Tax on goods and services, is a value added tax, which essential feature, established in the provision of article 86 paragraph 1 of the act on tax on goods and services, is the fundamental right of a taxpayer
to reduce the amount of tax due by the amount of input tax on the purchase of goods and services, and the amount of input tax is the sum of the amounts of tax specified in the invoices received by the taxpayer:
- for the acquisition of goods and services
- proving the prepayment (advance payment, deposit, installment), if they were connected with any chargeable event
- from the commitor for supply of goods being the subject of commission contract, taking into account the rebates provided for in article 29 paragraph 4.
The provision of art. 86 paragraph 1 of the act on tax on goods and services is equivalent to the provisions of article 1, art. 167, art. 168, art. 169 of Council Directive 2006/112/EC of 28 November, 2006 on the common system of value added tax (before January 1, 2007, the equivalent of art. 2, paragraph 2 of directive I as well as art. 17 paragraph 2 of directive VI) .
These provisions ordain fundamental right of a taxpayer to reduce the amount of tax due by the amount of input tax on the purchase of goods and services.
"The neutrality of value added tax for the taxpayer is expressed, among others, by desire to seek, implement and protect legal solutions that ensures legal status in which the value of the tax paid by the taxpayer will not be the final cost to the taxpayer. The taxpayer must be able to recover input tax arising from its taxed activities. Any implications of the concept of tax neutrality, which are beneficial to taxpayers, are treated in the doctrine of Community law as a fundamental right to tax the taxpayer, not as a privilege." (VI VAT Directive Commentary on the Directive of the European Union Council on the common system of value added tax, edited by K . Sachs, CH Beck, Warsaw 2004, p. 418 and following).
In jurisdiction based upon VI Directive, a view is formed that article 17 (replaced by chapter 1 of Title X of Deductions Council Directive 2006/112/EC) spells out the conditions for the emergence and scope of the right to deduct, without leaving the Member States any margin of discretion in its implementation, (verdict of the ECJ of 10 March 2005 in Case C-33/03 Commission v United Kingdom of Great Britain and Northern Ireland, LexPolonica no. 375013). The content of this provision undoubtedly shows that the relation between purchase and business activity is the only condition for realization of the right to deduct.
Starting from 1 May, 2004, that is from PolishRepublic's accession to the European Union, because of the principle of interpretation of domestic law allowing smooth functioning of the economy within the European integration, the interpretation of law should be made in compliance with European law (Case ECJ of 13 November 1990 Marleasing C-106/89 ECR. s I-4135). It is the obligation for ensuring the compatibility of domestic and European law (Article 5 TEC), and it affects all EU countries. In support of its ruling of 21 September 2004 (C 34/2003, OTK ZU 2004/8A, item. 84), the Constitutional Court pointed out that the obligation of the above causes that the results of interpretation of domestic law in a direction leading to the result different than under Community law cannot be endorsed.
The ECJ in Case 50/87 Commission of the European Communities v the French Republic of 21 September, 1988 (http:eur-lex.europa.eu) ruled as follows: input tax deduction system, which rules are set out in articles 17-20, aims at complete unburdening of business entities in terms of payable or paid VAT in the course of their business. Due to the influence on the level of tax burden, any limitations on the taxpayer’s right to deduct must be applied in the same way in all Member States and must be based on the existence of the provision in Community law, which provides such a restriction. In the absence of such a provision, the right to deduct should be used immediately for all amounts of input tax on supplies of goods and services. The relation between purchase and business activity is the only condition for realization of the right to deduct (...).
Provincial Administrative Court in Warsaw in its ruling of 18 May, 2007 ref. Act III SA / Wa 324/2007, (LexPolonica no. 2039531, case law in matters of Economic Courts 2009 / 3 pos. 22, p. 35), said, "When dealing with the matter, tax authorities must take into account, in detail, the provisions of the VAT act, particularly article 86 paragraph 10 and subsequent paragraphs, as well as article 17 and art 18 of VI Council Directive of 17 May, 1977."
In the reasons for the verdict quoted above, the court pointed to the essence of taxes on goods and services as value added tax, and stressed the need to take into account, when interpreting the provisions of the VAT Act, the provisions of Community law which are in force in this respect, in particular I Directive of the Council of 11 April, 1967 on the harmonization of Member States relating to turnover taxes (67/227/EC), and the VI Directive, which stems from the Polish accession to the European Union on 1 May, 2004. One of fundamental characteristics of value added tax, under the provisions of I Directive, is the principle of tax neutrality for taxpayers. This postulate is implemented by allowing a taxpayer to deduct the tax due by the amount of tax paid on the purchase of goods and services related to their business. The rules of this deduction are described in the provisions of Title XI of the VI Directive. For this reason the provisions of articles 17 and 20 are considered the most important regulations of the VI Directive.
The neutrality of value added tax for the taxpayer is implemented by means of, inter alia, pursuit of seeking, implementing and protecting legislative solutions to ensure legal status, in which the value of the tax paid by the taxpayer in the price of his purchases of goods and services used for business purposes, will not constitute taxpayer's final cost. The taxpayer must be able to recover input tax arising from their activities taxed. Any beneficial implications of the concept of tax neutrality are treated in the doctrine of the common VAT as a fundamental right of the taxpayer, not as the privilege (see M. Makiewicz: Commentary on the Sixth Directive, edited by K. Sachs, p. 417). The ECJ in many of its verdicts emphasized the fundamental role of the principle of neutrality for VAT system and input tax function as a primary tool implementing this principle.
The principle of neutrality of VAT gives the taxpayer the right to settle the tax, if, for reasons beyond the taxpayer, the goods and services that he purchased were not used in business activity, but the acquisition was made with such intention.