Lidia Adamek-Baczyńska, Radosław Szajerski
Rzeczpospolita
Creditors have problems recovering output tax under unpaid invoices after the 2-year statutory period. But there are exceptions. CJEU is behind all that.
The Court of Justice of the European Union (CJEU) ruled on 15 October 2020 in case C-335/19 that a taxable person (creditor) may use the bad debt relief, i.e. adjust output tax following non-payment of its invoice, also when some of the conditions under the Polish VAT Act were not satisfied. That is because the Polish law is inconsistent with the VAT Directive. Based on the CJEU decision, such adjustment is available whether or not, on the date of the supply and on the date preceding the filing of the VAT return, the debtor was registered as a non-exempt taxable person or was in course of insolvency proceedings (including restructuring proceedings, such as corporate recovery) or winding-up. The relief would be available even if the taxable person (creditor) itself did not continue to be registered as such on the date preceding the filing of the VAT return.
Those who did not use the relief because of the law
However, the CJEU ruling gave rise to uncertainty whether the law limiting the availability of bad debt relief to two years is applicable also where a person could not use the relief because the pre-judgment Polish regulations did not allow him to. Specifically, he was prevented because he did not satisfy certain Polish VAT Act conditions which were later held incompatible with the VAT Directive.
The tax authorities do not take the side of taxable persons on that, claiming that the CJEU case was not about the expiry of the two-year time limit for adjustment. Administrative courts take the opposite view. According to their case law, if the relief could not be used (was statutorily barred) within two years from the end of the year of invoice issuance due to erroneous VAT Directive implementation questioned by CJEU in case C-335/19, then the period should be omitted. This is what was held in various cases decided finally by Provincial Administrative Courts (PAC), including case III SA/Wa 535/21 (PAC Warsaw, judgment of 16 December 2021 r), case I SA/Rz 55/22 (PAC Rzeszów, judgment of 8 March 2022), case I SA/Bk 32/22 (PAC Białystok, judgment of 18 March 2022), and case I SA/Gl 1666/21 (PAC Gliwice, judgment of 13 April 2022).
But courts do not take a consistent view. In some cases they hold that Article 89a(2)(5) of the VAT Act should be partially omitted, considering that the time limit therein provided is binding but should be counted from 7 December 2020 when the CJEU’s judgment in case C-335/19 was published. This case law includes, for example, case no. I SA/Kr 1268/21 (PAC Kraków, judgment of 15 December 2021, final) and case III SA/Wa 87/22 (PAC Warsaw, judgment of 6 September 2022, non-final).
Important note!
Currently the preponderance of opinion among courts is that the 2-year time limit should be omitted entirely. On the other hand, given the other view present in case law, the deadline for filing the VAT adjustment to use bad debt relief in connection with the CJEU case should be considered to have fallen on 7 December 2022.
Could but didn’t
What if a person could use the relief for only a part of the two-year period but for whatever reason did not use it?
There is at the moment no established case law for this. But it is appropriate to conclude that the person should choose himself at what point during the two-year period he wishes to use his right. This period is provided for his benefit and should not be reduced in any way, especially as it is impossible to draw a clear borderline.
Therefore, the full two-year period should be available to taxable persons to use their bad debt relief. Where the right could be exercised for only part of that time due to an erroneous implementation of the VAT Directive, Article 89a(2)(5) of the VAT Act will not apply (case I SA/Po 857/21, PAC Poznań, judgment of 22 February 2022, non-final; case I SA/Łd 408/22, PAC Łódź, judgment of 27 September 2022, final).