Verification of VAT refund validity from 1 January 2017

A taxpayer submitting VAT tax return in which they report an overpayment of input tax over output tax to be refunded to a bank account has to be aware the tax authority may verify whether there are legitimate grounds for the reported refund.

Verification of the validity of refund claims from 1 January 2017 was regulated in detail in the VAT Act.

Pursuant to Article 87 of the VAT Act, second sentence, if validity of a refund requires additional verification, the head of tax office may prolong the statutory deadline for tax refund until taxpayer verification, carried out within audit proceedings, compliance check, customs and tax inspection or tax proceedings, is completed.

Verification of validity of a refund of the difference in tax may entail verifying taxpayer settlements, settlements of other entities participating in trade in goods or services that are the subject of the taxpayer’s settlements and checking whether the settlement are in line with the actual history of transactions (Article 87.2 of the VAT Act).

Pursuant to Article 87.2c of the aforementioned act, the head of tax office prolongs ex officio the taxpayer’s deadline for refunding the difference in tax stipulated in Article 87.2, 5a and 6, following a request filed by the Chief of the Police, the Head of Central Anti-Corruption Bureau, the Head of Internal Security Agency or General Prosecutor, due to the performed proceedings, for the period specified in the request, but no longer than 3 months. The request has to have a rationale.

If the tax authority prolongs the deadline for a refund and the taxpayer, apart from filing their request, provides security in the amount of the questioned refund, the refund will be made within the statutory deadline, i.e. within 60 days of submitting a tax return (or 25 days in the case of expedited deadline). In the situation when a request and security are filed 13 days prior to the deadline or later, the refund will be made within 14 days of providing the security.

It should be noted that prolongation of the deadline for refunding difference in VAT tax is employed by tax authorities only in the situations when there are doubts around the reliability of taxpayer settlements and in the statutory deadline it is not possible to verify the validity of the refund.

The undersecretary of state consequently states that VAT tax, due to its construction, belongs to taxes especially exposed to abuse, especially when it comes to refund. Due to this, tax offices in justifiable cases have to carry out additional verification of VAT refunds. He also indicated that verification of grounds for VAT refund cannot be limited only to checking (within audit proceedings, tax compliance check or tax proceedings) the tax return submitted by the taxpayer. In order to determine refund’s validity, you also need to examine the entire supply chain, verify settlements of other entities participating in the trade in particular goods or services, verify other documents confirming actual performance of transactions, etc. which may result in prolongation of the deadline for tax refund.

He also stressed that tax offices make every effort to make tax refunds within the statutory deadline and are not interested in unjustifiable prolongation of the deadline. In case it is established that the amount of tax refund was valid, they have to return it with interest.