VAT Due Diligence in Poland: Definition, Ministry Methodology, Case Law
Due diligence in VAT is the measure of care that the case law requires of a buyer of goods or services in order to keep the right to deduct input tax where fraud occurred at an earlier stage of the supply chain. No statute defines it. The standard derives from the judgments of the Court of Justice of the European Union and of the Polish Supreme Administrative Court, while the 2018 document of the Polish Ministry of Finance known as the Methodology describes that standard in practical terms without being its source.
The concept and its origin
Neither the Polish VAT Act nor the Tax Ordinance Act defines due diligence. The concept arose in the case law of the Court of Justice as the second half of the test from the joined cases Kittel and Recolta Recycling (C-439/04 and C-440/04): the right to deduct is lost by a taxable person who knew or should have known that, by its transaction, it was taking part in VAT fraud. “Should have known” means that a reasonably careful trader would have noticed the signs of fraud. Due diligence is therefore the measure of that constructive knowledge, and its absence can justify refusal of deduction only if the authority establishes, on objective evidence, that the taxable person knew or should have known of the connection between the transaction and the fraud (Mahagében and Dávid, C-80/11 and C-142/11, paragraphs 45 and 49). The assessment concerns the moment the transaction was concluded and the circumstances then available, not knowledge gained later in the course of an audit (Aquila Part Prod Com, C-512/21, paragraph 52; Global Ink Trade, C-537/22, paragraph 39). The fraud mechanism against which the concept operates is described in our entry Carousel Fraud (Missing Trader Fraud).
Due diligence is not a condition of deduction. Before the authority examines it, the taxable person must satisfy the substantive conditions under Article 86(1) of the VAT Act and show that the transaction actually took place and that the supplier was a taxable person (W. sp. z o.o., C-114/22, paragraphs 31 and 37). Where the actual supplier has not been identified and its status cannot be established, the deduction fails regardless of the buyer’s diligence (Kemwater ProChemie, C-154/20, paragraph 41). Only once the substantive conditions are met and fraud in the chain is alleged does diligence become the axis of the dispute.
The Ministry of Finance Methodology of 2018
The “Methodology for assessing due diligence by purchasers of goods in domestic transactions” was published by the Ministry of Finance on 25 April 2018 after consultations with business organisations. It is addressed to officials of the National Revenue Administration and describes the circumstances they should take into account when assessing a purchaser of goods in domestic trade who was not a fraudster and did not know of the fraud. It is neither a legal act nor an official tax explanation within the meaning of the Tax Ordinance Act. The Ministry later published an updated version of the Methodology, which takes account of the white list, the mandatory split payment mechanism and the notification of payments to accounts outside the register. The document itself states that it gives the taxpayer no legal protection and is a set of non-binding guidance for officials, and that failing to take the steps it describes does not automatically cause the loss of the right to deduct, because diligence may be shown in any other way.
The Methodology divides the assessment into formal and transactional criteria. The formal criteria concern the counterparty’s status: registration in the National Court Register or the business register (CEIDG), registration as an active VAT taxpayer, required licences and permits, and the authority of the person concluding the transaction. The transactional criteria concern the circumstances of the cooperation itself, separately at its outset and during its course: a price significantly below market level without justification, cash payment or a price reduction for cash, unusually short payment terms, goods outside the counterparty’s business profile, the absence of a contract, security and insurance in large transactions, contact only through intermediaries, and sudden changes in the terms of cooperation. The document also treats payment through the split payment mechanism as decisive: a buyer who has verified the formal criteria and paid through that mechanism is deemed to have exercised due diligence, unless other circumstances clearly indicate otherwise or the buyer knew that the invoice was fictitious or unreliable (Article 108c(3) of the VAT Act).
The limits on the use of such guidance were set by the Court in Global Ink Trade (C-537/22, paragraph 52): the authority may rely on it as long as it does not undermine the burden of proof resting on the authority, does not impose a duty of comprehensive verification of the counterparty, is complied with by the authority itself, and is unambiguous and predictable. The Methodology is thus neither a checklist whose completion protects nor one whose omission condemns. It is a description of what a reasonable trader checks before paying.
Statutory instruments that define the scope of verification
Since 2019 part of what the Methodology described as good practice has been written into statute. The register of VAT taxpayers known as the white list (Article 96b of the VAT Act) allows a counterparty’s status and settlement account to be checked. Payment of more than PLN 15,000 to an account outside the register triggers joint and several liability for VAT unpaid by the supplier (Article 117ba of the Tax Ordinance Act) and the loss of the expense as a tax-deductible cost, unless the buyer notifies its tax office of such a payment within 7 days of ordering the transfer or pays through the split payment mechanism. The split payment mechanism (Article 108a of the VAT Act) is mandatory for goods and services listed in Annex 15 on invoices above PLN 15,000 gross and may be used voluntarily for any invoice; payment through it excludes joint liability under Article 105a and the consequences of paying outside the white list. The buyer’s joint and several liability under Article 105a covers Annex 15 goods on invoices up to PLN 15,000 where the buyer knew or had reasonable grounds to suspect that the tax would not be paid, and from 1 January 2027 it will also cover intangible services listed in a new Annex 16. The rules of that liability after the Vaniz judgment (C-121/24) are discussed in our article Unpaid VAT by a Counterparty: The Purchaser’s Liability.
