Basic taxpayer’s entitlement
The right to a refund of the excess VAT input tax over the tax due in a given settlement period is one of the basic rights of the taxpayer of this tax. According to the VAT Directive, the right to deduct tax paid in the previous trading phase implies the fundamental right of the taxpayer to refund the resulting excess tax deductible over the tax due (when in a given settlement period, the deductions (tax to deduct) exceed the liabilities (tax due) – Art. 183 of the VAT Directive).
As the EU TS emphasizes in its case-law: ‘the refund of excess VAT is a fundamental factor in ensuring that the principle of neutrality of the common VAT system is preserved, and the conditions cannot undermine this principle by forcing the taxpayer to bear all or part of the burden of tax’ (see judgment of 25.10.2001 in Case C-78/00).
It follows from the principle of tax neutrality that, as a general rule, too-far-reaching restrictions on the amount or the date of refund are not permissible, and the common tax system implies that the excess tax must be refundable within a reasonable period.
Polish provisions on VAT refund express three terms of refund, i.e.
- basic, amounting to 60 days (i.e. two settlement periods),
- the shortened period of 25 days depends in the current legal status on the fulfillment of many additional statutory conditions, and
- extended period, which is 180 days, when in a given settlement period the taxpayer did not perform any taxable activities, but made purchases related to taxable activities (unless the taxpayer submits the so-called refund deposit).
According to Polish regulations, the taxpayer is therefore forced to bear the actual burden of input VAT for two full tax periods, despite the fact that, in accordance with the principle of neutrality, this tax should not be charged to him at all. Entrepreneurs for many years declared surpluses of input tax to be transferred, fearing control of their tax settlements. They also often decided to carry over surpluses to subsequent periods in order to settle them faster because it was more advantageous than waiting for a tax refund within 180 days. Meanwhile, in other EU countries, refunds of excess input tax are made even within a few business days.