21/02/18
The case concerned denial of input VAT refund on acquisition of a shopping centre (structured as an asset deal on a piecemeal basis).
In the judgment of 20 February 2018 (III SA/Wa 1896/17) Provincial Administrative Court in Warsaw repealed the decision of the tax authorities denying input VAT recovery on real estate transaction. One of the aspects of the case was the protective power of the tax ruling in light of non-harm rule.
The case concerned acquisition of a shopping centre structured as an asset deal on a piecemeal basis. Classification of the object of transaction as sale of assets on a piecemeal basis and the recoverability of input VAT by the buyer was confirmed in advance with an individual ruling of the Polish tax authorities.
Post transaction, the tax authorities denied input VAT refund, claiming that the transaction should be classified as an acquisition of a going concern and - as such – should not be subject to VAT. Moreover, the tax authorities claimed that non-harm rule, which stems from Polish Tax Ordinance protects the taxpayer who act in accordance with obtained tax ruling only against payment of tax (including penalty interest), and penal liability, but does not secure the right to input VAT recovery. PwC team assisted in appealing against the decision.
The court in today’s verdict did not share the view of tax authorities. The court reasoned that the non-harm rule contained in Polish tax law should be interpreted broadly. Acting by the taxpayer in accordance with obtained tax ruling should not trigger any negative consequences for the taxpayer including denial of right to input VAT recovery.
The court did not examine whether the transaction should be classified as an enterprise deal.
As a rule, under the Polish law court verdicts are binding on the parties subject to the proceedings and do not constitute precedents or source of law. Nonetheless, it should be expected that the above court verdict should positively affect further practice of the Polish tax authorities.
The verdict is particularly important since numerous proceedings regarding denial of input VAT and protective power of tax rulings are pending.
Further developments should be closely monitored, in particular whether the tax authorities appeal against the court verdict.