A single unverified invoice can cost your company millions and trigger years of tax proceedings. Learn how to protect your business from the consequences of fictitious invoices – even when you act in good faith.
What Are Fictitious Invoices and Why Do They Pose Such a Serious Threat?
Fictitious invoices are documents that do not reflect genuine economic transactions. In practice, this means an invoice issued for a transaction that never occurred – no goods were delivered, no services were rendered, and the document exists solely to manipulate tax settlements. This issue is closely connected to the broader problem of fictitious transactions, which Polish tax authorities are increasingly adept at detecting.
The problem of fictitious invoices in commercial dealings manifests in several forms:
Invoices documenting non-existent transactions – the most straightforward case, where an invoice is created without any underlying economic event. The issuer and recipient conspire to produce a document exclusively to obtain a tax advantage.
Invoices involving non-existent entities – the document names a party that conducted no genuine business activity, served as a “front company,” or did not exist at the invoice date.
Invoices with incorrect parties – a transaction genuinely occurred, but between different parties than those stated on the invoice. This is a common feature in VAT carousel fraud schemes.
The Scale of the Problem in Poland
According to Ministry of Finance data, in 2024 Polish tax authorities denied VAT deduction rights on invoices documenting fictitious transactions totalling over PLN 8 billion. Significantly, many entrepreneurs who were denied deductions were not conscious participants in fraud – they fell victim to dishonest counterparties.
Legal Consequences of Fictitious Invoices – What Does an Entrepreneur Face?
Tax Liability
The tax consequences associated with fictitious invoices are severe and multifaceted. They inevitably lead to tax disputes that may persist for years:
Denial of VAT deduction rights – the fundamental consequence arising from Article 88(3a)(4)(a) of the Polish VAT Act. If the tax authority establishes that an invoice documents activities that were not performed, the taxpayer forfeits the right to deduct input VAT. In practice, this means repaying VAT previously deducted.
Default interest – interest on tax arrears accrues on the principal amount, which in protracted proceedings can constitute a substantial percentage of the total liability.
Sanction under Article 108 of the VAT Act – as the Supreme Administrative Court explained in its judgment of 31 May 2017 (I FSK 1824/15): “The obligation to pay tax under Article 108(1) of the VAT Act arises solely from the fact of issuing an invoice. This is a preventive provision intended to counteract the introduction of unreliable invoices into circulation.”
Fiscal Penal Liability
Fictitious invoices may trigger liability under the Fiscal Penal Code, resulting in serious fiscal criminal cases:
Article 62 § 2 FPC – issuing an unreliable invoice, classified as invoice fraud, carries a fine of up to 720 daily rates. For substantial amounts, this can translate into penalties measured in millions of złoty.
Article 56 § 1 FPC – tax fraud consisting of providing false information in a declaration that exposes tax to depletion. This carries a fine of up to 720 daily rates or imprisonment for up to 5 years, or both.
Criminal Liability
In the most serious cases, liability under the Criminal Code comes into play:
Article 270a CC – invoice forgery, carrying imprisonment from 6 months to 8 years.
Article 271a CC – issuing an invoice certifying an untruth regarding circumstances of legal significance, constituting intellectual falsification, with penalties ranging from 6 months to 8 years’ imprisonment.
For invoices exceeding PLN 10 million in value, the upper sentencing limit rises to 25 years’ imprisonment – the so-called “VAT felony.”
How to Recognise a Fictitious Invoice: Warning Signs
Red Flags Concerning the Counterparty
Counterparty verification constitutes the first and most crucial step in protecting against fictitious invoices. This forms part of the broader concept of due diligence in VAT. Watch for the following indicators:
Absence of genuine operational activity – the company exists only “on paper,” possessing no employees, office, warehouse, or any infrastructure necessary to execute the transaction.
Brief trading history – newly established companies without track records or references, particularly when they immediately propose large transactions on attractive terms.
Unusual ownership structure – frequent ownership changes, parent companies in tax havens, individuals without industry experience as owners of high-turnover businesses. It is worth verifying related parties and their actual operations.
Absence from the VAT Taxpayer Register – verification on the Ministry of Finance website (the “White List”) should be standard practice before any significant transaction.
Red Flags Concerning the Transaction Itself
Price significantly diverging from market rates – both conspicuously low and unjustifiably high prices should raise concerns. Such transactions may be scrutinised in the context of transfer pricing.
No physical movement of goods – goods “pass through” multiple entities but physically remain in the same location. This is a frequent pattern in intra-Community supply of goods schemes used in fraud.
