Due Diligence in Verifying Counterparties in Order to Deduct VAT

Abstract

Considerations on exercising due diligence while verifying their counterparties by taxable persons for the purposes of settling VAT should be, as a matter of priority, related to one of the fundamental rights pertaining to VAT. The primary right arising from the Council Directive 2006/112/EC is a right to deduct the input tax which may be limited by member states only in exceptional situations. Neither Polish nor the European Union legislation define the concepts of due diligence and good faith. While making a specific assessment of facts, they ensure so called interpretation margin that makes it possible to take non-legal criteria significant for business operations into account. Defining the concepts of due diligence or good faith in a precise manner without evoking controversy seems to be impossible in the process of the application of the law. Due diligence should be suggested to be understood as the regular merchants commonly adopted diligence that is related to, inter alia, the conviction that goods are not provided or a service is not performed by a person intending to bypass tax law provisions.