When the employee cheats, but it is the employer who pays
The Supreme Administrative Court has held that the employer who failed to exercise due diligence may be liable for VAT on empty invoices issued by a dishonest employee. In practice, vague terms cause many interpretation problems. Therefore, it is worth looking at how ‘due diligence’ is understood by the NSA.
As Michał Nawrot of Thedy & Partners explains, the oral reasoning emphasises the importance of internal supervisory procedures – taxpayers should create a model where the correctness of invoices is controlled:
(a) by another specialised employee, or
(b) a professional external body.
In the NSA’s view, the taxpayer’s aim should be to create a system that builds in its employees the feeling that all irregularities will be detected quickly.
In the NSA’s view, the absence of criminal charges for the taxpayer’s president was irrelevant to the case. In this context, it is worth emphasising that, in practice, the detection of irregularities often ends with the automatic initiation of criminal fiscal proceedings against members of the management board. The authorities assume that they are responsible for any irregularities.
Therefore – in line with the principle that prevention is better than cure – it is worth implementing appropriate tax procedures within the organisation. Not only can they provide a strong argument for exercising due diligence, but they reduce the criminal tax risks for those not responsible for irregularities.
On the other hand, when it is too late to implement the procedure and a dispute with the tax authority has arisen, it is a good idea to seek the assistance of a professional attorney. Using his or her support from the very beginning of the dispute significantly increases the chances of a quick and painless conclusion of the case.