When the tax authority is delayed with the VAT refund ...

Karolina BARTKOWIAK
Tax Consultant at RSM Poland

The refund of tax on goods and services, and more specifically, returning the difference between input tax and output tax, is quite important for entrepreneurs, as it influences their decisions and business plans or sometimes even the financial liquidity of the company. It is a kind of paradox, as VAT should be a neutral tax for the entrepreneurs. It is not surprising that the majority of entrepreneurs want the VAT refund to be as quick as possible. The legislator, implementing (at least in my opinion) the principle of VAT neutrality, indicated in art. 87 par. 2 of the Act of 11 March 2004 on the tax on goods and services that in principle the refund of the tax difference shall be made within 60 days from the date of submitting the tax declaration by the taxpayer. However, the next sentence of the provision states that when the specified refund amount requires additional verification, the tax office may extend the above period until the process of verifying the declaration of the taxpayer, including inspection activities, tax audits or tax proceedings, has been completed.

Our experience shows that unfortunately the tax authorities quite willingly use this right and postpone the VAT refund, often causing financial problems of the company concerned. So how can one defend against unjustified delays in returning the tax difference? Answering this question is unfortunately not so simple, mainly due to the Act of 9 April 2015 amending the Law of the Administrative Courts Procedure (hereinafter: the Amending act). Following the entry into force of the above amendment, on 15 August 2015 the legislator changed the wording of art. 3 § 2 item 4 of the Law of the Administrative Courts Procedure (hereinafter: LACP) that determines which cases are heard by administrative courts.

Before 15 August 2015 a complaint to the administrative court could be submitted in relation to all acts and activities in public administration that applied to the rights or obligations under the law. The taxpayer could therefore appeal to the administrative court concerning a decision extending the period of repaying the VAT excess, issued in the course of a tax audit or tax proceedings.

However, when the Amending Act entered into force, the administrative courts lost their jurisdiction over decisions and activities undertaken within procedures set out in Chapters IV, V and VI of the Act of 29 August, 1997 Tax Ordinance (hereinafter referred to as TO), which means inspection activities, tax audits or tax proceedings. Therefore, currently the decisions adopted by tax authorities in the course of the inspection activities, tax audits or tax proceedings, including provisions regarding the extension of the period for repaying VAT excess are outside the jurisdiction of administrative courts. As a result, complaints submitted in relation to such decisions are subject to rejection, which was already clearly confirmed by recent rulings of administrative courts.[1]

What solutions are available to a tax payer in this situation? Tax authorities probably would advise to "wait patiently". It is said that patience is the companion of wisdom, but it is difficult to determine whether it applies also to business matters. For this reason, an alternative solution would be helpful in this stalemate.

From our point of view, in some cases it will be possible to submit a complaint under art. 3 § 2 item 9 of the LACP, i.e. a complaint on failure to act or on protracted proceedings, but there are some voices that the complaint shall not concern a failure to act or on protracted proceedings as such, but it shall concern a specified failure to act or protracted proceedings.[2]

Moreover, it has to be noted that tax proceedings shall be concluded with a substantive sentence, and the taxpayer opposing the administrative decision may indicate in its appeal the length of the proceedings and a breach of the rules of conduct by authorities, e.g. by referring to their obligation to proceed in a manner building trust to tax authorities and to observe the principle of objective truth.

Due to the current shape of the legislation, it is essential for the taxpayer to be aware of his rights and simultaneously the obligations of authorities at the stage of the inspection activities, tax audits or tax proceedings. This will enable the taxpayer to appropriately exercise legal instruments including accurate tax and legal arguments and carefully collected evidence. Any negligence at each of these stages (by tax authorities and the taxpayer) may impact the final outcome of the case and, consequently, have specific financial consequences for the taxpayer. Therefore, it is better to consciously participate in the proceedings and ensure proper records of evidence material. This would prevent any further disappointments.