On the crime of VAT fraud in Poland—and how a routine tax return can lead to twenty-five years in prison
You file your monthly VAT return, showing input tax exceeding output tax. The tax office transfers the difference to your account. The scenario repeats itself month after month—routine, unremarkable, barely worth thinking about. Until the day it emerges that the invoices supporting your deductions documented transactions that never occurred. Or that your supplier was a link in a carousel fraud scheme. Suddenly you face charges under Article 76 of the Fiscal Penal Code—tax fraud carrying fines up to 720 daily rates, imprisonment, or both. And if the amounts on those invoices exceed certain thresholds, you may also be looking at invoice fraud under the Criminal Code, punishable by up to twenty-five years.
The progression from mundane bookkeeping to potential felony is shorter than most businesspeople imagine.
Among fiscal offenses in Polish law, Article 76 occupies a distinctive position. It is the only provision that explicitly employs the element of “misleading”—a construction borrowed from Article 286 of the Criminal Code, the statute governing ordinary fraud. The difference lies in the victim: not a business partner or a bank, but the tax authority itself. And the target: state assets in the form of undue tax refunds.
What makes the provision particularly unforgiving is its formal character. The offense is complete at the moment of creating exposure to an undue refund. The money need not actually reach the perpetrator’s account. It suffices that the perpetrator created a state of high probability that the authority would make the payment. Actual harm to the treasury is beside the point; the crime is consummated in the attempt.
Here lies the first surprise for many entrepreneurs. Unlike most fiscal offenses—which can only be committed by taxpayers, withholding agents, or persons managing their affairs—fraud under Article 76 is a common offense. Anyone can be its perpetrator, regardless of their relationship to the tax system.
The implications are far-reaching. A person who never conducted legitimate business but created a fictitious entity solely to extract VAT refunds faces liability under this provision. Moreover, as the Supreme Court has repeatedly emphasized, if the entire “business” consisted of fabricating documents and filing false returns without any genuine commercial activity, the perpetrator may face charges not only under Article 76 of the Fiscal Penal Code but also under Article 286 of the Criminal Code for ordinary fraud.
The two tracks of liability run parallel, and both may apply simultaneously.
The Anatomy of Deception
The statute specifies that misleading the authority occurs through one of two means.
The first is providing data inconsistent with reality—presenting in a declaration, application, or other document information that does not correspond to facts. This might mean reporting a transaction that never took place, inflating the value of purchases, or declaring an export of goods that never left the country.
The second is concealing the true state of affairs—omitting circumstances material to determining entitlement to a refund or its amount. A classic example: failing to report taxable sales while claiming full input deductions.
Notable is what the provision does not include. It does not criminalize “exploiting an error”—the second form of conduct known to ordinary fraud. If the authority arrived at an erroneous belief about the facts without any contribution from the perpetrator, and the perpetrator merely failed to correct that error, the elements of Article 76 are not satisfied. This represents a meaningful distinction from Article 286 of the Criminal Code.
When a Mistake in the Return Is Not a Crime
Not every irregularity in a VAT settlement leads to criminal liability. The prerequisite is intent—the perpetrator must know that the data provided is inconsistent with reality, or at minimum accept such a possibility.
The Supreme Court has repeatedly underscored this point. In a December 2023 ruling, it stated plainly: “Not every irregularity in the performance of tax obligations gives rise to fiscal criminal liability. The condition for such liability is the possibility of attributing fault to the accused. Intent cannot be presumed and must be proven in criminal proceedings.”
The practical significance is considerable. An entrepreneur who deducted VAT from an invoice issued by an entity that later turned out to be a carousel participant does not necessarily bear criminal responsibility. The crucial question is whether the entrepreneur acted knowingly or fell victim to fraud. As the Kraków Administrative Court explained: the authority must unambiguously determine whether the taxpayer participated in the scheme consciously or was an unwitting participant. Only in the latter case does one examine due diligence. Conscious participation precludes such analysis altogether.
Invoice Crimes: When the Stakes Rise Dramatically
Since March 2017, alongside the Fiscal Penal Code provisions, Articles 270a and 271a of the Criminal Code have introduced what Polish lawyers call “invoice crimes.” These penalize:
Material falsification of invoices (Article 270a)—forging or altering an invoice with respect to circumstances that may affect the determination of public-law obligations.
