VAT is subject to harmonization within the European Union. Each member state's legislation is based on the VAT Directive (Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax). This eliminates any doubts about what constitutes an import and what constitutes an intra-Community supply of goods. However, the question arises about transactions with contractors from the UK. For the first time in the history of the EU, a country has decided to leave the community. One consequence of this action is that EU regulations no longer apply. Therefore, when making sales within the UK, should VAT be included in the income, or will it be solely the net amount?
Tax authorities maintain that the UK's withdrawal from the EU has resulted in the UK's Value Added Tax (VAT) not being the same as the tax applicable in the member states. The consequence of this position is that the revenue from the sale of goods in the UK is the price including VAT. At the same time, the gross price should be considered the tax deductible expense.
In disputes with tax authorities, taxpayers argued that the UK's exit from the EU did not change the nature of VAT. Structurally, it remains the same as in EU member states. Despite leaving the EU, it still derives from the VAT Directive. Therefore, there is no basis for considering that taxable revenue also includes output VAT, which is settled under the British tax system. British VAT cannot constitute revenue, as it can only be a non-refundable gain. Meanwhile, British VAT (like tax in EU member states) is settled in a tax return submitted periodically to the tax authorities. Only VAT that definitively burdens the taxpayer, such as input VAT, which cannot be deducted, or output VAT, which cannot be passed on, will be considered a tax deductible expense. This is because it then loses the fundamental characteristic of a value added tax: neutrality.
The administrative courts agree with the taxpayers' position. They cite the judgment of the Administrative Court in Gdańsk issued on March 16, 2021 (interestingly, annulled by the Supreme Administrative Court on April 2, 2024). The court ruled that VAT in Norway (Merverdiavigift) does not constitute income for Polish taxpayers. Importantly, it does not constitute a definitive gain. The fact that Norway is not a member of the EU is irrelevant (reference number I SA/Gd 1152/20).
However, if UK VAT were considered income, then taxation would occur. The same amount would be taxed twice: once by UK VAT and a second time by income tax in Poland.
The lack of territorial identity between EU and UK VAT is not an obstacle to recognizing revenue as net income. A taxpayer who incurred a cost in a given country should not be placed at a disadvantage simply because that country decided to leave the European Union.
The courts also emphasize that the tax authorities' position would lead to uncompetitive exports to the UK, pushing Polish entrepreneurs out of that market.
(see Supreme Administrative Court rulings: Judgment of 14 February 2023, II FSK 1050/22, judgment of 7 February 2025, II FSK 626/22)
This article is for informational purposes only and does not constitute legal advice.
The law is current as of July 14, 2025.
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