FIRST SECTION

DECISION

Application no. 31651/08
Alojzy FORMELA
against Poland

The European Court of Human Rights (First Section), sitting on 5 February 2019 as a Chamber composed of:

Linos-Alexandre Sicilianos, President,
Ksenija Turković,
Krzysztof Wojtyczek,
Pauliine Koskelo,
Tim Eicke,
Jovan Ilievski,
Gilberto Felici, judges,
and Abel Campos, Section Registrar,

Having regard to the above application lodged on 3 June 2008,

Having deliberated, decides as follows:

THE FACTS

1. The applicant was represented before the Court by Mr A. Bielewicz, a lawyer practising in Kartuzy. The Polish Government (“the Government”) were represented by their Agent, Mr J. Wołąsiewicz, who was succeeded by Ms J. Chrzanowska and by Mr J. Sobczak of the Ministry of Foreign Affairs.

2. The applicant complained that in spite of his having fully complied with his statutory VAT reporting obligations, the domestic authorities had deprived him of the right to deduct the input VAT which he had paid on a supply of goods because his suppliers had not or had been late in complying with their own VAT reporting obligations.

3. On 31 May 2011 the application was communicated to the Government.

A. The circumstances of the case

4. Mr Alojzy Formela, is a Polish national, who was born in 1942 and lives in Gdańsk.

5. At the relevant time he ran a business and was registered as an active taxpayer, both under the general scheme ‒ having been assigned a tax identification number (a “NIP number”) ‒ and under the Law of 8 January 1993 on tax on goods and services and excise duty (Ustawa o podatku od towarów i usług oraz o podatku akcyzowym; “the VAT Act”).

1. Taxable transactions

(a) With supplier K.

6. In 2001 the applicant purchased goods from company K. (hereinafter “supplier K.” or “company K.”), which had its own NIP number and which was registered as an active VAT payer.

7. The transactions constituted a taxable supply under the VAT Act.

8. Supplier K. issued invoices to the applicant for sales which occurred between January and June 2001 and between August and December 2001. The applicant paid these invoices in full. The net value of the sales in question amounted to 246,911 Polish zlotys (PLN) (approximately 66,732 euros (EUR)) and included PLN 54,315 (approximately EUR 14,679) of VAT.

9. The applicant logged his transactions with supplier K. in his accounting records and retained the originals of the relevant invoices.

10. On unspecified dates he filed his VAT returns for the above‑mentioned months with the tax office. The applicant’s output VAT (podatek należny) in the said tax returns was reduced by his input VAT (podatek naliczony) in the amount shown on the relevant invoices from supplier K. (see paragraph 8 above).

11. Supplier K. initially retained the copies of the invoices documenting the above-mentioned transactions with the applicant.

12. On 22 May 2002 supplier K. informed the tax authorities that the invoices in question had been stolen. The company promised to reconstruct all the missing paperwork but failed to do so.

13. In 2003, following a tax audit, company K. was apparently investigated on suspicion of issuing fraudulent invoices.

14. Moreover, it appears that supplier K.’s VAT arrears arising from transactions with the applicant between January and June 2001 and between August and November 2001 ‒ which had been established as a result of the audit ‒ could not be recovered by the State as they had become statute‑barred. The relevant VAT arrears for December 2001 have likewise not yet been recovered, given the difficulties in the execution proceedings against supplier K.

(b) With supplier S.

15. In 2002 the applicant purchased services from company S. (hereinafter “supplier S.” or “company S.”) which, at that time, had been assigned a NIP number but was not registered as a VAT payer.

16. The transactions appeared to constitute a taxable supply under the VAT Act.

17. Supplier S. issued invoices to the applicant for sales which occurred in the months of March and June 2002. The applicant paid these invoices in full. The net value of the sales in question amounted to PLN 12,300 (approximately EUR 3,324) and included PLN 2,706 (approximately EUR 731) of VAT.

18. The applicant recorded his transactions with supplier S. in his accounting records and retained the originals of all the relevant invoices.

