Own tasks do not exclude full deduction

Łukasz Woźniak, VAT Manager at Thedy & Partners was asked to comment on the ruling. In his opinion, he indicated that the ruling of the WSA in Olsztyn is another positive judgment related to the full right to deduct input tax on investment expenditures incurred by a municipality for the construction of a marketplace. In the interpretation to which the judgment refers, the authority went against the tide, failing to note the positive line of case law for municipalities in analogous factual situations. It held that the use of a market place for taxable activities (making available, against payment, the trade stands located in the market hall and under the outdoor shelters) does not mean that the construction of the market place takes place within the framework of the economic activity conducted by the municipality. This is because, according to the authority, it is still primarily a public law activity. Expenditure on the investment, will be used for both business and non-business purposes, i.e. the municipality is not entitled to deduct the full amounts of input tax on such expenditure. The court, however, pointed out that there are no grounds to conclude that the above activities undertaken within the scope of public authority constitute use of the marketplace for purposes other than economic activity. The municipality may perform its own tasks within the scope of economic activity, consisting in satisfying the collective needs of the community in matters of marketplaces. It is permissible to recognise that reconstruction, making the market available to residents trading from whom the market and reservation fees are collected, takes place within the framework of the economic activity conducted by the municipality, although this undertaking also falls within the sphere of public law activities satisfying a collective need of the community. The court rightly pointed out that since the municipality indicated that after reconstruction of the market place, it would charge, based on civil-law agreements concluded, a reservation fee for its use, there is no doubt that in this respect it would act as a VAT taxpayer conducting economic activity subject to VAT and would be entitled to a full deduction of input tax on expenditure incurred for the implementation of the investment.

The entire article was published in Rzeczpospolita of 3 August 2022, page H7