Without daily tax or accounting duties, we are often unaware of all our obligations. One such obligation is to correct VAT when we use goods or services for both taxable and exempt activities, or when we sell such goods. In the case of fixed assets, this obligation arises only if the change of purpose or sale occurs within the correction period, which is five years for fixed assets with an initial value of up to PLN 15,000 and 10 years for fixed assets with an initial value above this amount.
But what if, for various reasons, we sell a fixed asset under construction?
If the investment project was intended to support taxable activities, we were entitled to deduct VAT. For example, in the case of the construction of a production hall, we can deduct VAT on construction materials and services, among other things. In the case of the sale of an unfinished production hall, we will be required to make a VAT adjustment. However, while in the case of fixed assets, the regulations clearly specify the period within which the sale requires us to submit an adjustment, if we are disposing of a fixed asset under construction, the obligation to submit an adjustment will not be limited by any deadline. Therefore, it will not matter whether we sell the unfinished production hall after 3 or 13 years; we will still be required to adjust our VAT.
Does this mean that whenever we sell a fixed asset under construction, we will have to submit a VAT correction?
The answer to this question is provided by the judgment of the Court of Justice of the European Union of 12 November 2020, reference C-734/19. According to it, an adjustment does not need to be submitted if investment projects were abandoned due to circumstances beyond the taxpayer's control. This approach is also presented by the National Tax Information, including in the interpretations of 8 May 2023, 0112-KDIL1-2.4012.119.2023.1.DS, of 4 August 2023, 0112-KDIL1-3.4012.298.2023.1.JK, and of 22 November 2023, 0114-KDIP4-1.4012.506.2023.1.RMA.
They stipulate that if, due to circumstances beyond the taxpayer's control, they never used purchased goods or services for taxable transactions, they are entitled to deduct input VAT on goods and services acquired in connection with investment work performed for the intended use of planned taxable business activities. However, the circumstances surrounding this behavior should always be considered, in particular whether they were a consequence of events beyond the taxpayer's control or conscious business decisions.
Whether the investment was abandoned due to reasons beyond our control is assessed by the tax authorities. Therefore, it's a good idea to obtain a tax ruling before abandoning the investment. This will help demonstrate in the event of a tax audit that a correction was not necessary. If this situation applies to you, we encourage you to contact our law firm.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of June 17, 2024
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