A company falls victim to a fraudster - must it pay VAT?
Imagine a situation in which a business owner does everything by the book. They check the counterparty in the VIES database, review foreign commercial registers and apply internal due diligence procedures. Even so, they fall victim to a sophisticated fraud - the goods are stolen by a person posing as a representative of a foreign company, and payment never reaches the bank account. This raises a fundamental question: must the defrauded company account for VAT on a transaction that was, in effect, a theft?
This is exactly the type of case considered by the Supreme Administrative Court (NSA) in its judgment of 7 May 2026. The ruling is of great importance to thousands of Polish business owners who trade internationally and are exposed to organised criminal groups. The NSA judgment sets a new interpretative direction, different from earlier case law, and gives hope to companies that until now have been punished twice - first by fraudsters, and then by the tax authorities.
In this article we discuss in detail the facts of the case, the previous line of case law and the practical consequences of this landmark ruling for Polish VAT taxpayers.
The facts - how did the fraud happen?
The case concerned a Polish manufacturer of building materials which was approached by a person claiming to represent a reputable French company. The alleged counterparty wanted to place a large order for building materials, with delivery to France and the United Kingdom. Before starting the cooperation, the Polish company carried out a careful verification of the business partner.
The verification procedure applied by the company
The company did not act hastily. Before fulfilling the order, it took the following steps:
- Checking the counterparty's status in the VIES system (VAT Information Exchange System) - an active registration as an EU VAT taxpayer was confirmed
- Verifying data in foreign commercial registers
- Checking the counterparty with business information bureaus
- Applying the company's internal compliance procedures
All verification results were positive, so the company accepted the order. It produced the ordered building materials, handed the goods over to the carrier, issued VAT invoices and prepared the warehouse documentation and consignment notes. However, when the payment deadline arrived, it proved impossible to contact the representative of the French company.
The investigation showed that the real French company had never placed any order. The person posing as its representative was a member of an organised criminal group which, in effect, stole the goods. The Polish company was left with issued invoices, no goods and no payment - and the tax authorities demanded payment of VAT.
The tax authorities' position and the previous line of case law
For years, the tax authorities took a hard line in cases of this kind. According to the National Revenue Administration (KAS), the mere issuing of an invoice and release of goods means that a supply within the meaning of the VAT Act has taken place. The authorities argued that since the goods left the company's warehouse and an invoice was issued, a tax liability arose - regardless of whether the transaction was the result of fraud or legitimate trading.
Moreover, earlier rulings of the administrative courts in similar cases often sided with the tax authorities. The courts indicated that business risk lies with the taxpayer, and that the loss of goods as a result of fraud does not automatically release the taxpayer from the obligation to account for VAT. This interpretation put Polish business owners in an exceptionally difficult position - they lost the goods, received no payment and, in addition, had to pay tax on what was in fact a non-existent transaction.
The Polish company filed a request for an individual tax ruling, asking about two key issues: whether it could deduct input VAT on goods used to produce the ordered materials, and whether it was obliged to pay output VAT on a sale that turned out to be a fraud. The case went through all instances and ultimately reached the Supreme Administrative Court (NSA).
The landmark NSA judgment of 7 May 2026
The NSA judgment of 7 May 2026 is a significant departure from the previous line of case law. Although the court itself noted that the ruling is not a precedent in the formal sense (the Polish legal system is not based on precedent), it undoubtedly sets a new direction for interpreting VAT rules in the context of transactions made as a result of fraud.
Key findings of the judgment
The NSA drew attention to several fundamental aspects of the case. First and foremost, the court stressed that there was no actual supply of goods within the meaning of the VAT rules, because the recipient was not the entity named on the invoice. From the very beginning the transaction was fictitious - the real counterparty was unaware of its existence, and the goods ended up in the hands of criminals.
The court also found that the company had exercised due diligence in verifying the counterparty and could not be blamed for falling victim to a professionally organised fraud. This is particularly important in the context of the principles of proportionality and VAT neutrality - fundamental principles of the European value added tax system.
The NSA judgment is in line with the case law of the Court of Justice of the European Union (CJEU), which has repeatedly stressed that a taxpayer acting in good faith should not bear the tax consequences of fraud committed by third parties.
Practical consequences of the judgment for business owners
The NSA judgment of May 2026 has far-reaching practical effects for Polish companies engaged in trading, especially in international transactions. Here are the key conclusions every business owner should draw:
- Documenting counterparty verification is crucial - companies should keep detailed records confirming that due diligence was exercised
- Compliance procedures must be real and applied in practice - merely having procedures is not enough, they must be implemented consistently
- Verification in the VIES system is the minimum - it is worth using additional sources of information about counterparties
- In the event of fraud, you should report it to law enforcement without delay and secure all evidence
- It is worth considering filing a request for an individual tax ruling or correcting the VAT return for transactions that turned out to be fraudulent
At the same time, it should be remembered that each case is assessed individually. The NSA judgment alone does not automatically mean that every company defrauded by a counterparty will avoid paying VAT. Proving good faith and due diligence in verifying the business partner is of key importance.
Do not be punished twice - get advice on your case
The NSA judgment of 7 May 2026 gives real hope to business owners who have fallen victim to fraud and have at the same time been forced to pay VAT on fictitious transactions. The landmark ruling confirms that the principle of VAT neutrality and the protection of a taxpayer acting in good faith are not just theory, but real tools for defending against unjust demands from the tax authorities.
If your company finds itself in a similar situation - it has fallen victim to counterparty fraud and the tax authorities are demanding payment of VAT - do not delay taking action. Filing the appropriate applications on time and properly documenting the case can determine its outcome. Contact our firm for a professional analysis of your tax situation and effective legal assistance. We act quickly, discreetly and with full commitment to protecting our clients' interests.
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