Taxpayers burdened with an additional obligatory tax liability (VAT sanction) due to irregularities in their VAT settlements may apply for refunds of these additional levies on condition that their irregularities were unintentional.

Verdict of the Court of Justice of the European Union of 15th April 2021

The above approach comes further to the verdict of the Court of Justice of the European Union of 15th April 2021 in case No. C-935/19 Grupa Warzywna LLC vs. Director of the Tax Administration Chamber in Wroclaw.

In this verdict, the CJEU ruled that the principle of VAT proportionality is antithetical to implementing regulations that impose additional tax liabilities (VAT sanction) on taxpayers without first distinguishing (analyzing) the circumstances that gave rise to those defaults.

The CJEU also indicated that the Polish regulations implementing VAT sanctions in the analyzed scope are a disproportionate solution for achieving the assumed goal, that is combatting tax fraud. Additionally, current regulations do not allow for an individual approach to taxpayers who have incorrectly accounted for VAT (e.g. by restricting sanctions to entities deliberately reducing tax liabilities).

In other words, the current structure of the sanctioning mechanism is disproportionate because it does not take into account the extent and type of the violation of the tax law committed by taxpayers.

The practical dimension of the CJEU verdict

In consequence, the verdict of CJEU allows a taxpayer to apply for a refund of the additional tax liability (VAT sanction) paid due to an incorrect VAT settlement, on condition that the tax authority automatically imposed an additional obligation without examining the situation of the taxpayer and the circumstances related to the mistake made in a VAT settlement.

The CJEU verdict should also have an impact on the future practice of the tax authorities including limiting the practice of unreasonably burdening taxpayers with additional obligations without analyzing the reasons for a given situation to have arisen.

What should be done to recover an additional tax liability (VAT sanction) that has been paid?

1. Analyze the situation in which the taxpayer was obliged to pay an additional tax liability (VAT sanction) due to the correction of a VAT declaration made after the completed tax inspection or customs and fiscal audit.
2. Prepare an application for a refund of unjustifiably calculated and paid additional tax liability (VAT sanction).