We are pleased to let you know that Sendero tax advisors were able to persuade the Provincial Administrative Court in Warsaw that where performance of IT services is approved by means of a formal record (certificate) of acceptance, such services can be considered to be completed, and hence give rise to a charge to VAT, on the date on which the service provider signs the record.
This verdict is important for many IT firms.
The case involved our petition for the judicial review of a private tax ruling issued for our client, an IT company. The ruling authority held that VAT on the Company’s IT system implementation and update services may be recognised as becoming chargeable not on the date on which the customer signs the formal record of acceptance, but on the date on which the provider reports completion to the customer and hands the work over to them for acceptance. The ruling authority claimed that IT services do not fall within CJEU’s judgment of 2 May 2019 in case C-224/18 Budimex S.A., which the Company relied upon to make its case.
The authority’s approach was very unfavourable for our client. In accordance with the ruling, the client would have to account for VAT on its services even before the fee for them becomes due. The reason is in the IT industry standards by which the Company is not entitled to claim its fee until the customer signs the record of acceptance of the Company’s work.
Following our petition for a judicial review of the ruling, the Provincial Administrative Court in Warsaw held on 18 April 2023 (case no. III SA/Wa 2823/22) that, contrary to the current position of tax authorities but in line with Sendero consultants’ arguments, case C-224/18 Budimex S.A. should apply as precedent. In accordance with C-224/18 Budimex S.A., if:
- the acceptance formality has been agreed by the parties in their contract,
- the requirement to have a formal record of acceptance reflects the conventional rules and standards in the field in which the service is supplied,
- that formality constitutes the actual completion of the service and determines the amount of consideration due,
then the service can be considered to be supplied on the date on which completion of the work is approved by the client, with such approval expressed in a formal record of acceptance. Therefore, holding that those conditions were satisfied in the case before it, the Polish court reversed the tax ruling under review.
Furthermore, the court considered that C-224/18 Budimex S.A. is of universal importance and should apply to all services that satisfy those conditions, not just to construction services or IT services.
As such, the judgment of the Warsaw court will hopefully cause the idea that VAT should be considered to become chargeable on signature of record of acceptance to be broadly approved for all services where formal acceptance procedures are involved.