It will not be as easy for tax authorities to deny a taxpayer a VAT refund for overpayments resulting from transactions made with consumers. On March 21, 2024, the Court of Justice of the European Union issued a favourable judgement for taxpayers regarding overpayments.
What was the issue?
An overpayment in taxes occurs, for example, when a taxpayer has paid too high a tax amount compared to what they should have paid based on tax law regulations. This could happen if we incorrectly apply too high a VAT rate to the goods or services we offer. Overpayment and its refund need to be distinguished. Initially, if an overpayment occurs, it is credited against tax arrears, including delay interest and reminder costs. Subsequently, the overpayment can be used to cover current tax liabilities. If a taxpayer has no such liabilities and does not apply for the overpayment to be wholly or partly credited against future tax liabilities, the overpayment is then refunded.
Tax authorities have often denied taxpayers the right to an overpayment in VAT when it resulted from the use of an inflated rate in retail sales. They argued that there was no provision for making corrections to sales recorded using a cash register. Furthermore, in such a situation, the taxpayer did not suffer an economic loss because the consumer paid the inflated VAT. In fact, in the current regulation of the Minister of Finance of April 29, 2019, regarding cash registers, no correction was provided for due to the taxpayer’s incorrect VAT rate. Additionally, the tax office supported its argument with the concept of VAT as an indirect tax and the argument that the economic burden of this tax falls on the consumer and is not borne by the VAT taxpayer.
Court’s point of view
The legal issue regarding the economic burden of the tax and the right to an overpayment is complicated. Hence, it raises not only doubts but also causes disputes. Administrative courts sometimes deny taxpayers the right to an overpayment due to the lack of economic burden previously paid.
A significant resolution for this issue was the resolution of the Supreme Administrative Court from June 22, 2011, which concerned only the excise tax on electricity. The excise tax is – like VAT – an indirect tax. As a result, it will increase the price paid by the consumer. In the above resolution, the Court held that the taxpayer would not be able to claim an overpayment of the excise tax on electricity if it did not suffer an economic loss.
Court of Justice of the European Union Judgment of March 21, 2024, C – 606/22
One of such cases in Poland made it to the Court of Justice of the European Union. It concerned a Polish company operating a fitness club and offering gym passes as part of its activities. The sales price included the basic VAT rate (23%). The applied rate resulted from the positions presented by the tax authorities. In the meantime, a general interpretation was issued, according to which the VAT rate for such services should be 8%. The company, due to the official change in the interpretation of VAT provisions, applied for an overpayment of VAT.
Tax authorities denied the claim, arguing that since the company provides services to consumers, the latter ultimately bore the burden of inflated VAT. In such circumstances, recognizing a VAT overpayment in favour of the taxpayer would constitute undue enrichment at the expense of the State Treasury.
The Court of Justice of the European Union held in case C-606/22 that according to European Union law, a Member State may refuse to admit an overpayment raising the objection of “unjust enrichment” only if there is an analysis confirming that the taxpayer did not bear the economic burden of the tax. Moreover, the effect of inflating the VAT rate may also be a decrease in sales and, consequently, a lower income for the taxpayer. All of these should be considered by tax authorities. Therefore to deny a taxpayer the right to an overpayment, tax authorities must conduct an economic analysis to examine whether the taxpayer did not bear the economic burden of the overpayment.
Implications of the Judgement
The judgement of the Court of Justice of the European Union will result in tax authorities finding it more difficult to deny taxpayers the right to an overpayment. It will not be enough just to indicate the indirect nature of the tax and make an enigmatic statement about shifting its economic burden to the consumer. An economic analysis will be a necessary condition. A problem may be to define standards for such analysis and determine whether the authority should conduct it independently, or whether an expert is needed. Detailed guidelines might be found in the reasoning of the judgments of Administrative Courts (WSA/NSA) issued in disputes initiated by applications for VAT overpayments. Taxpayers should apply for overpayment recognition and then, if authorities deny its acknowledgment, take the matter to the administrative court. Preparing for such disputes should begin at the stage of submitting a VAT overpayment application, not only those resulting from an inflated VAT rate. It is advisable to seek the opinion of a tax advisor or other lawyer specializing in tax matters.
Author: Robert Nogacki, legal counsel, managing partner, Skarbiec Law Firm, specializing in legal, tax and strategic advice for entrepreneurs.
Source: https://managerplus.pl/po-wyroku-tsue-polskiemu-fiskusowi-bedzie-trudniej-odmowic-zwrotu-nadplaconego-vat-74401
