Important ruling in the case of the so-called tax carousel​

The Supreme Administrative Court Overturns First-Instance Judgment in Carousel Fraud Case. The judgment is particularly significant as it upholds the appellant’s position that, when a tax authority alleges a taxpayer’s knowing participation in tax fraud, it bears the burden of proving this claim. The mere fact that one entity in the transaction chain is found to be fraudulent does not automatically “contaminate” the entire chain—along with all consequences related to the deduction of input VAT.

On the contrary, the Supreme Administrative Court (NSA) agreed with the appellant that the position of each participant in such a transaction chain must be assessed individually, and any conclusions drawn should apply solely to the taxpayer whose transaction is under scrutiny.

Crucially, the NSA also ruled that a tax authority cannot arbitrarily and without proper analysis adopt an alternative accusation—namely, asserting that the taxpayer was either a knowing participant in the fraud or, at the very least, failed to exercise due diligence in verifying the transaction (or business partner). In the NSA’s view, the authority must either prove the taxpayer’s awareness of participation in the fraud (if such an allegation is made) or assess whether the taxpayer exercised due diligence in verifying the business partner or transaction (if the allegation is not one of knowing participation but rather of insufficient diligence).

This ruling is of considerable importance as it curtails the previous practice of tax authorities, which frequently alternated between these accusations—conscious participation or lack of due diligence—thereby avoiding the obligation to prove the taxpayer’s knowing involvement in the fraud.

In addition to Tomasz Michalik (VAT), Dr Piotr Karwat also acted as counsel in the case.