The Purchase of Fictitious Invoices
The determination that a taxpayer procured invoices lacking a genuine transactional basis does not, without more, establish that the same taxpayer issued similarly fictitious documents. This foundational principle — self-evident in theory, yet routinely disregarded in administrative practice — was reasserted by the Voivodeship Administrative Court in Łódź in its judgment of 19 March 2020 (Case No. I SA/Łd 864/19), which vacated a tax authority decision that had conflated two analytically distinct grounds of VAT liability.
I. Two Statutory Regimes, One Erroneous Conflation
Polish VAT law imposes separate consequences on the recipient and the issuer of an invoice that does not reflect an actual economic transaction. Article 88(3a)(4)(a) of the Act on Tax on Goods and Services of 11 March 2004 (“the VAT Act”) denies the right to deduct input tax where the underlying invoice documents a transaction that never occurred — a provision directed at the purchaser of a fictitious invoice. Article 108(1) of the same Act, by contrast, targets the issuer: any person who issues an invoice showing a VAT amount is obligated to remit that amount to the Treasury, irrespective of whether the documented transaction took place.
These are not opposite ends of a single continuum; they are structurally independent bases of liability, each requiring its own evidentiary foundation. The judgment under consideration is significant precisely because it illuminates the analytical boundary between them — a boundary that the tax authorities, in the case at bar, failed to observe.
II. Factual Background: The Anatomy of an Ostensible Supply Chain
The taxpayer, an entrepreneur engaged in the wholesale distribution of photographic equipment, recorded a total of 105 purchase invoices from two suppliers — designated in the proceedings as PHU A (H.P.) and PHU B (E.P.), both based in Białystok — over the period from November 2011 to June 2014.
Prior proceedings conducted against these suppliers had conclusively established the fictitious character of their operations. Final administrative decisions — one of which was upheld by the Voivodeship Administrative Court in Białystok in a binding judgment of 28 June 2017 (Case No. I SA/Bk 100/17) — found that neither supplier had actually possessed the goods specified on the invoices. Their purported upstream acquisitions traced back to entities whose principals denied any involvement: one testified that the invoices bore forged stamps of his firm; another confirmed that the quantities shown had never been sold. The evidence further revealed a pattern of circular invoicing, in which H.P., E.P., and the taxpayer each issued sales invoices to an overlapping set of downstream recipients.
The Head of the Tax Office drew two conclusions from this evidentiary record. First, he denied the taxpayer the right to deduct input VAT from the contested purchase invoices under Article 88(3a)(4)(a) — a determination that the court would ultimately sustain. Second — and this is where the analytical error occurred — he invoked Article 108(1) to require the taxpayer to remit VAT shown on the sales invoices that the taxpayer himself had issued, reasoning that if the taxpayer could not have acquired the goods from H.P. and E.P., he could not have resold them either. The sales invoices, the authority concluded, must therefore have been equally fictitious — constituting empty invoices within the meaning of Article 108(1).
The Director of the Tax Administration Chamber upheld both determinations on appeal. The taxpayer brought the matter before the Voivodeship Administrative Court in Łódź.
III. The Court’s Holding: Affirming the Input Denial, Vacating the Output Liability
A. Denial of Input Deduction — Sustained
The court found the evidentiary basis for denying the input deduction to be amply sufficient. The decisions issued against the suppliers constituted official documents within the meaning of Article 194(1) of the Tax Ordinance, carrying a presumption of accuracy that the taxpayer had not rebutted. Moreover, the court credited the authorities’ independent findings regarding the implausibility of the taxpayer’s account of the commercial relationship: the absence of any written agreements, the exclusively telephonic ordering process, cash payments transacted at petrol stations, contradictory testimony from the taxpayer and his brother regarding the collection of goods, and — perhaps most tellingly — the economic absurdity of daily return trips between Łódź and Białystok to collect successive one-day orders.
Situating its analysis within the framework of the Court of Justice of the European Union, the court invoked the established line of authority running from Kittel and Recolta Recycling (Joined Cases C-439/04 and C-440/04) through Mahagébén and Dávid (Joined Cases C-80/11 and C-142/11) to Bonik (Case C-285/11). Under this jurisprudence, the right to deduct may be denied where, on the basis of objective evidence, the taxpayer knew or ought to have known that the transaction in question was connected with VAT fraud. The professional character of business activity, the court emphasized, carries with it heightened expectations of diligence, and the totality of the circumstances here pointed unambiguously to conscious participation in a scheme designed to generate fraudulent deductions.
