In 2016, Mr. R.S. held 99 per cent of the shares in T. sp. z o.o., and was also the sole member of its management board. Alongside his corporate role, R.S. ran an individual business and, on 31 October 2013, concluded a contract for management consulting services with the company, for which he issued invoices. The company deducted input VAT on these invoices, classifying the services as distinct from R.S.’s management functions.
However, the tax authorities denied the VAT deduction for the period from January to December 2016. They concluded that the invoices did not document actual consulting services, and that the company had failed to prove that any services had been performed outside of R.S.’s duties as managing director and owner. They noted the absence of reports or other material outputs required by the contract, as well as inconsistencies between the contractual settlement terms and the amounts invoiced. They also noted the close links between the parties.
The company challenged the assessment, arguing that the services had been performed and used for taxable activities, and that the right to deduct followed from Article 86 of the VAT Act and the VAT Directive. The company alleged procedural defects, improper assessment of evidence and omission of witness testimony and transfer pricing documentation. It also argued that any doubts about the consulting agreement should have been referred to a common court. The company also invoked the principle of VAT neutrality and requested a reference to the Court of Justice of the European Union.
Judgment
The Supreme Administrative Court dismissed the appeal. It ruled that, in the case of consulting services whose effects are not directly observable, it is the responsibility of the taxpayer to provide objective evidence of performance of such services. Invoices, contracts, payments and general statements were deemed insufficient, particularly given that the service provider was also the controlling shareholder and manager of the company.
The Court agreed that the transfer pricing documentation was irrelevant to the key issue of whether the services were actually rendered, rather than the price level. As the invoices did not confirm genuine economic transactions, the denial of the VAT deduction was lawful and consistent with Polish and EU VAT legislation.
Click here for English Translation
Click here for other translation