Destruction of goods - is a VAT correction necessary?

Service-Tax

The destruction of goods is not generally considered as a circumstance which changes the right to deduct VAT. Thus, if the destroyed goods were destined for a taxable activity and the input tax charged on their acquisition was deducted, there is no need to make an adjustment.

Loss of goods - shortages

Shortages of goods are within the limits of natural losses, although these standards are sometimes exceeded and then they are considered exceptional shortages, among which we distinguish:

  • culpable shortages - their occurrence is related to the failure to fulfill obligations by the person who is materially responsible for the entrusted property,
  • faultless shortages, which arise for reasons beyond the control of materially responsible persons (these may be random events, e.g. flood, fire, theft or natural causes related to damage to goods during transport, or inadequate storage conditions, for which the materially responsible person does not have impact).

Both of the above-mentioned breakdowns, i.e. faults of culpable and non-culpable goods, do not constitute a supply of goods or the provision of services, and therefore are not subject to VAT.

Input tax correction

However, taxpayers have doubts about the possible correction of the input tax when purchasing goods with a shortage. Doubts arise due to the lack of statutory regulations in this regard. None of the provisions of the VAT Act mentions the loss of goods as a reason for the input tax adjustment. Under Art. 185 sec. 2 of the VAT Directive, the legislator takes into account the possibility of establishing certain regulations, although the Polish VAT Act does not introduce any specific rules in this matter.

Due to the fact that the legislator does not impose an obligation to correct the input VAT in the event of loss of goods in any of the provisions of the Act, it can be concluded that there is no such obligation. However, the tax authorities have a different opinion on this. An example can be the judgment of the Administrative Court in Poznań of January 14, 2011. (file reference number I SA / Po 842/10), in which the SA ruled that the taxpayer should make an appropriate tax adjustment in the event that the identified shortages of goods are deemed to be at fault. In such a situation, the goods are not used for business activities, and therefore their nature has changed, and therefore there is no right to deduct input tax.

Summing up, in line with the position of the tax authorities, there is no obligation to prepare an adjustment in the case of faultless deficiencies, while in the case of culpable deficiencies, it was decided that the correction should be made. Therefore, it is important that when identifying a shortage, the taxpayer should collect as many documents as possible proving that it had no influence on its creation.