Intellectual falsification of invoices (Article 271a)—issuing an invoice that certifies untruth regarding such circumstances.
The penalties are severe. For invoices exceeding ten million złoty, the offense constitutes a felony carrying five to twenty-five years’ imprisonment. For amounts above five million—three to twenty years. This represents an entirely different order of magnitude from Article 76 of the Fiscal Penal Code, where maximum imprisonment is five years, or ten with extraordinary aggravation.
The 2017 amendment transformed the legal landscape. Conduct that previously exposed a perpetrator to fiscal penalties now potentially triggers felony prosecution with sentences comparable to those for the most serious violent crimes.
Two Systems of Liability for One Act
Issuing a fictitious VAT invoice and using it to extract a tax refund may theoretically satisfy the elements of multiple provisions simultaneously: Article 76 of the Fiscal Penal Code, Article 62 § 2 (issuing unreliable invoices), Articles 270a or 271a of the Criminal Code, and in certain configurations Article 286 as well.
The Supreme Court, in a seven-judge resolution of January 24, 2013, established that rules for eliminating multiple evaluations—specialty, consumption, subsidiarity—apply only to concurrence of provisions within a single statute. They do not apply to the ideal concurrence of a common offense with a fiscal offense under Article 8 § 1 of the Fiscal Penal Code.
In practice, this means that a perpetrator may be held liable simultaneously for a Criminal Code offense and a fiscal offense—with the caveat that only the more severe penalty is executed. The perpetrator is nevertheless convicted of both crimes, which matters for recidivism, expungement of conviction, and reputation in commercial dealings.
The defendant faces two parallel prosecutions, two judgments, two legal qualifications—even though ultimately only one sentence is served.
The Boundary Between Codes
Case law has developed criteria for distinguishing the two regimes.
Fiscal offenses (Articles 76 and 62 § 2 of the Fiscal Penal Code) apply when the perpetrator conducts genuine business activity, settles accounts with the treasury, and uses fictitious invoices to reduce tax burdens within that activity.
Common offenses (Articles 286, 270a, and 271a of the Criminal Code) apply when the perpetrator creates an entity solely to extract VAT refunds without conducting any real business. As the Supreme Court has put it: the fictitious company serves merely as a vehicle for extracting money from the state treasury.
The distinction can be difficult in practice. An entrepreneur may conduct partially genuine business while partially participating in carousels. The entrepreneur may initially be unaware of involvement in fraud, only to become a conscious participant over time. Courts must then evaluate proportions, intentions, and the evolution of conduct.
The Problem of Empty Invoices
Particularly complex is the question of so-called empty invoices—documents that do not reflect actual transactions.
If an entrepreneur conducts real business and, alongside reliable invoices, also uses unreliable ones to reduce output tax, the conduct qualifies under Article 76 of the Fiscal Penal Code, potentially in conjunction with Article 62 § 2.
But a person who creates a business entity solely to exploit VAT refund procedures, without any genuine commercial activity, commits an ordinary offense under Article 286 § 1 of the Criminal Code. If the invoices additionally exceed the thresholds in Articles 270a or 271a—invoice crime charges follow.
The Supreme Court has consistently maintained this position since 2013. The introduction of invoice crimes in 2017 merely intensified consequences for perpetrators operating in “pure extraction” mode.
Carousel Fraud: Mechanism and Consequences
A substantial portion of Article 76 cases involves so-called carousel trading. The mechanism is always similar: goods circulate among numerous domestic entities—often fictitiously, without actual transport—gradually accumulating VAT. The goods are then sold abroad as an intra-Community supply at a zero rate, and the exporter claims a refund of excess input tax.
Characteristic features of carousels include: absence of genuine commercial rationale for multi-stage trading, lightning-fast payments without deferral, no verification of goods quality, participation of entities lacking infrastructure and experience in the relevant industry. After crossing the border, goods often immediately return to the country to enter another carousel.