19. On unspecified dates he filed his VAT returns for the above‑mentioned months with the tax office. The applicant’s output VAT in the said tax returns was reduced by his input VAT in the amount shown on the relevant invoices from supplier S. (see paragraph 17 above).

20. Supplier S. recorded all the sales in question in its accounting records and retained the copies of the relevant invoices.

21. Supplier S. failed to file its VAT forms with the tax office before the statutory deadline.

22. On 29 April and 17 May 2004, after having registered as a payer under the 1993 VAT Act, supplier S. voluntarily filed its outstanding VAT forms and paid the tax office the VAT amounts arising from the respective transactions with the applicant.

23. It appears that on 14 May 2004 the applicant read the file relating to the audit of supplier S.’s business which had been completed on 21 May 2003 and which revealed irregular business activities on the part of company S.

2. The applicant’s VAT audit

24. On 28 April 2004 the tax authorities decided to conduct a VAT audit of the applicant’s business. In the course of this inspection a cross‑check of suppliers was conducted in order to ascertain whether they had properly recorded and reported the transactions in question in their accounting records. As a result the following discrepancies were discovered.

(a) Tax assessment regarding transactions with supplier K.

25. In the absence of copies of the invoices recording sales to the applicant between January and June 2001 and between August and December 2001, the tax authority reviewed the VAT forms which had been filed with the tax office monthly by supplier K. The forms disclosed only the total amount of VAT due and did not show the detailed records of each sale. It was therefore only possible to find out the VAT amount that supplier K. had paid each month but not to establish from which particular transactions the VAT stemmed. In four out of the eighteen months which were checked, company K. declared a lower amount of VAT than that which had been declared by the applicant.

26. In the light of the above findings, the tax authority challenged all the calculations submitted by the applicant with regard to his transactions with supplier K.

27. On 28 October 2005 the tax authority in Kartuzy issued tax assessments for the applicant for the months from January to June 2001 and from August to December 2001. The authority refused the applicant the right to offset the input VAT which he had paid to company K. because the supplier had not kept copies of the invoices and had paid a lower amount of output VAT for four of those months (January, April, June and December 2001).

28. The authorities also pointed out that in February, March, April, May, June, August, September, October, November and December 2001 company K. had declared a lower amount of VAT than that calculated on the basis of invoices which it had issued to various other business partners. It was therefore concluded that company K. had breached the VAT regulations.

29. Lastly, the tax authority established that the applicant was liable to pay VAT on the received supply. Accordingly, they ordered the applicant to pay VAT arrears into the State budget, together with interest. These VAT arrears included PLN 54,315 (approximately EUR 14,679) of the VAT arising from the impugned transactions with supplier K. The tax authority observed that, generally speaking, a purchaser was liable for any illegal actions on the part of its supplier. They also pointed out that supplier K. had failed to reconstruct the missing copies of the records in question and had not met its obligations under the 1993 VAT Act.

30. The applicant appealed on 30 November 2005. He submitted that all the transactions had been accompanied by VAT invoices issued both as originals and as copies and that he had kept all the originals, thus furnishing proof that the transactions had indeed occurred.

31. He also pointed out that he had fulfilled all his obligations under the 1993 VAT Act, namely that he had paid the VAT when purchasing the goods, had retained the originals of the invoices, and had diligently filed all the VAT forms with the tax office. He also submitted that holding him liable for the mistakes or negligence of his business partners would be against the spirit of the law.

32. On 19 April 2006 the Gdańsk Fiscal Directorate (Dyrektor Izby Skarbowej) upheld the relevant first‑instance decisions, making reference to section 19 § 1 of the 1993 VAT Act and paragraph 50 (4) 2 and (6) of the Minister of Finance’s Ordinance of 22 December 1999 (Rozporządzenie w sprawie wykonania niektórych przepisów ustawy o podatku od towarów i usług oraz o podatku akcyzowym; “the 1999 Ordinance”) (see paragraph 62 below).

