Consortium settlements and VAT

This article addresses the following matters:

• Who issues invoices on behalf of a consortium?
• How to account for consortium funding?
• How is the taxation of internal consortium member settlements regulated?

Tax settlements of consortia – especially those regarding VAT – are a challenging topic that raises many doubts among entities running joint R&D projects under this exact form of business activity. However, being familiar with the applicable rules is crucial not only to avoid irregularities but also to maximise the use of tax incentives and funding available in Poland. So what should taxpayers keep in mind when deciding to collaborate within a consortium, and what to make of the stance assumed by tax authorities regarding these entities' VAT settlements? Let's take a look at some specific examples.

Sample Consortium Agreement #1

A common practice in the course of research projects is to adopt the formula of a consortium of several entities, with one of them acting as a leader integrating the results of the work of the other entities.

Let’s consider a hypothetical situation in which three entities: Company A, a sole proprietor (i.e. a renowned professor with PhD in radio wave physics, operating under this form of business), and Company B enter into a consortium agreement. Their joint venture, for the benefit of the defence industry, is to develop a communication module for UAVs with increased resistance to interference.

The composition of the consortium along with the tasks and contributions of each entity, is as follows:

• Company A (consortium leader) – conducts industrial research, provides a control team and is responsible for technology integration.
• Professor (consortium member) – conducts industrial research, develops the technology and contributes their know-how.
• Company B (consortium member) – undertakes software development work.

The R&D work will be carried out over a period of two years, and the expected result is a communication module ready for use in UAVs, combining various shortwave bands, and including a controller, propagator, IFF transponder and the necessary on-board software.

Within such a consortium, its individual members do not provide services to one other. Instead, they independently perform activities in the agreed areas to achieve a common goal. All consortium members will jointly own the rights to the developed technology.

Let's now assume that this consortium obtains public funding for research from a granting authority. Under the funding agreement, the subsidy will cover up to 40% of the eligible costs included in the research project schedule. How should this be settled for tax purposes?

Consortium settlements and VAT

Using the example given above, we can discuss various VAT implications and internal settlements within the consortium.

Pursuant to Article 15(1) of the Polish Value Added Tax Act, taxpayers are natural persons, legal persons, and organisational units without legal personality that independently conduct business activities, regardless of the purpose or outcome of such activities. The relevant definition of business activity for VAT purposes is provided in Article 15(2). 

The aforementioned provision stipulates that it is the consortium member (or members), not the consortium as a whole that holds the taxpayer status. This means that if the consortium must issue an invoice for any funds obtained from the granting authority, the entity issuing the invoice will be the consortium member, not the consortium itself. It is, of course, possible for the consortium leader to issue an invoice on behalf of the entire consortium (i.e. also on behalf of the other consortium members), but this gives rise to specific tax consequences for internal settlements.

The issue of settlements between consortium members concerns both how they settle eligible costs with the consortium leader and how they account for taxes on the received funding. Moreover, the taxation of consortium members' internal settlements depends on the structure of the consortium. Settlements between consortium members regarding eligible costs incurred by them – to the extent that they relate to research assigned to other consortium members in the implementation agreement – are generally subject to VAT.

What happens if one member incurs costs that, according to the division of work, should have been incurred by another? In other words, how should taxes be settled if goods or services are effectively resold by one consortium member to another? Such internal settlement of the received funding requires a separate approach.

In the abovementioned situation, there are two scenarios for the consortium.

Scenario 1: the consortium agreement provides that the consortium leader represents the entire consortium in settlements with third parties. In this case, the consortium leader issues a debit note for the received funding. Therefore, the allocation of the funding among the members is not subject to VAT, provided that the funds cover eligible costs of the consortium members.

This position is consistent with the practice of tax authorities, expressed, among others, in the individual ruling issued by the Director of the National Revenue Information Centre, ref. 0113-KDIPT1-2.4012.618.2021.9.SM.

