Anna Główka

Attorney at law (Poland)
Phone: +48 22 244 00 51

A foreign entity may apply for interest on a late VAT refund in Poland only if the country where it is established follows the principle of reciprocity. This is in accordance with the Supreme Administrative Court's (SAC) judgement of 16 July 2014 (file no. I FSK 1276/13).

What was the case about?

In 2014, a Finnish company filed an application for VAT refund for 2003 with the tax office competent for foreign entities. The company filed the application on the basis of the then applicable regulation by the Minister of Finance of 23 June 2001 concerning the refund of value added tax to certain taxable persons, later amended by the regulation of 26 August 2003. Under that regulation the tax office had six months to review the application (and/or carry out a tax inquiry) and to issue a decision. However, the decision on the refund was not issued until after the proceedings lasting more than three years (i.e. in 2007).

In 2009, the company filed a request for interest on the late VAT refund with the tax office which issued the VAT refund decision in 2007. In its statement of reasons the company pointed out that the VAT amount not refunded on time, that is, within 6 months of the application date, was an overpayment in the meaning of the Tax Act in conjunction with the VAT Act. Such an overpayment bore interest which was payable to the company starting from the day following the six-month deadline for VAT refund until the actual refund date. The tax authorities of the 1st and 2nd instance rejected the company's request, claiming that the rules on interest on overpayments could apply to foreign entities exclusively on the basis of an explicit regulation while the Minister of Finance's regulation applicable at that time provided for no legal grounds for paying interest on a late VAT refund to foreign entities.

Existence of the principle of reciprocity is crucial

The company filed a complaint with the Provincial Administrative Court in Warsaw which agreed with the company's arguments and said that foreign entities could not be treated differently than domestic entities. Putting domestic entities in a privileged position against foreign entities violated the principle of equality and the principle of the democratic state of law, set out in Article 2 of the Republic of Poland. However, the court did not resolve the case conclusively but instead instructed the tax authorities to check if the legislation in the country where the company was established (i.e. Finland) provided for legal grounds for paying interest on a late VAT refund to Polish entities on the basis of the so-called principle of reciprocity governed by the above-mentioned regulation of the Minister of Finance. The principle of reciprocity says that if Polish entities not registered for VAT purposes in a foreign country are entitled to a VAT refund on the purchases of goods and services in that country, then entities from that country are entitled to a VAT refund in Poland. The same rule should apply to interest on a late VAT refund.

The case was returned to the tax authorities of the 1st instance which refused to pay interest claiming that Finland had no reciprocity principle with respect to Polish entities applying for interest in that country. The authorities based their decision on the findings of the Ministry of Finance that VAT refunds were non-interest bearing under the Finnish VAT Act. The decision was upheld by the 2nd instance authority. Since the Finnish tax authorities did not pay interest to Polish entities, the request filed by the Finnish company in Poland could not be accepted. 

The company filed another complaint with the Provincial Administrative Court. Eventually, the case ended up in the Supreme Administrative Court which backed the tax authorities. Since Finland did not apply the reciprocity principle to Polish entities, the principle of equality demanded that the Finnish company in Poland could not be placed in a privileged position and receive interest. That is because a Polish entity would receive no interest under the same circumstances in Finland. 

The case is not so obvious

The above ruling of the SAC is difficult to accept. The court gave the principle of reciprocity an incorrect, too broad meaning. It should be interpreted in such a way that states give their taxpayers the same rights and privileges. In other words, they ensure the same benefits to their taxpayers. In the case in question the tax authorities examined only a part of Article 152 of the Finnish Value Added Tax Act. It merely says that VAT refunds are non-interest bearing. It does not say if it applies to standard refunds of Finnish VAT or if it applies as well to the special Finnish procedure of VAT refunds to foreign entities, and neither the SAC nor the tax authorities checked that.  

Also, the SAC's ruling did not account for the fact that the Finnish tax authorities did not act sluggishly and usually refunded VAT to foreign entities within their statutory deadlines. Therefore, the claim that the Finnish regulations did not govern interest on late VAT refunds was not representative for the facts of the case in the context of the reciprocity principle. As a consequence, the company did not receive interest even though it waited over three years for the VAT refund. The SAC failed to notice the gist of the dispute, namely that upon the lapse of the six-month "withholding" period in the tax office the VAT refund became an undue benefit for the public, which was, in essence, the interest-bearing overpayment. The SAC took that stand in many of its earlier judgements. 

We should expect the tax authorities to make a strong case of this SAC's ruling against the payment of interest. That is why it is worth checking the principle of reciprocity in the country of establishment of the entity requesting interest on a late VAT refund in Poland. 

We would like to remind you that thanks to the five-year statute of limitations you can still apply for interest on a late VAT refund made on the basis of refund decisions issued in 2009 and 2010.

Example: (applicable to foreign entities not registered for VAT purposes in Poland, which bought here goods and services between 2000 and 2010) 

The application for VAT refund for 2003 had to be filed by 30 June 2004 and the company did so on that date. The application should have been reviewed and the VAT should have been refunded within six months of the application date, that is, by 30 December 2004. The refund decision was not issued until 10 January 2009. The company may apply for interest on the late VAT refund accrued from 31 December 2004 until the VAT was actually refunded. The amount on which the interest accrued is the VAT refund amount stipulated in the decision of 10 January 2009. 

We believe that applying for interest is worthwhile because foreign entities may count on getting an interest rate of even 11–12.5% annually.

We will be glad to assist you in this regard and provide you with tax advice in Poland on CIT, PIT and VAT issues. Our tax advisers working in Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw will also answer other tax-related questions that you may have.