B. Liability Under Article 108(1) — Vacated
The court’s analysis of the Article 108(1) determination, however, proceeded along fundamentally different lines. The authorities’ reasoning, the court found, rested on a syllogism that was logically deficient: because the taxpayer did not acquire goods from H.P. and E.P., he could not have sold goods; therefore, his sales invoices were fictitious.
The fallacy, as the court observed, lies in the suppressed premise. That the taxpayer could not have sold goods originating from the two discredited suppliers does not entail that he could not have sold goods originating from any source whatsoever. The possibility that the taxpayer conducted genuine sales of merchandise acquired through channels other than H.P. and E.P. had been neither investigated nor excluded. And yet, the application of Article 108(1) — which imposes the obligation to remit VAT shown on a “blank” invoice, i.e., one that documents no real transaction — presupposes precisely this finding: that the invoices in question corresponded to no actual supply of goods.
The court identified several evidentiary lacunae that rendered the authorities’ conclusion untenable:
First, the authorities had failed to investigate whether the taxpayer could have possessed goods from alternative sources.
Second, no effort had been made to obtain corroborating evidence — shipping documentation, courier records, email correspondence, bank transfer records — that might confirm or negate whether the documented sales transactions had in fact occurred.
Third, and perhaps most significantly, every downstream recipient named on the taxpayer’s sales invoices had confirmed that the purchases took place. The authorities had focused on peripheral inconsistencies in the witnesses’ testimony regarding the modalities of the transactions rather than on the central question of whether the transactions occurred at all.
The court further noted an anomaly that the authorities had left unaddressed: none of the downstream recipients — entities that were themselves active VAT-registered participants in the real economy — had been subjected to decisions denying their right to deduct under Article 88(3a)(4)(a) in respect of the invoices issued by the taxpayer. Such decisions, the court reasoned, would have been the inevitable consequence had the authorities genuinely believed the entire chain of supply to be fictitious.
In a passage of notable directness, the court concluded:
“The failure to conduct such evidentiary proceedings — here merely illustrated by way of example — attests to the conduct of the proceedings in a manner that is profoundly insufficient. No taxpayer may be subjected to substantial fiscal obligations without the proper conduct of evidentiary proceedings, without the establishment of facts, and without a due assessment of the evidence.”
IV. Doctrinal Significance
A. The Limits of Inferential Reasoning in Tax Proceedings
The judgment stands as an important corrective to a tendency observable in Polish tax enforcement practice: the cascading extension of adverse findings. Where an authority determines that a taxpayer’s purchase invoices are fictitious, there is an institutional temptation to treat that finding as a sufficient foundation for the further conclusion that the taxpayer’s sales invoices are equally without substance. The Łódź court’s holding makes clear that this inferential leap is impermissible. Each element of a composite tax determination requires an independent evidentiary basis; the establishment of one ground of liability does not discharge the authority’s burden of proof with respect to another.
B. The Distinction Between Article 88(3a)(4)(a) and Article 108(1)
At a deeper level, the judgment clarifies the structural relationship between the two provisions. Article 88(3a)(4)(a) operates on the demand side of a fictitious invoice transaction: it denies the purchaser the benefit of a deduction to which genuine economic activity would have entitled him. Article 108(1) operates on the supply side: it imposes on the issuer of an invoice an obligation to remit the VAT shown thereon, precisely because the invoice, once in circulation, creates a risk of downstream deductions by recipients who may be unaware of its fictitious character. The policy rationale is the protection of the fiscal system from the propagation of fraudulent tax credits.
It follows that Article 108(1) cannot be applied on the basis of findings made exclusively in the context of Article 88(3a)(4)(a). The determination that a taxpayer’s purchases were fictitious is a finding about the upstream supply chain. The determination that his sales were fictitious is a finding about the downstream supply chain. One does not entail the other. A taxpayer may — as the court hypothesized — have procured goods through undocumented or irregular channels and subsequently conducted genuine sales thereof. The resulting invoices, while perhaps raising questions under other provisions, would not constitute “blank invoices” within the meaning of Article 108(1).