33. The directorate observed that the applicant had reduced the output VAT by the amount of the input VAT shown on invoices which were not confirmed by copies kept by the supplier. Moreover, it was not possible to verify whether the supplier had properly recorded all the sales as the relevant paperwork had been stolen and not reconstructed. Lastly, in the months of January, April, June and December 2001 the output VAT declared by the supplier had been lower than the input VAT calculated on the basis of the original invoices retained by the applicant. Consequently, it had to be presumed that paragraph 50 (6) did not apply, since the supplier had not recorded the sales.

34. On 5 June 2006 the applicant applied for judicial review. He submitted that there only were four months in which the supplier had declared a lower amount of output VAT than the input VAT which he had declared. Nonetheless, the authorities had used that fact as a justification for challenging all the calculations he had made and for refusing him the right to offset the input VAT in respect of all his transactions with company K.

35. He also stated that he could not be held liable for the absence of the reconstructed paperwork, as that had not been his fault and he had personally shown all the diligence required. And yet, regardless of that fact, he had been obliged to pay the VAT for a second time. He argued that he was being punished not for his own actions but for omissions on the part of the supplier, and he had had no means of forcing the supplier to act in accordance with the law.

36. On 19 December 2006 the Gdańsk Regional Administrative Court (Wojewódzki Sąd Administracyjny) upheld the directorate’s decision of 19 April 2006, finding that the applicant could not offset the input VAT because the impugned transactions were not confirmed by the supplier’s duplicate invoices as required under paragraph 50 (4) 2 of the 1999 Ordinance.

37. On 13 March 2008 the Supreme Administrative Court (Naczelny Sąd Administracyjny) dismissed a cassation appeal lodged by the applicant.

38. The administrative courts found that the decisions had been delivered in compliance with the law as applicable at the material time. They also reasoned that the questions of whether or not the relevant transactions had actually taken place and whether or not the applicant had properly retained all the invoices were irrelevant because the law was very clear in not allowing any exceptions.

(b) Tax assessment regarding transactions with supplier S.

39. On 28 October 2005 the tax authority in Kartuzy issued tax assessments for the months of March and June 2002. They refused the applicant the right to offset the input VAT which he had paid to supplier S. in March and June 2002 because at the time of effecting the transactions the supplier had not been a registered VAT payer, had not filed its VAT declaration and had not paid the output VAT. The tax authority reasoned that because supplier S. had not been registered, it had not been entitled to issue invoices. Consequently, the invoices which had been issued by it could not serve as a basis for offsetting the input VAT. The authorities concluded that supplier S. had breached the provisions of the 1993 VAT Act and, as a general rule, a purchaser was liable for any illegal actions on the part of its supplier.

40. The tax authority also established that the applicant had been liable to pay VAT on the received supply. Accordingly, they ordered the applicant to pay the VAT arrears into the State budget, together with interest. These VAT arrears included PLN 2,706 (approximately EUR 731) of the VAT stemming from the impugned transactions with supplier S.

41. On 30 November 2005 the applicant appealed against the tax assessment decisions. He submitted that supplier S. had eventually met its obligations by recording all the transactions and paying the outstanding tax. Consequently, the fiscal authorities must have received the same VAT twice over ‒ once from the applicant, following the challenged decisions, and once from the supplier. The applicant also mentioned that those facts must have been known to the tax authority at the time of issuing the tax assessment. He stated that he had fulfilled all his obligations and that holding him liable for the negligence of his contractor would be against the spirit of the law.

42. On 19 April 2006 the Gdańsk Fiscal Directorate upheld the relevant first‑instance decisions of 28 October 2005. The directorate concurred with the first‑instance authority’s reasoning and added that even if the purchaser had acted in good faith, he was still exposed to a risk emanating from the activities of his business partners. The directorate also observed that there was no evidence confirming the argument that supplier S. had filed or corrected the relevant VAT-7 forms or that it had paid that tax.

43. On 5 June 2006 the applicant applied for judicial review, arguing that the tax authorities had based their decisions on Section 50 (4) 2 of the 1999 Ordinance, which was identical to the unconstitutional provision of the 2002 Ordinance (see paragraph 62 below).

