Poland: Taxes, foodstuffs and beer

17 January 2014

Aleksandra Karpińska

On 1 October 2013, the Polish Supreme Administrative Court issued a judgement providing guidance on applying the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (the "VAT Directive") under Polish law. The plaintiff, Tesco, claimed a lower VAT rate on all foodstuffs that they are selling. Instead of applying the current 23% rate, Tesco was seeking application of lower rates of 8% and 5%. 

The plaintiff held that Poland improperly implemented the VAT Directive and consequently, that all the foodstuffs should be subject to a lower VAT rate instead of the standard one. TESCO's argument was based on Annex III of the VAT Directive, which contains a list of goods subject to reduced rates. According to Tesco, the lower VAT rate applies to foodstuffs (including non-alcoholic beverages) for human and animal consumption.

On the other hand, the Polish Tax Office held that the regulations of the aforementioned Annex should not be understood as an order of application of lower rates on all the foodstuffs but only as a possibility. Consequently, Poland was free to decide on which products the lower rate applies to and on which ones the basic rate.

On cassation, the Court shared the Office's opinion. It held that Article 98 of the VAT Directive provides a choice to Member States – they can, but are not obliged, to implement the lower VAT rates. The Member State has three options:

  • Introduce only one lower VAT rate on foodstuffs
  • Introduce two lower VAT rates on foodstuffs
  • Apply the standard VAT rate only

The Court added that there is already established jurisprudence on this matter. It referred to the earlier Delikatesy Alma's cases (I FSK 226/13 and I FSK 754/13), where the plaintiff presented the same claims as Tesco. In these judgments the Court underlined that the VAT Directive does not require absolute harmonisation of national law with the European regulations – it is indeed possible that the same product will be taxable by the standard VAT rate in one Member State and by a lower rate in another.

Not only can we not expect lower VAT rates to apply on foodstuffs, but also on beer. In fact the Polish People's Party (Polish: Polskie Stronnictwo Ludowe) has even suggested a tax increase on beer from 2014 onwards. The Party claims that such a solution could provide additional funds which will be transferred to the national program of construction and modernisation of local roads. However, the Polish Ministry of Finance does not intend to introduce such an increase in the near future.

The arguments raised by the opponents of such an increase are worth considering, especially those of beer producers. They argue that even if the funds collected would contribute to upgrading local roads, the proposed increase would provoke a significant drop in beer sales and consequently a decrease in sales and jobs in the industry. 

Image of Aleksandra Karpinska
Aleksandra Karpińska
aleksandra.karpinska@twobirds.com