Patient reasoning

legal counsel Michał Ciecierski

For a taxpayer any contact with the tax authorities, even if such contact concerns simple actions, is a difficult experience. Nature of these relations used to be distrustful and connected with negative emotions. Therefore important is that taxpayer is represented by legal counsel, who recognize existing problems without emotions, prepare for the possible issues, agree with the taxpayer how to proceed and will contact with the authority.

In described case, our client (taxpayer) corrected the declaration in value added tax. The document indicated on amount of tax refund. The authority initiated the tax control and questioned the earlier (than the statute indicates) settlement of tax due. The authority pointed out in the protocol of inspection that tax liability concerning the construction services not arises at the end of the performance of services (on the general rules), but on the date of receiving the remuneration for services or its part and not later than 30th day since the fulfillment of services. In practice it resulted the that tax liability was shifted for a further tax period and that for this further period the tax arrears has arisen. Additionally, the authority questioned the effectiveness of correction of VAT invoice and indicated that the cooperator of our Client did not received the mail, thus could not be aware of the correction. The authority did not believed in the explanation of our Client.

During the tax inspection we presented wide reasoning in order to clear the doubts of tax authority. Concerning the first issue – premature settlement of tax due for construction services in value added tax, we pointed out that the Directive on the common system of value added tax does not provide the special moment of arising tax liability for these services and the polish statute on value added tax is contradictory to the Directive, which means that taxpayer is allowed to settle the tax on the general rules. Our reasoning was enhanced by the ruling of Court of Justice of the European Union in case between TNT Express Worldwide (Poland) sp. z o.o. against the Ministry of Finance, may 16, 2013, (C-169/12). Although this ruling concerned the transporting services, the problem was alike. The Court claimed that “article 66 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2008/117/EC of 16 December 2008, is to be interpreted as precluding national legislation which provides that, in respect of transport and shipping services, value added tax is to become chargeable on the date on which payment is received in full or in part, but no later than 30 days from the date on which those services are supplied, even where the invoice has been issued earlier and specifies a later deadline for payment”. Despite that the tax authority did not agree with our argumentation during the tax inspection, the above argumentation was convincing for the authority in the tax proceeding when the authority agreed with the taxpayer.

Regarding the issue of correction of invoice, essential were the main the proofs delivered by our Client. In the legal state in which the case took place, the reduction of tax due was allowed only if a taxpayer obtained the confirmation of receiving the correction invoice by the buyer. To explain was also whether the service covered by the invoice was in fact not performed and whether our Client was entitled to reduce tax in case in which the buyer did not received the correction of the invoice (did not pick the letter up from the post office). Helpful in explaining the case was the ruling of Court of Justice of The European Union in case between Ministry of Finance against Kraft Foods Polska S.A., January 26, 2012 (C-588/10). In this ruling the Court confirmed that: “The requirement that, in order to be entitled to reduce the taxable amount as set out in the initial invoice, the taxable person must be in possession of acknowledgment of receipt of a correcting invoice by the purchaser of the goods or services constitutes a condition for the purpose Article 90(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax. The principles of the neutrality of value added tax and proportionality do not, in principle, preclude such a requirement. However, where it is impossible or excessively difficult for the taxable person who is a supplier of goods or services to obtain such acknowledgment of receipt within a reasonable period of time, he cannot be denied the opportunity of establishing, by other means, before the national tax authorities of the Member State concerned, first, that he has taken all the steps necessary in the circumstances of the case to satisfy himself that the purchaser of the goods or services is in possession of the correcting invoice and is aware of it and, second, that the transaction in question was in fact carried out in accordance with the conditions set out in the correcting invoice.” Tax authority acknowledged the reasoning of the Court and agreed with our Client that the contractor did not have to receive the correcting invoice, but since the contractor did not picked up the letter, it was enough to send the scan of the invoice on the e-mail address indicated in National Court Register. Additionally, during the proceeding our Client found in the inbox of e-mail the information from the contractor, according to which the correcting invoice contained error – instead of the month “09” – September there was number “90”. With these proofs there was no doubt that contractor not only received the correcting invoice, but also was familiar with the correction.

Another aspect of the case was whether the service covered by the invoice was in fact not performed. Our Client explained that the service did not took place. The tax inspection in the contractor showed that there is no proof for performance of that service and for the payment. We also presented proof that the initially issued invoice shall not be issued (it has supposed to be pro forma invoice, the non-fiscal invoice) and that contractor was obliged to pay the advance according to the invoice (which never happened).

In the case, despite initial doubts of the tax authority of the first instance, simply because of our analysis of the case and presentation of adequate arguments and relevant proofs, the reasoning of our Client was acknowledged without the necessity of the conducting the proceeding before the tax authority of the second instance or the administrative court.