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The Polish Supreme Administrative Court has issued a judgment that settles a dispute lasting several years regarding the application of the correct VAT rate to the sale of ready-made meals. According to the judgment, a take-away sale constitutes, for VAT purposes, a supply of goods - which until July 2020 was subject to a reduced, 5% VAT rate. Although the judgment concerned a taxpayer operating in the fast-food industry, the consequences of the judgment are much broader.
Background
The case concerned the determination of the VAT rate that should be applied to the sale of meals in simplified catering (fast-food) schemes. The dispute concerned whether these sales should be classified as "supply of prepared meals and dishes", taxed at 5% VAT rate, or as "supply of gastronomy / restaurant services", taxed at 8%.
Historically (until 2016), the application of a 5% VAT rate was a common market practice. This approach was widely accepted by tax authorities both in individual interpretations as well as in the course of ongoing tax audits.
However, this approach changed with the issuance of the general tax ruling of the Ministry of Finance on 24 June 2016, which indicated that such activities should be subject to the 8% VAT rate, regardless of whether a given sale should be treated as a supply of goods or services for VAT purposes. Following the issuance of the aforementioned general tax ruling, the authorities initiated proceedings en masse, which questioned the correctness of the taxpayers' settlements - including those settlements which had previously been accepted by the tax authorities (which occurred, inter alia, in the case to which the judgment in question relates).
The proceedings began to reach the administrative courts - but the judgments were divergent. As a result of this discrepancy, the Supreme Administrative Court referred legal questions to the Court of Justice of the EU.
The Court, in its judgment of 22 April 2021 in Case C-703/19 J.K. (in which PwC had the honour of representing the Taxpayer), indicated that if no restaurant facilities are made available to the final customer - or if the final customer decides not to use the "material and human resources made available by the taxable person to accompany the consumption of the food supplied", it should be considered that no ancillary service is associated with the supply of that food. Consequently, such a sale would be a supply of goods for VAT purposes.
Judgment of the Supreme Administrative Court
As a result of this judgment, on 30 July 2021 the Polish Court ruled on the application of the correct VAT rate for the sale of meals in simplified gastronomic schemes.
Most importantly, according to the announced oral reasoning of the judgment, takeaway sales which do not involve consumption on the premises should be treated for VAT purposes as a supply of goods, which - until the introduction of the so-called new VAT rate matrix (July 2020) - was taxed at the 5% rate. In the case of the taxpayer concerned by the judgment, this refers in particular to sales made in the drive-in / walk-through scheme.
At the same time, it was pointed out that sales accompanied by consumption on the premises should be treated as the provision of gastronomy / restaurant services, taxed at 8%.
Separately, the Court also referred to the so-called "principle of trust", which may be of significant importance for similar pending cases. This principle means, in simple terms, that a taxpayer acting in trust in the tax authorities, i.e. complying with the position known to him should not bear negative consequences of a possible change of this position. This principle was the basis for the overall challenge to the position of the authority (regardless of the substantive arguments).
Significance of the judgment
The judgment opens, first of all, chances for taxpayers to recover the tax collected by the tax authorities at the 8% rate as a result of tax audits initiated after the MF's general tax ruling starting from mid-2016. Moreover, it seems possible to recover overpaid VAT for taxpayers who applied the 8% tax rate to the sale of ready meals (until July 2020, i.e. the introduction of the so-called new VAT rate matrix). This applies in particular to taxpayers who sold takeaway meals, i.e. without the possibility to consume them on the premises (e.g. drive-in / walk through sales, sales at points where there was no infrastructure enabling consumption, i.e. tables and chairs, as well as sales with delivery).
However, it is important to analyse the factual circumstances of the sale - as well as the situation of the given entity. Although the direct applicability of the 5% VAT rate was confirmed for take-away sales where the consumer does not have the opportunity to use the facilities, the judgment recognises the complex historical background of the case - referring to the principle of trust mentioned earlier. This, in turn, may open up the possibility of tax refunds also in other sales schemes. This is why an individual assessment of the situation is so important.
It is worth noting that this judgment is already reflected in other, similar cases in which the Administrative Courts refer to its theses.
This is undoubtedly a breakthrough judgment - one that benefits not only for the McDonald's franchise, but also for the entire food service industry, which was affected by the pandemic hard.
The judgment brings good news - it ends a dispute with the tax authorities which lasted for years and opens the possibility of returning the overpaid tax. We find it important that the ruling refers to the principle of trust - as the correctness of application of the reduced, 5% VAT rate was historically confirmed by tax authorities - not only with respect to McDonald's but also with respect to dozens of other entities.
Therefore I hope that the issued ruling bodes well for the industry.
Aneta Jutrzenka, McDonald’s Poland
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