In intra-Community trade the measure of diligence is the rule applicable to the transaction in question. For services supplied to a customer from another Member State the standard is set by Article 18 of Council Implementing Regulation (EU) No 282/2011: confirmation of the VAT number in VIES, registration documents and normal commercial security measures, including checking that the payer is the contracting party. In its judgment of 20 May 2025 (I FSK 578/22) the Supreme Administrative Court set aside a decision that had required a haulier to investigate the actual place of business of its foreign customers under criteria developed for deduction cases. For intra-Community supplies of goods, diligence is accompanied by the documentation of dispatch required by Article 42 of the VAT Act.
The judicial standard: the scope of required diligence
The case law grades its requirements. Where nothing arouses suspicion, the authority may not require a buyer to check whether the issuer of the invoice is a taxable person, holds the goods, employs staff or accounts for VAT; those are tasks of the administration (Mahagében and Dávid, paragraphs 61 and 62; Tóth, C-324/11; Global Ink Trade, paragraph 50). Where there are indications of irregularity, increased diligence may be expected, but not the comprehensive checks that the authority carries out with means unavailable to a trader (Mahagében and Dávid, paragraph 60; Aquila, paragraphs 52 and 53). The assessment is individual: in its judgment of 2 August 2024 (I FSK 679/24) the Supreme Administrative Court required the authority to identify the circumstances of the specific transactions that should have heightened the taxpayer’s caution and to relate the diligence standard to the taxpayer’s commercial practice. A closed invoicing chain is circumstantial evidence, not proof of a lack of diligence, and suppositions that shift the burden of proof onto the taxpayer are not permitted (I FSK 2143/21 of 27 March 2025). The authority must prove both elements: the fraudulent nature of the transaction and the taxpayer’s state of mind (I FSK 903/22 of 10 November 2023).
The protection has limits. Internal purchasing procedures and the exclusion of cash payments are evidence of diligence, but a court examines whether they were actually applied in the transaction in question and whether they were sufficient in view of the available signals (Aquila, paragraph 53). The physical existence of the goods, payment by bank transfer and correct records do not in themselves rule out knowing participation, since in a carousel they serve precisely to conceal the scheme (I FSK 679/24). A price clearly below market level, a new counterparty with no history or assets, sensitive goods sold on unusual terms, cash payment: each of these circumstances means little on its own, but their combination moves the standard towards a duty to ask questions, and the failure to ask them is what the authorities and the courts treat as “should have known”.
Documenting diligence
In a dispute what counts is not whether the buyer was careful but what it can produce to show it. The evidence consists of documents created at the time of the transaction, not after the audit began: printouts from the white list and VIES with the date of the check, extracts from the National Court Register or CEIDG, licences and permits, framework contracts, product specifications, transport documents, confirmations of transfers to registered accounts, commercial correspondence, and a record of the reaction to warning signs: what question was asked, what answer was received and what decision was taken. A written counterparty verification procedure, applied at the start of cooperation and repeated periodically, organises that evidence and shows that caution was the rule rather than the exception. Such documentation does not replace the authority’s burden of proof, but it deprives the authority of the argument that the taxpayer did not care whom it was trading with. How we defend businesses facing VAT carousel allegations is described on our service page.
Robert Nogacki is a Polish attorney at law (radca prawny), the founder and managing partner of Kancelaria Prawna Skarbiec (Skarbiec Law Firm), which has operated continuously since 2006.
The law is equal for everyone, but the parties rarely are: on one side stands an organization with time, money, and lawyers, on the other a person with one business, one nest egg, and one life.
Clients rarely come to him with a legal problem. They come with a problem that also has a legal side: an audit that began with a single invoice, money entrusted to someone who has disappeared, a company that has to be passed on before it is too late. Most such matters are decided long before the first letter is written, in decisions made without asking and in deadlines nobody remembered. So he begins by asking how the client got here, not what the client should have done.
He advises entrepreneurs and families from more than a dozen countries, including those whose accounts the tax office has just seized and who do not know what to do tomorrow morning. He defends them in tax audits, customs and fiscal inspections, disputes with the tax authorities, and criminal tax proceedings. He represents victims of investment fraud and Ponzi schemes. He helps families set up family foundations and plan succession, so that a life’s work outlasts a single generation.
Not every case can be won. Every case can be run so that the client knows where they stand. Since 2006 he has represented the victims in the WGI case (Warszawska Grupa Inwestycyjna, the Warsaw Investment Group), one of the longest criminal cases in the history of the Polish financial market, because some things must not be left half finished, even when they take two decades. In the case of the collapsed cryptocurrency exchange Zonda (Zondacrypto, operated by BB Trade Estonia OÜ), he represents several hundred victims in the criminal investigation conducted by Poland’s National Prosecutor’s Office and in the Estonian bankruptcy proceedings.
Kancelaria Prawna Skarbiec is listed in the rankings of Poland’s largest tax advisory firms published by Dziennik Gazeta Prawna and Rzeczpospolita, and it is a four-time recipient (2015 to 2018) of the European Medal awarded by the Business Centre Club and the European Economic and Social Committee. Robert Nogacki publishes regularly, in the press and on the firm’s website, for people who have a problem rather than a law degree, because a legal opinion the client cannot understand protects only the lawyer.
He believes that the best legal advice is the kind that means the client never has to appear in court.
