Bad debt relief possible even after two years

The MDDP team was responsible for achieving an important ruling by the Supreme Administrative Court on the VAT bad debt relief.

The dispute concerned whether it was possible to take advantage of the VAT bad debt relief despite the expiry of the deadline provided for in the legislation, in a situation where the inability to take advantage of this relief in due time was due to the status of the debtors (with the CJEU stating in its judgment of 15.10.2020 that it was incompatible with EU law for the Polish legislator to make the right to adjust tax dependent on the status of the debtor).

Both the WSA and the NSA fully endorsed MDDP’s position and stated that in a situation where the use of the bad debt relief within the two-year deadline was impossible or significantly hindered by the Polish legislator’s incorrect implementation of the provisions of the VAT Directive, the deadline should be disregarded. The courts held that a creditor may correct the VAT taxable base after the expiry of the time limit indicated in the VAT Act if the inability to apply the bad debt relief was due to compliance with the provisions of the Polish Act deemed by the CJEU to be incompatible with EU law.

The case was groundbreaking and one of the first three judgments of the Supreme Administrative Court in this respect. The judgment is extremely favourable for taxpayers and significantly expands the possibility of applying the VAT bad debt relief.  The judgment was significant insofar as the court unequivocally emphasised that the Polish legislator must not take advantage of enacting regulations inconsistent with EU law, and that the interpretation of regulations must always strive to realise the main rights of taxpayers under the VAT system as broadly as possible.

The attorneys in the case were Bartosz Bogdanski and Jakub Warnielo.

Judgment of the Supreme Administrative Court ref. no. I FSK 1753/22