Heating up the dispute over VAT on illegal consumption of energy

Although it has been the accepted position in Poland for many years that illegal consumption  of energy or heat is not a VAT-taxable activity because the charges levied on illegal  consumers is of a compensatory nature, this position was recently overturned by the Supreme Administrative Court (NSA) in its judgment of 24 May 202 4, ref. I FSK 1154/19. This surprising position of the court may mean that energy companies are engaged in another wave of disputes over the qualification of the tax consequences of illegal consumption of energy.

According to the verbal justification of the NSA judgment, the reason of the change in the jurisprudential line is the CJEU judgment in case C-677/21 Fluvius Antwerpen, in which the CJEU held that the consumption of electricity without a contract with the energy company constitutes a supply of goods subject to VAT. Moreover, the NSA indicated, following the CJEU, that although the supply of heat, which was directly at issue in the case, is in such a situation unintentional and results from the unlawful act of a third party, it transfers the right to dispose of the goods (energy).

The new position of the Supreme Administrative Court means a state of uncertainty for energy companies pursuing claims for illegal consumption of fuels (e.g. gas) or energy (electricity, heat) in terms of VAT settlements. It is to be expected that doubts will reappear as to whether they should report VAT-taxable transactions in such situations. After all, in a situation of illegal consumption, energy is taken without the consent of the energy company, which should already speak in favour of the compensational  nature of the charges on this account.

Different kind of Illegal consumptions

Furthermore, the Energy Law distinguishes three forms of illegal consumptions of fuel or energy:

• consumption without a contract,
• ‘with total or partial avoidance of the metering and billing system’,
• ‘by tampering with this system with the effect of falsifying the measurements’.

It does not appear, therefore, that VAT is justified in each of these three situations, particularly as the last two cases involve concealing the actual amount of energy (fuel) taken. This may result in disputes with the tax authorities as to the qualification of the various cases of illegal consumption in the near future.

Interestingly, the NSA also referred to the fact that a year earlier it had considered the case of the same company in relation to the same interpretation and the same situation – the company had received two identical interpretations, one for the current events and the other for future events. Although in a previous judgment, the NSA, ruling in a different panel, agreed with the company (ref. I FSK 1089/19), this time the argumentation from the previous judgment was completely rejected. Such a situation does not guarantee taxpayers legal certainty or stable conditions for conducting business activity.

Will there be a general interpretation?

In such a situation, it seems that, in order to prevent the emergence of numerous disputes between taxpayers and tax authorities regarding the qualification for VAT purposes of illegal consumption, it may be helpful for the Minister of Finance to issue a general interpretation. However, it should contain a thorough analysis of the Energy Law regulations, as well as the CJEU judgment in case C-677/21 Fluvius Antwerpen by relating it to the realities of the Polish energy sector. On the other hand, if the MF’s position were to be different from the current practice, it would be reasonable, in order to ensure certainty of tax settlements, to indicate that the general interpretation will apply only to settlements after its publication.