The Supreme Administrative Court (“SAC”) has given an important verdict relating to prepayment invoices issued before the early date defined in the VAT Act. In its judgment of 18 December 2024 in case number I FSK 996/21, SAC dealt with the matter of recovery of VAT under fictitious invoices (in Polish practice called “empty invoices“) which has for years been generating split interpretations between tax authorities and courts. This time, after SAC has spoken again, we can hope for a uniform approach that will be more friendly to taxpayers.
The case originated in a private tax ruling where the tax authority held that the supplier issuing a prepayment invoice in advance of the actual prepayment a should treat it as being issued in contravention of the VAT Act and make an appropriate adjustment to its VAT records, if the prepayment is not made within 30 days (now 60 days) from the date of the invoice. A failure to make such adjustment will trigger the issuer’s liability to pay VAT on that invoice in accordance with Article 108(1) of the VAT Act (relating to fictitious invoices) while the customer will not be entitled to recover this VAT as its input tax.
Dealing with this case on petition for judicial review, both the lower court and ultimately the SAC ruled that a prepayment invoice issued before the statutory early date (60 days prior to receipt of prepayment) should not be considered a fictitious invoice as long as the prepayment has actually been made. The court highlighted that such a formal error does not result in loss of the right of deduction, provided that the prepayment is made (as a matter of condition under substantive law) before the right is exercised.
This is one of several SAC cases supporting this approach (see, for example, case I FSK 686/19, judgment of 21 June 2023, and case I FSK 229/20, judgment of 21 April 2023), providing taxpayers with strong arguments in disputes with tax authorities over the right to deduct VAT charged on prepayment invoices. However, while the SAC affirms this right, it does not validate the invoice itself, meaning taxpayers must still comply with invoice issuance requirements and deadlines under the VAT Act. Nonetheless, for all practical purposes, these rulings strengthen the case for defending VAT deductions on early prepayment invoices.
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