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April 7, 2021
Polish Supreme Court confirms findings of CJEU Danske Bank case are applicable to VAT settlements of Polish branches
On 18 March 2021, the Polish Supreme Administrative Court (SAC) confirmed that the Court of Justice of the European Union (CJEU) Danske Bank case (C-812/19) should be applicable to Polish branches of companies with value-added tax (VAT) grouped entities in their countries.
The Polish court ruling addressed a Polish branch that provided services to its headquarters, a member of a United Kingdom VAT group. In the above-mentioned CJEU case (and following another CJEU ruling i. e., Skandia America, C-7/13), the CJEU confirmed that, in such cases, the branch and the headquarters should be considered as separate entities.
Following this principle, the SAC has stated that, despite the fact that a VAT group cannot be established under the Polish VAT rules, the branch and its foreign entity that is a part of a VAT group should be treated for VAT purposes as different taxpayers. As a result, the Polish branch should report an import of services for services provided by its headquarters (and an export of services if activities are also performed by the branch for the headquarters). As a result, the Polish branch should account for Polish VAT under the reverse charge mechanism for the services it receives.
The SAC ruling triggers the necessity to analyze previous and future approaches taken with respect to VAT settlements of Polish branches of VAT-grouped entities.
This ruling provides an opportunity for Polish branches to recover input VAT resulting from invoices documenting purchases in Poland which are used for the benefit of services provided to the respective headquarters. It should be noted that there is also a possibility to apply for a refund of those amounts for the past five years, together with interest.
However, this such ruling may trigger a risk for a branch receiving services from its headquarters that performs exempt services, as reporting an import of services will result in the necessity to report output VAT whereas input VAT will not be deducted (or will be deducted partially under the pro-rata). Thus, branches of companies that make VAT-exempt supplies should analyze whether any relevant corrections for past years should be made and what approach should be taken for future settlements.
For additional information with respect to this Alert, please contact the following:
EY Doradztwo Podatkowe Krupa sp. k., Warsaw