act is applicable both to the Polish tax on goods and services and to the EU value added tax.

Therefore, in the light of the currently adopted position, foreign expenditure is a net cost, not a gross amount. The value of EU VAT is not currently tax deductible.

EU tax paid in another country may be recovered by a Polish taxpayer under the VAT-REF procedure. It should be emphasized that such a foreign refund will also be tax-neutral when it comes to income tax. Remember that if the taxpayer does not exercise the right to recover foreign VAT, it does not mean that it can include its value in tax deductible costs.

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In addition, it is worth emphasizing that the above-mentioned the rules apply to both personal and corporate income tax. Similarly, the VAT paid abroad will not constitute tax revenue either.

In the interpretation of the Director of KIS of October 23, 2020 (No. o due value added tax. In addition, it is not possible to recognize the value added tax paid in Germany as a tax deductible cost in accordance with the principles set out in Art. 23 sec. 1 point 43 of the Personal Income Tax Act.

This means that the taxpayer should not report the revenues and costs of obtaining them in the part of the value added tax settled in Germany.

The tax authorities have adapted their position to the content of court judgments and now assume that there is no distinction between Polish and EU VAT. This means that VAT paid in another EU country is not a deductible cost within the meaning of income tax.

When answering the question in the title of our article, it should be noted that we are currently observing the adjustment of the tax office's position to the judicial line of judgments. Such an action should be assessed positively, as taxpayers are not exposed to negative consequences related to divergent interpretations. The doctrine has long argued that there are no grounds to distinguish Polish VAT from EU value added tax.