For participants in such structures, consequences are now far more serious than before 2017. Beyond liability under Article 76, they face charges under Article 286 (fraud), Articles 270a or 271a (invoice crimes), and potentially Article 299 (money laundering). Courts apply the ideal concurrence construction, adjudicating penalties for all these offenses—though only the most severe is executed.
Due Diligence: The Only Lifeline for the Unwitting Participant
An entrepreneur unaware of carousel involvement may mount a defense based on due diligence. This requires demonstrating verification measures typical for trading in the relevant goods: checking the counterparty in registries, verifying capacity to perform transactions, confirming actual movement of goods.
As the Opole Administrative Court emphasized: “Counterparties’ participation in an unreliable scheme cannot in itself burden the taxpayer and deprive them of the right to deduct input tax. In chain frauds and carousels, by design there also exist reliable entities unaware of the scheme.”
The difficulty is that due diligence standards rise with the scale and specificity of transactions. The more attractive the price, the shorter the supply chain to the producer, the less typical the counterparty—the more questions a prudent entrepreneur should ask.
Instrumental Initiation of Proceedings: A New Defense Front
Since a May 2021 resolution by the Supreme Administrative Court, taxpayers have gained a new defensive tool. Administrative courts now examine whether initiation of fiscal criminal proceedings was “instrumental”—that is, whether it served solely to suspend the limitation period for tax obligations rather than to pursue genuine criminal conduct.
As the Gliwice Administrative Court explained: where instrumentality is suspected, the authority must present in its decision appropriate evidence and chronology of procedural steps demonstrating that initiation was justified by suspicion of a prohibited act, not merely by desire to extend the period for collecting tax.
This represents a significant shift in perspective. The taxpayer may now challenge not only the merits of charges but also the authorities’ motivation.
Practical Consequences of Dual Liability
For entrepreneurs, the existence of two parallel penalization systems means several things.
Severity of sanctions—invoice crime potentially means twenty-five years’ imprisonment, while Article 76 of the Fiscal Penal Code in its basic type provides for a maximum of five years.
Easier application of preventive measures—felony charges facilitate pretrial detention given the statutory penalty level.
Longer limitation periods—felonies become time-barred later than misdemeanors, extending the period of legal uncertainty.
Complexity of defense strategy—defense must simultaneously account for both liability regimes, requiring coordination of actions in criminal and fiscal criminal proceedings.
Dual conviction—even if only the more severe penalty is executed, the perpetrator is convicted of both offenses, affecting legal status and reputation.
The Evolution of Penalties
The penalty exposure under Article 76 alone—setting aside concurrence with Criminal Code provisions—is already substantial. The basic type (§ 1) provides for fines up to 720 daily rates, imprisonment, or both. At current daily rate levels, this means fines potentially reaching several million złoty.
If the amount exposed to undue refund is of minor value, the perpetrator faces only a fine under § 2. When the amount does not exceed the statutory threshold, the matter constitutes a fiscal misdemeanor.
Worth remembering is that until 2005, VAT provisions additionally provided administrative sanctions in the form of “additional tax obligations.” The Constitutional Tribunal twice—in 1998 and 2007—ruled that combining these sanctions with fiscal criminal liability violated the ne bis in idem principle. As a result, provisions on additional obligations were repealed. Today, however, they have returned in modified form as sanctions under Article 112b of the VAT Act—and doubts about their relationship to criminal liability have resurfaced.
When the Audit Arrives
If the tax authority questions the right to VAT deduction or refund, and fiscal criminal proceedings loom in the background—or worse, prosecution for invoice crimes—establishing a defense strategy at the earliest possible stage is critical.
Should one argue lack of awareness? Due diligence? Challenge the instrumentality of proceedings initiation? Negotiate voluntary submission to liability under the Fiscal Penal Code before the prosecutor brings Criminal Code charges?
The answer depends on circumstances. One thing is certain: explanations provided in tax proceedings may be used in criminal proceedings. And a decision determining tax liability—while not automatically establishing guilt—significantly influences how criminal courts perceive the case.
This is why, from the moment of audit, it pays to consider fiscal criminal and criminal consequences. The earlier, the better. The route from routine VAT return to felony conviction is shorter than it appears—and the signposts along the way are easy to miss.