C. Procedural Implications: The Standard of Proof
The judgment is also instructive on the standard of proof required to sustain Article 108(1) liability. The court’s enumeration of the evidence that the authorities failed to adduce — shipping records, courier documentation, correspondence, banking data — amounts to a practical catalogue of the investigative steps necessary before an authority may classify an invoice as fictitious for the purposes of Article 108(1). Mere inference from the fictitiousness of the issuer’s own supply chain does not suffice; the authority must affirmatively demonstrate that the transaction documented by the invoice did not occur, taking into account all available evidence, including the testimony of the putative purchasers.
V. Practical Considerations for Tax Practitioners
The implications of this holding extend beyond the specific facts of the case. For taxpayers who find themselves subject to proceedings involving allegations of fictitious invoicing, the judgment offers several strategic observations.
The first concerns the segmentation of liability. Where a tax authority’s decision encompasses both a denial of input deductions and an imposition of Article 108(1) liability, each determination must be contested on its own terms. Even where the evidentiary record on the input side is overwhelming, the output side may be vulnerable to challenge if the authority has failed to conduct an independent investigation into the reality of the taxpayer’s sales.
The second relates to the evidentiary value of downstream confirmation. Where the recipients of the taxpayer’s invoices attest to the reality of the transactions, and where no proceedings have been initiated against those recipients in respect of the same invoices, this constitutes affirmative evidence that the transactions may have been genuine — evidence that the authority ignores at its peril.
The third concerns the broader procedural context. The case illustrates a pattern increasingly visible in Polish tax enforcement: the instrumentalization of criminal fiscal proceedings to suspend the running of the limitation period under Article 70(6)(1) of the Tax Ordinance, thereby enabling the authority to reach back to assessment periods that would otherwise be time-barred. Practitioners should be attentive to the interplay between the criminal and administrative tracks, as the suspension of limitation may prolong exposure to reassessment for a decade or more.
Finally, the case underscores the practical efficacy of judicial review. The taxpayer’s decision to challenge the administrative determination before the Voivodeship Administrative Court resulted not merely in the vacatur of the contested decision, but in an award of PLN 10,800 in costs — a tangible reminder that representation in tax disputes before the courts remains a meaningful instrument of taxpayer protection.
VI. Conclusion
The Voivodeship Administrative Court in Łódź, in its judgment of 19 March 2020, reaffirmed a principle that ought to require no reaffirmation: that the imposition of tax liability demands proof, not conjecture. The procurement of fictitious invoices and the issuance thereof are distinct acts, arising under distinct statutory provisions, and giving rise to distinct evidentiary obligations on the part of the tax authority. A finding as to the former does not, eo ipso, establish the latter.
The judgment serves as a reminder that even where a taxpayer’s conduct has been found to be culpable in one respect, the rule of law requires that each additional ground of liability be separately substantiated. In the court’s formulation — one that merits adoption as a general principle of Polish tax procedure — “no taxpayer may be subjected to substantial fiscal obligations without the proper conduct of evidentiary proceedings, without the establishment of facts, and without a due assessment of the evidence.”
Robert Nogacki – licensed legal counsel (radca prawny, WA-9026), Founder of Kancelaria Prawna Skarbiec.
There are lawyers who practice law. And there are those who deal with problems for which the law has no ready answer. For over twenty years, Kancelaria Skarbiec has worked at the intersection of tax law, corporate structures, and the deeply human reluctance to give the state more than the state is owed. We advise entrepreneurs from over a dozen countries – from those on the Forbes list to those whose bank account was just seized by the tax authority and who do not know what to do tomorrow morning.
One of the most frequently cited experts on tax law in Polish media – he writes for Rzeczpospolita, Dziennik Gazeta Prawna, and Parkiet not because it looks good on a résumé, but because certain things cannot be explained in a court filing and someone needs to say them out loud. Author of AI Decoding Satoshi Nakamoto: Artificial Intelligence on the Trail of Bitcoin’s Creator. Co-author of the award-winning book Bezpieczeństwo współczesnej firmy (Security of a Modern Company).
Kancelaria Skarbiec holds top positions in the tax law firm rankings of Dziennik Gazeta Prawna. Four-time winner of the European Medal, recipient of the title International Tax Planning Law Firm of the Year in Poland.
He specializes in tax disputes with fiscal authorities, international tax planning, crypto-asset regulation, and asset protection. Since 2006, he has led the WGI case – one of the longest-running criminal proceedings in the history of the Polish financial market – because there are things you do not leave half-done, even if they take two decades. He believes the law is too serious to be treated only seriously – and that the best legal advice is the kind that ensures the client never has to stand before a court.
