Statute of limitation and VAT refund
January 5, 2021
Can a VAT refund be time-barred? Of course! But what is the period of the statue of limitation? See how to interrupt the limitation period and learn about rolling over of the surplus.
VAT surplus
If in the settlement period the amount of input tax is higher than the amount of output tax, the taxpayer has the right to:
- refund of the difference to the bank account in full (direct refund),
- entirely transfer to the next settlement period in order to reduce the amount of tax due in the next settlement period (indirect refund),
- return part of the surplus to the declared bank account, and to transfer remaining part to the next settlement period
VAT refund – expiration for claim
Based on the last judgment of the Supreme Administrative Court of 2020-01-14 I FSK 685/19, the surplus may be transferred for settlement to the next periods. If it occurs permanently, it should be returned within a reasonable time. The taxpayer may not transfer the tax indefinitely. This is stated in Article 70 § 1 of the Tax Ordinance – “the tax liability expires after 5 years, counting from the end of the calendar year in which the tax payment deadline expired”. The time mentioned in the regulations also refers to the period in which the taxpayer should keep documents confirming the settlement of the tax on goods and services.
According to the Supreme Administrative Court, if after the above-mentioned deadline the validity of the VAT refund cannot be inspected or questioned, the taxpayer loses his rights by analogy – in this case, he loses the right to return the excess of input VAT over the amount due, which was transferred for a period longer than 5 years. The limitation period begins from the end of the calendar year in which the tax refund deadline expired, i.e. on the first day of the next calendar year, and ends after 5 years.
Rolling over of the excess of VAT
The situation in which the taxpayer does not constantly carry over the same amount to the next months, but shows taxable activities on an ongoing basis and the input tax was not covered by the judgment of the Supreme Administrative Court (as to the limitation of tax excess refund). In the above-mentioned case, the amount of the transfer consists of input tax shown in previous months’ declarations and amounts of input tax shown in consecutive billing periods. Therefore, the VAT surplus to be transferred becomes an element of subsequent settlements (the so-called “rolling over of the surplus”). In this situation, the possibility of deducting the surplus does not expire – which was confirmed by the director of the National Tax Information in the individual ruling of November 4, 2019 (No. 0115-KDIT1-1.4012.619.2019.1.MM).
Interrupting the limitation period
Each application for a refund of input tax submitted in the period in which the refund has not yet expired, will be treated by the office as an application that interrupts the running of the limitation period for the right to refund.
The discussed company case shows how important it is to settle VAT on time. The refund or the possibility of deducting VAT expires from the beginning of the year following the period of 5 years from its due date. The limitation period begins from the end of the calendar year in which the deadline for tax return / tax payment expired, i.e. on the first day of the next calendar year.
Example
| The company's situation | The company's core business is real estate trading. In 2008-2010, it built two residential buildings, which generated a VAT surplus. Due to the fact that until August 2017 the company did not show taxable activities, the aforementioned VAT was reported as the amount to be transferred. In August, it sold one of the buildings - and at the same time the company decided to refund the said VAT. |
| Tax office | The Tax Office questioned the VAT refund - the generation by the party of the input VAT surplus over the due VAT surplus in 2008-2010 expired and indicated that the excess included in the declaration for April 2017 was established from July 2008 to October 2010. The aforementioned surplus concerned settlements for the months in relation to the limitation periods have expired, pursuant to art. 70 § 1 o.p. - I FPS 9/08. |
| The Court Of First Instance | The first instance court challenged the position of the tax office. Based on the resolution adopted by the Supreme Administrative Court (I FPS 9/08), it pointed out that each of the settlements of the VAT payer, regardless of whether it is a tax liability or a surplus, cannot be changed after the limitation period for the tax liability for a given accounting period. The expiry of the limitation period makes the tax liability in VAT (surplus) final and can no longer be verified or changed. (The court relied on the justification of the judgment of the Supreme Administrative Court - the resolution did not refer to the subject of the possible limitation of the right to transfer the excess VAT calculated over the due VAT for the next settlement period). Thus, the authorities lost the right to issue decisions in which they could question the amount of the surplus. Expiry of the limitation period for tax liabilities for the period 2008-2010. caused that the VAT surplus for this period became final and could no longer be verified or changed, therefore, in 2017, the tax authorities were not entitled to "zero" VAT surpluses. The court adopted the position that the surplus to be transferred, resulting from the invoices included in the declarations in 2008-2010, was beyond the control of tax authorities, which before the expiry of the limitation period for tax liabilities, did not conduct tax proceedings and did not issue relevant decisions in this regard ( 2008-2010). Thus, it was not possible to verify the correctness of the resulting settlements, including the generated surplus. It was unreasonable to reset it. Moreover, this surplus, before the expiry of the limitation period for particular settlement periods, was included in the settlements in subsequent settlement periods. (Art. 87 (1) of the Act) |
| The Supreme Administrative Court | Art. 70 § 1 o.p. also applies to settlements in which the VAT obligation has transformed into the amount of the tax difference refund, the amount of the input tax refund or the tax difference referred to - currently - in art. 87 sec. 1 u.p.t.u. The limitation period for this amount starts from the end of the calendar year in which the tax refund deadline expired (i.e. on the first day of the following year), and ends after 5 years. One of the forms of expiring obligatory legal relations is limitation. After the expiry of the limitation period, the creditor will lose the right to demand from the debtor to behave in accordance with the content of the obligation between the debtor and the tax creditor. The scope of determining the premises on the basis of which the right to reimbursement of the excess of input tax over the tax due to be transferred to the next accounting period, created in individual accounting periods from 2008, 2009 and 2010, has expired. As a result, the party could not show this surplus for settlement in declarations from January 2016 to April 2017 |
A taxpayer who is in possession of the input VAT charged before 2015, which, in the event of a sale, did not deduct or did not apply for a tax refund to the bank account by the end of 2019 – loses the right to do so.
It is important to pay special attention when calculating the limitation period for VAT. If we consider VAT for November 2015. Its due date is 25/12/2015. Following the regulation – the limitation period will take place on December 31, 2020. However, if we consider VAT for the month of December 2015 due to the fact that the tax is due on January 25, 2016 – the limitation period will take place only on December 31, 2021, i.e. after almost 6 years.
To retain the right to a VAT refund, the taxpayer should apply for a refund also in the absence of showing taxable activities, i.e. sale within 180 days – without waiting for the statute of limitations. This application will interrupt the limitation period and the taxpayer will not lose the right to its return / deduction.
Author: Katarzyna Maruszak
