The general VAT rule on the right to deduct comes down to the possibility for a taxpayer to reduce the amount of output tax by the amount of input tax when purchasing services or goods which are subsequently used to carry out taxable activities. It should be remembered that the right to deduct is time-limited, which means that the taxpayer can recognise the purchase „on an ongoing basis” or by making an adjustment to the VAT return.

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When is a taxpayer allowed to deduct VAT?

The basic model for exercising the right to deduct comes down to the fact that a taxpayer may make a deduction in the period in which a tax obligation arose in respect of the purchased goods or services. Under this provision, it is reasonable to ask whether a taxpayer can deduct VAT if they do not have an invoice.

Current Polish regulations related to local purchases require that the deduction (i) will take place in the period when the output VAT is accounted for, but (ii) not earlier than for the period in which the invoice documenting the sale was received, so the fulfilment of the material conditions alone is not sufficient to exercise the right to deduct. Thus, in Polish practice, the taxpayer is effectively required to have an invoice in order to increase the level of VAT deduction.

Furthermore, the legislature has also provided a large administrative convenience in connection with the exercise of this right to deduct for situations in which, for whatever reason (long internal approval path, late receipt of the invoice, time needed to clarify doubts about the possibility of VAT recognition), the deduction will not be made in the first possible period. If the taxpayer does not make the deduction in the first period, the deduction may be made „on an ongoing basis” in a VAT return for one of the next three settlement periods or, in the case of a taxpayer settling quarterly, in a tax return for one of the next two settlement periods – without the need to correct returns previously submitted.

Delayed invoice and the right to deduct?

However, the convenience provided by the Polish legislation is severely time-limited. This is due to the question of how to recognize a purchase invoice for VAT when the taxpayer receives it with a significant delay.

For example, the taxpayer purchases the goods in January 2025, and this is when the tax liability for this supply arises and the seller issues an invoice. In principle, the taxpayer can make the deduction in the return for January or in one of the three subsequent returns, i.e. for February, March and April 2025. However, the taxpayer receives an invoice from the vendor in May 2025.

The above example leads to two concerns.

  • how should VAT be deducted? Should the taxpayer recognise such a purchase „on an ongoing basis” or should they adjust his VAT return and recognise the purchase retrospectively?
  • If „on an ongoing basis” – what is the deadline for carrying out this activity? Could they recognise such a purchase in the accounting for the period in which they received the invoice (May 2025), or in that period and one of the following three periods (June, July, August 2025)?

At first sight, the answer seems clear. However, an in-depth analysis of the above questions leads to the conclusion that they are not meaningless, as they concern one of the key foundations of the VAT system – the right to deduct. It is also worth mentioning that the questions indicated above raise doubts among taxpayers, as evidenced by the enquiry sent to the Ministry of Finance in 2020, as well as the tax clarifications regarding the „Slim VAT” solution package issued by the Ministry of Finance or the interpretative activity of the tax authorities, for example, on this topic the individual interpretation ref. IPPP3/443-177/14-2/LK or the individual interpretation ref.  0112-KDIL1-2.4012.675.2018.1.JO.

Fortunately for taxpayers, in a recent individual interpretation ref. 0111-KDIB3-3.4012.418.2024.1.MPU, the Director of National Fiscal Information continues with a liberal position, which comes down to the fact that a taxpayer is entitled to deduct VAT in a settlement for the period in which three conditions are met:

  • tax liability has arisen in respect of the purchased goods and services,
  • there has been an actual acquisition of these goods and services,
  • the taxpayer is in possession of an invoice documenting the transaction.

Additional option to be reviewed by the CJEU

However, further doubts about the time limit for VAT deduction remain, as we can see in the preliminary question sent by the Supreme Administrative Court to the Court of Justice of the European Union.

The question of whether a taxable person has a right to deduct as early as the month in which the tax liability arises, even if they receives the invoice in a subsequent accounting period, but no later than the deadline for the party to submit the VAT return for the period in which the liability arose, will be decided at EU level.

For example, the taxpayer purchases the goods in January 2025, and this is when the tax liability for this supply arises and the seller issues an invoice. In principle, the taxpayer can make the deduction in the return for January or in one of the three subsequent returns, that is, for February, March and April 2025. The taxpayer receives an invoice from the vendor on 20 February 2025 (before filing the JPK_V7M for January 2025).

The CJEU – looking at the principle of VAT neutrality, in the absence of a risk of VAT abuse – will examine whether the taxpayer can deduct VAT in the above case as early as January 2025 or, instead, for February 2025 at the earliest.

Letter of the law or spirit of regulation?

Given the current approach of the tax authorities, which connect the time limit for VAT deduction with the circumstance of receipt of an invoice, the application of the most popular approach so far is certainly the least controversial. Consequently, the time limit for VAT deduction, in the practice of taxpayers (and in the expectation of the authorities), starts in the month in which the taxpayer receives the VAT invoice and, in the case of a taxpayer settling monthly, also covers the next three settlement periods.

Tax and accounting teams and tax solutions providers should take a closer look at this topic – the CJEU's judgment may lead to a change in approach regarding the start of the time limit for VAT deduction. While for current settlements, recognising an invoice in line with practice one month later (when the invoice is received) is not a significant financial burden, for quantitatively large transactions (e.g. purchase of real estate), earlier recognition can give a significant improvement in liquidity (better cashflow / lower finance costs).

If the CJEU were to accept the option to recognise invoices for the period of the transaction, as long as the invoice itself was received before the VAT reporting deadline, this would certainly reduce the stress on Polish e-invoing (KSeF) implementation that is already evident in discussions about KSeF implementation between related parties – sellers who invoice transactions on a monthly basis would be able to invoice in the first days of the following month with peace of mind without fear that the buyer would settle input VAT a month later as a result of this approach.

Although the principles of VAT deduction seem self-evident after so many years – on the basis of the above considerations, it is „always” reasonable to periodically update one's knowledge of current practice and possibilities in particular areas of VAT accounting.

In the case of non-standard transactions, it is worth undertaking a review of the correctness of VAT deduction and options to streamline transactions / financial efficiencies with advisors in order to minimise the risk of tax irregularities or increased costs. In addition, where a taxpayer has recurring transactions, we encourage periodic tax reviews to either (i) reassure the taxpayer of the correctness of the approach taken, or (ii) identify areas of process / settlement inefficiencies.

 

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