The SK&S Tax Team with Piotr Andrzejak (Partner) and Stanisław Gordziałkowski (Senior Counsel) recovered a VAT refund of over PLN 5 million for an international contractor. The refund was due because the Head of the Revenue Administration Regional Office in Warsaw has overturned two negative decisions of the first instance tax office, and the tax assessment proceedings were discontinued with the taxpayer’s position being fully acknowledged.
The case concerned construction works that were interrupted due to a dispute between the contractor and the investors. The tax authorities decided that a VAT obligation arose with respect to the already performed construction works even though they had not been accepted in an acceptance certificate and the investors challenged the contractor’s claim for payment.
Eventually, the second instance authority agreed with the taxpayer that the lack of formal acceptance of the construction services meant that the services should not be deemed completed in the context of establishing the existence of a VAT obligation. It has also agreed that the value of VAT taxable turnover cannot be automatically estimated based on the value of civil claims pursued by the contractor, because some of them could be claims for damages that would not be included in the VAT taxable fee. A VAT obligation may only arise, if at all, after the civil dispute is resolved, at the moment when the actual payment is made, provided that such a payment is not only compensatory in nature. This view is in line with the ruling of the Supreme Administrative Court dated 14 November 2019 (case ref. I FSK 1148/17) obtained by the same SK&S attorneys.
It is important to notice that the deferral of the VAT tax point only occurs if the construction services were not completed (i.e. not formally accepted). Otherwise, if the dispute only concerns the amount of the fee for fully or partially completed construction services, the time of payment (e.g. as a result of a favorable civil court ruling) does not generally create a VAT obligation. This means that the final determination of tax implications depends on an analysis of each specific case.