44. On 19 December 2006 the Gdańsk Regional Administrative Court upheld the decision of 19 April 2006, finding that the applicant could not offset the input VAT for the impugned transactions with supplier S. because at the relevant time the latter had not been registered as a VAT payer and hence had not been entitled to issue invoices within the meaning of paragraph 50 (4) 1 (a) of the 1999 Ordinance. It also reasoned that the tax authorities had performed an audit covering a certain period and had verified the existence and the contents of the documents, all of which was required of them under the applicable law. Any later events could not therefore be of any relevance. Lastly, the court also reiterated that a buyer could seek compensation from a dishonest business partner by means of a civil law action.

45. The applicant appealed, arguing, inter alia, that the impugned decisions legitimised double taxation and the unjust enrichment of the State Treasury because supplier S. had also paid the VAT in question – a fact which had not been disclosed by the first and second-instance authorities. The applicant also submitted that the civil remedy against a business partner had not been available to him in respect of S. as the latter had paid the VAT arrears with interest prior to the tax decision of the first-instance authority.

46. On 13 March 2008 the Supreme Administrative Court dismissed a cassation appeal lodged by the applicant. It held that the basis for invalidating the applicant’s right to offset input VAT was the fact that the VAT invoices had been issued by an entity which could confer no such entitlement in view of the lack of its VAT registration at the time of the transactions. Consequently, the question of whether the applicant’s supplier had or had not paid the tax in question was irrelevant for the case at hand.

(c) Financial consequences for the applicant

47. The Government submitted that on 13 December 2005 the tax authority in Kartuzy had granted the applicant the right to pay the impugned VAT arrears and interest in ten instalments. On an unspecified date the applicant completed the payment of the tax with interest. The 2005 decision and the copies of payment slips have not been submitted to the Court.

48. After the completion of the tax proceedings, the applicant did not rectify his tax return for personal income tax.

B. Relevant domestic law and practice

1. General provisions on VAT

49. At the relevant time, VAT was regulated by the general Tax Act of 29 August 1997 (Ordynacja podatkowa), which is still in force, by a series of specific laws such as the VAT Act ‒ which was in force from 5 July 1993 until 1 May 2004 ‒ and by the 1999 Ordinance, which was in in force from 1 January 2000 until 26 March 2002. The 1999 Ordinance was repealed by the Minister of Finance’s Ordinance of 22 March 2002 on the implementation of the provisions of the law governing tax on goods and services and excise duty (Rozporządzenie w sprawie wykonania niektórych przepisów ustawy o podatku od towarów i usług oraz o podatku akcyzowym (hereinafter the “2002 Ordinance”), which was in force from 26 March 2002 until 1 May 2004.

50. VAT had to be paid by any person (legal or natural, resident or non‑resident) who had had a taxable turnover exceeding EUR 10,000 during the preceding taxing year (Section 14 of the VAT Act).

51. It was charged on the price payable for a supply of goods or services plus certain costs, taxes and charges, but not including the VAT itself. Most domestic supplies of goods and services were taxable at the standard rate of twenty-two per cent VAT (Section 18 of the VAT Act).

52. VAT was generally to be reported and paid monthly. Monthly returns had to be filed with the tax office and monthly payments made by the twenty‑fifth day of the following month (Section 10 of the VAT Act).

53. Taxpayers were obliged to register as “VAT payers” with the tax office prior to effecting their first taxable sale or service (Section 9 (1) of the VAT Act). The tax office was under a duty to confirm the registration application and to assign a NIP number, unless the taxpayer had already been allocated one prior to his VAT registration (Section 9 (2) of the VAT Act).

54. Under Section 32 of the VAT Act, taxpayers had a duty to issue an invoice confirming the sale of goods, the date of the transaction, the price of each item before tax, the value of the sale, the amount of tax payable, and data concerning the taxpayer and the supplier. Paragraph 36 of the 1999 Ordinance in turn provided that registered VAT payers who had a NIP number were entitled to issue VAT invoices.