Scenario 2: (which is less likely in the context of the research work discussed), each consortium member settles accounts with third parties individually. These settlements are then reflected in the internal settlements between the consortium members. The receipt of funding by a consortium member is still not subject to VAT. However, in this case, the consortium member issues the debit note to the funding provider.

The settlements mentioned above occur on the sales side. It should be noted that consortium members will also face issues related to the deduction of input VAT on purchases of goods and services for research purposes. Purchases made by the consortium, in part financed by the granting authority, should be treated differently than purchases made with the consortium's own funds. The current prevailing approach of tax authorities is that the consortium member is then not entitled to deduct input VAT.

This stance is consistent with the practice of tax authorities expressed, among others, in the individual ruling of the Director of the National Revenue Information Centre, ref. 0112-KDIL1-2.4012.600.2022.9.MR. 

For this reason, the deduction of VAT charged on purchases financed by the granting authority should always be preceded by an expert analysis of the tax implications.

Sample Consortium Agreement #2

In another hypothetical situation, two entities – Company A and Company B – enter into a consortium agreement. Their joint venture involves developing a new plastic material intended for a wide range of products for uniformed services.

The composition of the consortium and the tasks and contributions of individual entities are as follows:

• Company A (consortium leader) – conducts industrial research and commercialises the results.
• Company B (consortium member) – conducts industrial research.

The aforementioned R&D works will be carried out by the consortium for a period of two years, and their expected result is a technology for producing a new material to be used in the production of soldiers’ personal equipment.

The consortium members are to independently carry out activities in agreed-upon fields to achieve a common goal. All consortium members will own the rights to the developed technology, and the consortium plans to find a buyer for the right to use the technology.

By selling the right to use the technology developed by the consortium to a specific buyer, Company A will be providing a service subject to VAT. When sharing the proceeds from the sale of the right, the consortium members should treat this internal settlement as a VAT-subject activity.

This approach reflects the currently prevailing stance of the Director of the National Revenue Information Centre (e.g. individual ruling of the Director of the National Revenue Information Centre, ref. 0114-KDIP4-1.4012.574.2025.3.RMA).

It should be emphasised, however, that in such situations, taxpayers are always advised to analyse the rules for settlements between consortium members established in the consortium agreement and relevant administrative court rulings, as there are also rulings that take the opposite view, finding no VAT on settlements between consortium members (ref. 0111-KDIB3-1.4012.831.2025.3.KO). For purchases of goods and services made by consortium members, the prevailing approach of tax authorities is currently that the consortium member is entitled to deduct input VAT.

This position was expressed, among others, in the aforementioned individual ruling of the Director of the National Revenue Information Centre, ref. 0111-KDIB3-1.4012.831.2025.3.KO.

R&D work within a consortium

When discussing consortium settlements, it is important to consider not only VAT but also possible income tax implications.

Costs of development work may be recognised as tax-deductible:

1. in the month in which they were incurred (or  – starting from that month – spread evenly over up to 12 months), or
2. once in the tax year in which the work was completed, or
3. through amortisation of intangible assets; this applies to situations where, after successful completion of research and development work, the consortium members recognise an asset, which is then settled over time (amortised) during the period of economic use by the consortium members. The minimum period for such amortisation following a positive result of R&D work is 12 months (and if the asset is used for a long time, the amortisation period may be extended accordingly).

R&D work may potentially entitle taxpayers to an income tax relief, even when the work is carried out within a consortium.

Pursuant to Article 18d(5) of the Polish Corporate Income Tax Act, eligible R&D costs may be recognised in the R&D relief if they have not been reimbursed to the taxpayer in any form. Referring to the example of R&D funding by a granting authority referred to earlier, the portion of eligible costs not covered by the funding may qualify for the relief, provided that the incurred costs fall within the catalogue of eligible costs specified in Article 18d of the Act.

In the case of consortia, engaging a tax advisor can often be essential to properly determine the VAT deduction on purchased goods and services. An expert in this field can also be of assistance if the taxpayer wishes to claim the R&D tax relief.

If you're planning to carry out settlements within a consortium, our team will be happy to advise you on how to properly determine the tax implications. Feel free to contact us!