The mere possession of an invoice is not a sufficient basis for the deduction of input tax and the right to reduce the amount of output tax by the amount of input tax does not exist when the invoice issued does not correspond in fact to the economic event – in particular when the economic event did not occur at all. The invoice is not an authentic instrument and therefore does not benefit from a presumption of authenticity. The right to deduct input tax does not derive from the fact that the invoice is held but from the fact that the goods or services have been acquired. The substantive lawfulness of an invoice occurs when it reflects a true economic event. A contrario, it will not be possible to consider an invoice as correct if, contrary to its content, it shows an economic event which occurred, among others, or occurred in other sizes, or did not occur at all – these are the most important conclusions to be drawn from the judgment of the Provincial Administrative Court (WSA) in Gdańsk of 27 February 2019, file ref. I SA/Gd 32/19.

The dispute in the case in question concerned the tax authorities’ questioning of the taxpayer’s right to deduct input tax from input tax resulting from VAT recorded in the VAT purchase records and disclosed in VAT-7 invoices issued by the contracting party as advertising and promotional services.

On the grounds of the case, the basis for the decision was the statement that the disputed invoices do not document actual economic events (the course of economic transactions).

The Court states that it is necessary to show that the transaction took place between the persons on the invoice from which the taxable person derives his right to deduct input tax. Having a technically correct VAT invoice is not the same as meeting the requirement of object and subjective correctness. The invoice must document the actual economic events and indicate the relevant parties to the transaction.

The court expressed the thesis that a taxpayer wishing to exercise his right to deduct input tax cannot limit himself to a formal verification of the contractor if there are premises to suspect irregularities or infringement of the right.

Where there are indications that irregularities or infringements may be suspected, a prudent trader should, depending on the circumstances of the particular case, seek information on the person with whom he intends to purchase the goods or services in order to ascertain whether that person is credible. However, in the present case, the applicant did not effectively check the credibility of its contracting party and established cooperation with it and accepted the terms and conditions of the order of advertising materials on the day on which it met the contracting party. The fact that the entire amount due for the transaction was transferred in cash, without security in the form of an agreement or confirmation of payment, is also of significance. The applicant concluded transactions for the amount of PLN 123,000 with a random, previously unknown contractor, without checking whether the services were provided, did not conclude a contract, and did not check the quality and correctness of the allegedly provided services.

According to the applicant’s claims, she transferred the amount of PLN 123,000.00 to a person whose personal data she did not check, whose name and surname she does not remember, and whom she saw only once before the cash was handed over. She did not try to have a record on the invoices confirming the payment or at least the signature of the person collecting the cash. The above proves that she did not take measures to protect her financial interests. There is also no evidence of actual incurrence of the cost of the service which it was to purchase according to the disputed invoices. The court stressed that the tax authority rightly stated that the applicant did not have any evidence in its documentation confirming the performance of the service, i.e. contracts, valuations, correspondence, graphic designs. In addition, the payment (allegedly) was made in cash. In the opinion of the court, the Party’s behaviour gives grounds for believing that it was aware of the fraudulent practice.

The applicant failed to demonstrate that it had made reasonable efforts to obtain information about a customer with whom it had entered into commercial cooperation in order to protect it from tax fraud. Thus, it assumed responsibility for the adverse consequences of its transactions. In commercial contacts, increased vigilance or caution was required by circumstances such as: making purchases and paying receivables into the hands of an unknown person without at the same time making sure that he is authorized to act on behalf of the contractor, lack of proofs of payment.

The court pointed out that the awareness of a taxpayer participating in trade transactions is one of the most important conditions for the right to deduct input VAT.

When recapitulating, it should be stated that the court took the position that failure to document the service is tantamount to losing the right to deduct VAT.

Author – Paweł Rosiński (Tax Adviser, entry No. 13 408)