Unusual payment terms – cash payments for large amounts, payments to private accounts, set-offs without genuine settlement. Such patterns may qualify as money laundering.
Absence of supporting documentation – invoices without delivery notes, bills of lading, or acceptance protocols. Lack of proper documentation constitutes unreliable bookkeeping.
Verification Procedures – How to Protect Your Company from Fictitious Invoices
Formal Counterparty Verification
Before establishing a business relationship with a new counterparty, conduct the following checks:
Step 1: Registry verification
- Check the Central Register and Information on Economic Activity (CEIDG) or the National Court Register (KRS)
- Confirm VAT status in the VAT Taxpayer Register (White List)
- For intra-Community transactions – verify in the VIES system, particularly important for intra-Community acquisition of goods
Step 2: Operational capacity analysis
- Does the counterparty possess resources to execute the transaction (employees, equipment, warehouse)?
- Does it conduct genuine activity in the declared scope?
- Does it have references from other customers?
Step 3: Representative verification
- Are the persons signing contracts authorised to represent the company?
- Are contact details verifiable?
Transaction Documentation
Proper documentation of every transaction constitutes your line of defence in the event of a tax audit or customs and fiscal audit:
Documents confirming the supplier’s acquisition of goods – when in doubt, you may request that the counterparty demonstrate it possessed the goods it sold you.
Transport documents – waybills, CMR documents, delivery notes with legible signatures of receiving personnel. These constitute crucial evidence in tax proceedings.
Acceptance protocols – particularly important for services lacking tangible outcomes, including intangible services.
Commercial correspondence – preserve emails, meeting notes, and agreements concerning transaction terms.
Due Diligence – The Standard Required by Tax Authorities
The concept of due diligence holds paramount importance in fictitious invoice cases. As the Supreme Administrative Court stated in judgment I FSK 1824/15: “A taxpayer cannot be deemed to have exercised due diligence if they neglected to verify the identity of sellers and failed to maintain reliable documentation.”
What does this mean in practice? An entrepreneur seeking to defend effectively against allegations of participation in fraud during tax proceedings must demonstrate that they:
- Applied counterparty verification procedures
- Documented the course of transactions
- Responded to warning signs
- Could not, having exercised the diligence required in commercial dealings, have known of irregularities
Fictitious Invoices in Intra-Group Transactions – Particular Risk
Transactions between related parties (companies within a corporate group, businesses with common ownership) are subject to heightened tax authority scrutiny as controlled transactions. This stems from the elevated risk that such transactions are artificial.
Typical Patterns Challenged by Tax Authorities
Management services (management fees) without genuine performance – charges for “management” collected by a parent company when the same individuals serve on both entities’ boards and perform no additional functions. This may lead to board member liability.
Advisory services without tangible outcomes – invoices for “strategic consulting,” “market analysis,” or “operational support” without any written reports or recommendations.
Goods transactions without physical movement – goods “pass through” several group companies but physically remain in the same warehouse. Such structures receive particular scrutiny in holding company arrangements.
How to Secure Intra-Group Transactions
Business rationale – every intra-group transaction should have a rational economic justification beyond tax effects. The control question: would we enter into this transaction on these terms with an unrelated party? Absence of such justification may also trigger application of the General Anti-Avoidance Rule (GAAR) in regard to income tax.
Transfer pricing documentation – mandatory for transactions exceeding statutory thresholds, but advisable for smaller transactions as evidence of arm’s length terms.
Material evidence of performance – protocols, reports, correspondence, time records of personnel engaged in service provision.
What to Do When You Receive a Fictitious Invoice: Course of Action
Scenario 1: Suspicion before booking
If a received invoice raises concerns, before recording it:
- Withhold VAT deduction – do not include the invoice in purchase records until clarified
- Demand explanations from the counterparty – request documents confirming capacity to perform the transaction
- Verify physical flow – ensure goods/services were actually delivered/performed
- Upon confirmation of doubts – refuse the invoice and consider terminating the relationship
Scenario 2: Discovery after booking
If you realise a recorded invoice may document a fictitious transaction:
- Make corrections – file an amended VAT return showing reduced input tax
- Secure documentation – gather all evidence regarding the transaction and counterparty verification
- Consider voluntary disclosure – in certain cases, voluntary disclosure may mitigate fiscal penal consequences
- Consult a lawyer – assess fiscal criminal liability risk with a specialist in fiscal criminal matters
Scenario 3: Tax audit
If the tax authority challenges transactions as fictitious during preliminary inquiries or an audit:
- Participate actively in proceedings – submit explanations, present evidence of due diligence
- Demonstrate good faith – document the verification procedures you applied
- Engage professional assistance – fictitious invoice proceedings are complex and require representation in tax disputes before the courts
Verification Tools Available to Entrepreneurs
Free Public Tools
VAT Taxpayer Register (White List) – available on the Ministry of Finance website, enabling verification of:
- Counterparty VAT status
- Bank account numbers reported to the tax office
- Registration data
VIES System – verification of EU VAT numbers for counterparties from other Member States, essential for VAT on exports.
