Poland - Tax authorities cannot re-assess turnover of transactions between related parties for VAT purposes when tax group allocates rights to deduct input VAT among group members 

The decision also addresses whether the tax authorities’ right to re-asses the value of VAT-able turnover applies to contractors who are members of the tax group.

The case concerned a binding ruling request before the Ministry of Finance. The taxpayer intended to establish a tax group, with one group member to be an entity with a limited right to deduct input VAT. The taxpayer’s position was that because of the group’s creation, the tax authorities would not be authorized to re-assess the turnover between the group members for VAT purposes.

The Ministry of Finance disagreed with the taxpayer’s position and asserted that the provisions of Poland’s VAT law do not provide an exception from the re-assessment for tax groups. The case reflects that the rules applicable for corporate tax purposes are in conflict with the VAT rules. Whereas taxpayers belonging to a tax group were subject to corporate income tax at the group level (hence costs of intragroup transactions were not so relevant), the VAT rules and interpretation from the Ministry of Finance prevented the tax group from applying prices below market price for intragroup transactions. Instead, the tax authorities were re-assessing the turnover for VAT purposes on the basis of market prices.

The court decided in the taxpayer’s favor, finding that the applicable VAT regulation had not been properly implemented and that the Polish tax authorities were authorized only to re-assess VAT- able turnover when the tax group’s intention was to evade taxation.

Thus, the court’s decision may provide support for those taxpayers that are contemplating establishing a tax group that would include members with limited or no right to deduct input VAT.

To read a January 2012 report on the case, prepared by the KPMG member firm in Poland: Supreme Administrative Court holds tax authorities may not re-assess the turnover of members of a tax group for VAT purposes