In order to limit the right to VAT deduction, the authority must prove that the taxpayer knowingly participated in a VAT carousel

April 17, 2025

The case concerned a taxpayer who unknowingly participated in a VAT carousel involving the trade of electronics. The Director of the Tax Administration Chamber in Wrocław issued a decision regarding VAT, in which the taxpayer’s right to deduct input tax was challenged, and the excess of input tax over the payable tax was determined for refund.

Tax carousel vs. VAT

The tax administration chamber ruled that the taxpayer knowingly participated in a tax carousel involving so-called “disappearing taxpayers,” making him ineligible to deduct VAT due to his lack of due diligence in verifying contractors. The decision of the first-instance authority was overturned twice by a higher instance, but the taxpayer’s right to deduct was eventually questioned. The justification indicated that the taxpayer deliberately participated in the procedure, acting as a “broker.”

Tax carousel and liability

The taxpayer appealed the decision to the administrative court. The Provincial Administrative Court (WSA) in Wrocław, in a judgment dated June 19, 2024, case no. I SA/Wr 952/23, noted that a tax crime is committed by the taxpayer himself if he is aware or should be aware that by purchasing goods, he is participating in a transaction related to a VAT crime. In such cases, the taxpayer should be considered a participant in the crime, regardless of whether they benefit from further resale of goods or using services in subsequent taxable transactions.

No obligation to check the contractor

Only if there are grounds to suspect irregularities or violations of the law should the entrepreneur verify information about the contractor. However, the authority cannot require the taxpayer, when deducting VAT, to examine whether the invoice issuer has the goods that are the subject of the transaction and is able to deliver them, or whether they fulfil the obligation to submit the declaration and pay VAT, in order to ensure that entities involved in earlier stages of the trade do not commit irregularities or crimes, or that the taxpayer has documents confirming this.

Tax carousel and the role of the fiscal authorities

Additionally, as the court pointed out, it is not the role of tax authorities to advise taxpayers on how their business activity should be conducted. Identifying irregularities regarding one entity is not sufficient to challenge the settlements of the other participants in the transaction.

The above ruling is one of the few positive rulings for taxpayers regarding carousel cases. It is significant in that it sets limits on the actions of tax authorities.

Tags tax carousel, vat, VAT