Re-invoicing or Reimbursement of Costs Without VAT? The Latest Supreme Administrative Court Ruling

In business practice, situations frequently arise in which one entity incurs the cost of a service or goods and subsequently passes it on to another entity. A classic example is the so-called re-invoice – i.e., the resale of a service without adding one’s own margin, usually “at cost.”

To apply the re-invoicing mechanism, meaning to issue a subsequent invoice, the following conditions should generally be met:

• the re-invoicing entity purchased the service in its own name but on behalf of another entity,
• the actual beneficiary of the service is that “other entity,”
• there is a direct link between the service provided and the payment made by the “other entity,” i.e., reciprocity between the receipt of payment and the provision of the service.

In practice, this means that under the VAT Act, a so-called cost re-invoice is simply considered the supply of services.

When is it merely a reimbursement of costs?

Not every situation in which one entity reimburses another for expenses constitutes re-invoicing. If the expenses were incurred for the needs of the entity that paid them, and the reimbursement serves only as compensation (e.g., under a contract between the parties) or as damages, then it cannot be regarded as the provision of a service. In such cases, the reimbursement of costs should not be subject to VAT, as there is no service being rendered.

This applies in cases where, for example, an entity incurs expenses in connection with fulfilling its own obligations, which are then reimbursed by another entity merely as compensation, but without any link to the provision of a service to that other entity.

A similar situation arises with cost reimbursements under Article 29a(7)(3) of the VAT Act (concerning the reimbursement of documented expenses incurred in the name and on behalf of the purchaser or recipient of services, temporarily accounted for by the taxpayer). An example would be the reimbursement of administrative fees. In such cases, the reimbursement is not treated as the provision of services but merely as compensation for expenses incurred (and therefore not subject to VAT).

What do the courts say? Judgment of the Supreme Administrative Court of 3 April 2025, Ref. No. I FSK 1987/21

The Supreme Administrative Court confirmed that cost reimbursement is not always documented by means of a so-called re-invoice. The case concerned a situation in which a former shareholder of a company undertook to reimburse it for advisory service costs related to ongoing tax proceedings.

The Director of the National Tax Information argued that such reimbursement should be treated as a taxable service subject to VAT. The reasoning was that, by the company incurring advisory service costs, the former shareholder could potentially recover part of the price from the sale of his shares.

First, the Provincial Administrative Court in Warsaw, and subsequently the Supreme Administrative Court, disagreed with this position. The courts pointed out that:

• the company purchased the advisory services for itself and was the party to the contracts with the advisors,
• the company was the beneficiary of these services (the advisors acted solely in its interest),
• any potential, incidental benefit on the part of the former shareholder, who had sold his shares, was not the purpose of the company’s acquisition of these services,
• the former shareholder had no rights to benefit from the advisory services nor to decide on their scope,
• the reimbursement of costs served as compensation rather than remuneration for a service.

Consequently, the Supreme Administrative Court held that in this case there was no basis for issuing a so-called re-invoice, and the reimbursement of costs was not subject to VAT.

Why is this important?

This issue is particularly relevant for companies within corporate groups, which often share costs and later settle them internally. The court ruling highlights the importance of correctly documenting cost reimbursements – either with VAT (as a re-invoice) or without VAT. The key lies in determining who actually benefits from the service:

• if another entity benefits from the service – issuing a re-invoice with VAT may be justified,
• if the service was provided to the entity that paid for it, and another entity merely reimburses the costs – the use of a re-invoice and the application of VAT may not always be appropriate.

Unfortunately, business relations are often complex, and properly and safely reallocating costs and accounting for VAT becomes more difficult when multiple entities benefit from purchased services. We have extensive experience in VAT settlements and re-invoicing and would be pleased to provide you with professional assistance.