55. VAT invoices, including those issued by a supplier, had to indicate the buyer and seller’s NIP numbers (Section 9 (8) of the VAT Act and paragraph 37 of the 1999 Ordinance). Information on a supplier’s status as a VAT payer was not shown on the invoice.

56. At the material time, a VAT-registered buyer could verify whether or not his supplier was a registered and active VAT payer by seeking such information by telephone or, more formally, by applying to a local tax authority under Section 9 (9) a of the VAT Act, for a certificate to this end, which was to be issued within seven days.

57. Between 1 January 2003 and 1 May 2004, the VAT Act contained Section 32 (a) (added by amendment), under which a buyer could file with its supplier a written inquiry about the latter’s VAT status. The supplier had a duty to produce the original or a notarised copy of its VAT registration (Section 32 (a) 1). In the event the supplier did not comply with its VAT reporting obligations, the buyer could avoid further tax sanctions if it had confirmation that it had sent such a written inquiry to the supplier but had not received the requested information in reply (Section 32 (a) 3).

Section 32(a) of the VAT Act, in so far as relevant, read as follows:

“1. Upon receipt of a written request from a buyer of goods or services, a taxpayer issuing a VAT invoice has a duty to: ...

2. provide [the buyer], in connection with the sale of goods to the buyer:

a) [with] access to accounting ledgers ..., and

b) [with] copies of VAT declarations, in the part thereof documenting their filing in the period during which the [supplier] was under a tax obligation

...”

58. VAT payers were under an obligation to retain both the original and the duplicate invoices for a period of five years (paragraph 52 of the 1999 Ordinance).

59. Output VAT (podatek należny) is an ad valorem tax charged on the selling price of taxable goods or services, and is payable by the customer (buyer). Input VAT (podatek naliczony) is an ad valorem tax charged on the receipt of a taxable supply of goods or services, in a given tax period, and which a VAT-registered customer (buyer) can, under certain conditions, offset against its output tax.

2. Offsetting input VAT

(a) Provisions applicable at the material time (prior to Poland’s accession to the European Union)

60. The offsetting of input VAT was regulated mainly in Section 19 of the VAT Act and then further in the 1999 and 2002 Ordinances.

61. Section 19 of the VAT Act, in so far as relevant, read as follows:

“1. A taxpayer has the right to reduce output tax by input tax on the purchase of goods and services connected with a taxable sale.

2. Input tax is the sum of taxes detailed on invoices confirming the purchase of goods and services...”

62. Paragraph 50 of the 1999 Ordinance and paragraphs 48 of the 2002 Ordinance, respectively, had the same wording. In so far as relevant, they read as follows:

“1. Invoices and rectification invoices shall be issued in at least two copies, with the originals being forwarded to the buyer and the duplicates remaining with the supplier.

...

3. Only originals of invoices or originals of rectification invoices or their duplicates ... shall constitute a basis for reducing output VAT or for the reimbursement of input VAT

4. In the event that:

1) the sale ... has been documented by means of invoices or rectification invoices:

(a) which were issued by ... an entity not entitled to issue invoices ...,

...

2) a buyer is in possession of an invoice or rectification invoice not confirmed by a duplicate [kept] by the supplier ...

such invoices ... shall not constitute a basis for reducing the output VAT or reimbursing the input VAT.

...

6. Point 4 (2) shall not be applicable in cases where a supplier issuing an invoice or a rectification invoice has recorded the sale detailed on the invoice in his VAT declaration.”

63. Likewise, paragraph 51 (1) of the 1999 Ordinance and paragraph 49 (1) of the 2002 Ordinance, respectively, read as follows:

“1. In the event that the original of the invoice or the original of the rectification invoice has been damaged or lost, at the buyer’s request the supplier must re-issue the invoice in accordance with the data appearing on the duplicate.”

(b) Domestic courts’ practice prior to Poland’s accession to the European Union

64. The domestic courts of higher jurisdiction have ruled on several occasions on the provisions