Retrospective deduction of the input tax

In the tax ruling dated September 21, 2021, ref. 0112-KDIL3.4012.216.2021.2.MBN, the Director of the National Tax Information System (hereinafter: “DNTIS”) confirmed the taxpayer’s position that it is entitled to deduct input VAT on the outlays made in connection with the construction of a residential and commercial building, and the mere fact that taxpayer did not submit a VAT-R registration form cannot deprive him of this right. However, DNTIS stated that the actual exercise of the right to deduct may only take place after the taxpayer obtains the status of a registered (active) VAT taxpayer.

The position of the DNTIS about the possibility of deduction the input tax for an earlier period is favorable. Moreover, it confirms, for example, the thesis of the Court of Justice of the European Union judgment (hereinafter: “CJEU”) in case C-400/98, in which the CJEU stated that the right to deduct input tax related to making an investment does not depend on prior registration for VAT purposes. The CJEU judgments in cases C-268/83 and C-110/94, where the CJEU indicated that the creation of the right to deduct does not depend on the formal recognition of the taxpayer’s status by the tax authorities, may also prove such a thesis. It is acquired automatically upon obtaining the status of a taxpayer, which it becomes at the time of the first investments related to future economic business activity.

In the case C-385/09 it follows that the right to deduct arises when the tax becomes due, and its creation is in no way dependent on the formal recognition of the taxpayer’s status by the tax authorities, but on the existence of the taxpayer intention, confirmed by objective evidence, to run a business within the meaning of VAT regulations.

In the interpretation, DNTIS indicated that the Polish VAT Act does not deprive a taxpayer the right to deduct VAT on purchases made before VAT registration, provided that the purchased goods and services will be used for the current (or future) taxable activity (and possibly meet other conditions specified in the provisions of the VAT Act). Nevertheless, the legislator, in order to implement this right, imposed on taxpayers the obligation to register as an active VAT taxpayer, and therefore the taxpayer acquires the right to deduct input tax at the time the tax obligation arises and to receive an invoice, but in order to exercise this right, he must have the status of an active VAT taxpayer at the time of exercising the right. The above means that at the time of submitting the VAT registration application, the taxpayer meets the formal condition and from that moment can exercise the right to deduct input tax.

And here there is a technical problem incomprehensible to the average taxpayer. Despite the confirmation of the right to deduct input tax arising before the date of VAT registration, in practice, there is a technical problem related to the registration of a taxpayer as an active VAT taxpayer itself. The experience shows that the taxpayer’s position entitling taxpayers to submit a registration application on the VAT-R form with retroactive effect, i.e. from the moment of actual acquisition of the VAT taxpayer status (i.e. commencement of economic activities), seems to be a two-step action, i.e.

  • first, the taxpayer should submit a VAT registration application VAT-R form with the current date, and then
  • submit an update of this VAT-R form in order to register backward, when it started actual business activities) in order to compulsorily settle the output tax as well as exercise the right to settle the input tax.

Therefore, although the right to reverse VAT registration exists, it cannot be done through a single VAT-R registration form for incomprehensible reasons. From a practical point of view, this is a cumbersome practice, and ultimately the result whether it is after the submission of the VAT-R registration declaration with a retrospective date (the actual commencement of business activities) or first submission of the VAT-R registration declaration with the current date and then its update with a retrospective date (the retrospective date of commencement of economic activities) for the purposes of registration as an active VAT taxpayer is identical.

If you have any questions about this or any other VAT issues, please contact our tax experts:

Anna Szafraniec
CEE VAT Compliance Director

Łukasz Woźniak
VAT Compliance Manager

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