CEIDG and KRS – basic registration data, board composition, business scope.
National Debtors Register – information on restructuring and insolvency proceedings.
Central Register of Beneficial Owners – enables identification of actual company stakeholders.
Commercial Databases
Credit reference agencies offer extended information on counterparties’ financial condition, payment history, and capital links. Access costs should be viewed as an investment in tax security and an element of comprehensive tax audit procedures.
Common Entrepreneur Mistakes – What to Avoid
Mistake 1: Trusting a “proven” counterparty
The fact that previous cooperation proceeded without issues does not guarantee the counterparty has not become entangled in fraud or changed its business profile. Verification should be an ongoing process.
Mistake 2: Focusing solely on price
An attractive price is the most common bait employed in tax fraud. If an offer seems too good to be true – it probably is.
Mistake 3: Failing to document the verification process
Conducting verification alone is insufficient – you must be able to prove you did so. Preserve registry printouts, meeting notes, and correspondence.
Mistake 4: Ignoring warning signs
If something raises your concerns – do not ignore it. Better to lose one transaction than risk years of tax proceedings and the need to appeal a tax decision.
How to Defend Yourself When Authorities Challenge Transactions
If, despite exercising due diligence, the tax authority issues an unfavourable tax decision, you have the right to mount a defence at every stage:
Appeal to the second-instance authority – you have 14 days to file an appeal. This is the moment to present additional evidence and arguments.
Complaint to the Voivodeship Administrative Court – if the appellate authority upholds the decision, you may file a complaint with the VAC. The court examines both procedural and substantive matters.
Cassation appeal to the Supreme Administrative Court – the final instance in administrative court proceedings. The SAC reviews the case for legal errors.
It is worth remembering the principle of in dubio pro tributario – irresolvable doubts concerning the content of tax law provisions shall be resolved in the taxpayer’s favour.
Summary – Key Principles for Protection Against Fictitious Invoices
✓ Verify counterparties before every significant transaction – utilise available registers and databases
✓ Document transactions – preserve not only invoices but also transport documents, acceptance protocols, and correspondence
✓ Implement procedures – establishing written verification procedures will facilitate defence in the event of an audit
✓ Respond to warning signs – unusual transaction terms, conspicuously attractive prices, absence of counterparty infrastructure
✓ Exercise vigilance in intra-group transactions – particularly with intangible services
✓ Act promptly upon detecting irregularities – voluntary correction is always preferable to correction compelled by audit
✓ Engage professional tax advisory services – in fictitious invoice matters, the stakes are too high for self-experimentation
FAQ – Frequently Asked Questions
Can I lose VAT deduction rights if I did not know an invoice was fictitious?
Yes, although case law has developed a defence based on good faith. If you demonstrate that you exercised due diligence and could not have known of irregularities, you have a chance of defending your deduction rights. However, documenting your verification activities is crucial.
How long can tax authorities challenge transactions?
Tax obligations become time-barred after 5 years from the end of the calendar year in which the tax payment deadline fell. However, initiating proceedings or an audit may interrupt or suspend the limitation period.
Must I verify every invoice?
Verification intensity should be proportionate to risk and transaction value. For routine purchases from long-standing, verified suppliers, periodic verification updates suffice. For new counterparties or unusual transactions, verification should be thorough.
What if a counterparty refuses to present documents confirming its capacity to perform the transaction?
Such refusal should be treated as a serious warning sign. Consider abandoning the transaction or, at minimum, document the refusal and your response to it.
Can I apply for an individual tax ruling regarding a specific transaction?
An individual ruling provides protection regarding statutory interpretation but does not confirm the factual circumstances. The authority may challenge whether the facts described in the application correspond to reality. Therefore, a ruling does not provide effective protection against allegations of transaction fictitiousness.
This article is for informational purposes and does not constitute legal advice. For individual matters, we recommend consulting a tax advisor or legal counsel.
