Provision of services abroad and deduction of input tax at home

Service-Tax

A taxpayer performing taxable activities is entitled to deduct input tax on expenses incurred in connection with the conducted business activity. This is one of the basic rules applicable to VAT. Due to the freedom of borders and the open market, Polish taxpayers may decide to provide services abroad. In this situation, the question arises whether in this case the taxpayer can also deduct the input tax on purchases made in Poland?

Right to a tax deduction

The fundamental principle in value added tax is the taxpayer's right to deduct the amount of input tax. According to the wording of Art. 86 sec.1 of the VAT Act, to the extent that goods and services are used to perform taxable activities, the taxpayer has the right to reduce the amount of tax due by the amount of input tax. On the other hand, the amount of input tax is the sum of the tax amounts specified in the invoices received by the taxpayer for the purchase of goods and services or from invoices confirming the sale.

It follows from the above provisions that the right to deduct is available if two basic conditions are met. First, the deduction may be made by the VAT payer. Secondly, there must be a link between the purchases of goods or services and the economic activity carried out.

According to Art. 86 sec. 10, 10c and 11 of the Act, the right to reduce the amount of tax due by the amount of input tax arises in the settlement for the period in which the tax obligation arose in relation to the goods and services acquired by the taxpayer. If the taxpayer has not reduced the amount of tax due on these dates, he may reduce the amount of tax due in the tax declaration for one of the next two tax periods.

Provision of services abroad and the right to deduct

The Act on tax on goods and services provides for situations where the place of performance of activities is outside the territory of the country. In such circumstances, the output tax must also be paid in a country other than Poland. Doubts arise when a taxpayer is obliged to settle the tax in another country, but purchases goods for business activity in Poland.

It should be noted that the taxpayer is entitled to deduct input tax not only in relation to purchases related to taxable activities, but also related to activities that are not taxed in Poland due to the place of their provision.

As it results from the wording of the regulations, the taxpayers are also entitled to deduct the tax when the imported or purchased goods and services are used to provide services outside the territory of the country, if these amounts could be deducted if these activities were performed in the territory of the country and the taxpayer has documents which shows the relationship between the tax deducted and these activities.

The basic condition is that the taxpayer conducts an analysis, the effect of which is to determine whether a given transaction, if it were made in Poland, gave the right to deduct VAT, because according to the general rule, the amount of input tax is deductible only to the extent that it is related to taxable activities. As indicated by the Director of the Tax Chamber in Bydgoszcz, in the individual interpretation no. ITPP2 / 443-1247 / 13 / AK, input tax may be deducted, which is related only to taxable transactions of the taxpayer, i.e. the consequence of which is the determination of the output tax.

Example 1.

The taxpayer provides transport services in Bulgaria. In Poland, he purchased new means of transport and equipment. If he performed transport services in the territory of Poland, he would be entitled to deduct input tax. This means that he can deduct VAT on purchases made in Poland, which are related to the provision of services in Bulgaria.

Example 2.

The taxpayer provides medical services in Belgium. In Poland, he purchased medical equipment. If he provided medical services on the territory of Poland, he would not be entitled to deduct input tax, because medical services are subject to VAT exemption. As a result, the taxpayer is not entitled to deduct VAT on purchases made in Poland, which are related to the provision of services in Belgium.

This position was confirmed in the judgment of the Provincial Administrative Court in Gdańsk of September 24, 2014, file ref. no.I SA / Gd 889/14. The court stated that:

In the light of what was mentioned above, the allegation of violation of Art. 86 sec. 8 point 1 (…) turned out to be justified. This provision should be interpreted in such a way that a taxpayer who does not have a registered office in the country, but only a branch, has the right to deduct input tax charged in the country of the branch's seat for purchases made by that branch, related to the supply of goods. or the provision of services by the taxpayer outside the territory of the country, if the taxpayer has documents which show the relationship of the deducted tax with these activities, and the branch at the same time carries out taxable transactions in the country.

Deadline for the refund of the excess tax

In a situation where in a given settlement period there is a surplus of input tax over the due tax, the taxpayer may apply for a refund of this amount to the bank account. As has already been emphasized, taxpayers have the option of settling input tax related to activities whose place of performance is outside Poland and which are related to sales taxed in a given country.

The tax surplus is refunded within 60 days from the date of submitting the tax declaration to the competent tax office. This is the base term. The provisions of the VAT Act provide that when a taxpayer decides to provide services abroad and does not make any sales taxed in the country, the refund is made only on a justified request.

Example 3.

The Polish taxpayer provides construction services only in the territory of France. In Poland, it purchases construction materials and tools. In a given settlement period, it showed a surplus of input tax over due tax. Therefore, in order to receive a refund of this amount within the 60-day period, he must submit a reasoned request in this regard.