Is it possible to deduct VAT on fuel card purchases?
This is a basic question that unfortunately is not easy to answer. In a nutshell: yes, you can deduct VAT on prepaid fuel purchases, but only under certain circumstances. Unfortunately, the circumstances were not sufficiently specified for a long time. Although there have been many rulings on this issue (including one by the Court of Justice of the European Union in 2019), it still raises many questions.
After the CJEU ruling, the Ministry of Finance announced the launch of public consultations on the issue – these resulted in a general interpretation, which we will return to later. Still, a key difficulty in interpreting this issue is the role of the fuel card issuer. Currently, according to the Finance Minister, the entity providing fuel cards often provides a financial service to entrepreneurs – placing in their hands an instrument similar to a special-purpose loan, under which entrepreneurs can finance fuel purchases. The important element here is the term financial service, since financial services are exempt from value added tax under Polish tax law. So since the issuer of the card is exempt from VAT, any subsequent entity cannot deduct VAT on the transaction either, because under the law… there is simply nothing to deduct.
Most taxpayers, of course, do not like this interpretation. There is a view that assumes that the fuel card issuer is merely an entity participating in the supply chain. This approach to the matter would have a telling effect – both the entity issuing the card and its customer (i.e., the entrepreneur buying the fuel card for his business) would be able to deduct VAT on the cost of the fuel purchased.
However, the MF’s position described above does not mean that VAT on fuel purchased on a fuel card cannot be deducted – the key is to indicate whether the entity issuing the card has influence over the material elements of the transaction made with the fuel card. These elements include price, fuel acquisition terms, etc.
Judgments and interpretations on fuel cards
Judgment of the Supreme Administrative Court (ref. I FSK 1177/11)
The first high-profile document on the issue was a 2012 ruling by the Supreme Administrative Court, which unequivocally ruled that businesses making fuel card transactions could not deduct VAT on them. According to the NSA’s interpretation, the entity issuing the card did not make a supply of goods, but rather provided a financial service – a service exempt from VAT.
Moreover, the invoice issued by the intermediary was deemed not to document the actual transaction – this determined the non-deductibility of VAT.
It is worth mentioning that the Supreme Administrative Court relied in this interpretation on the judgment of the Court of Justice of the European Union in the Auto Lease BV case (ref. C-185/010). That case involved only fueling by the lessee on behalf of the leasing company, but the SAC used an analogy and concluded that fuel cards work in the same way.
Judgment of the Supreme Administrative Court (ref. I FSK 1478/13)
Two years later – in 2014 – the Supreme Administrative Court revised the view presented earlier somewhat, adding the now-famous (and aforementioned) mention that if the issuer of the fuel card has influence over the essential elements of the transaction, it can be considered a chain transaction:
Thus, in the case where the next in the chain has the right to shape the price of the goods, the terms of their purchase, but also, for example, is charged with incurring complaint obligations with respect to, for example, defective goods, such an entity is considered to have the right to actually dispose of the thing as owner.
The effect of this interpretation was that VAT could be deducted by those most concerned, namely fuel card users. However, the newer court ruling did not resolve the most pressing issue – it was still impossible to say with certainty that the tax deduction was fully compliant in a given situation.
CJEU ruling (ref. C-235/18)
In 2019, the EU Court of Justice leaned on the case between Vega International Car Transport and Logistic and the Director of the Warsaw Tax Chamber. The most significant point of the EU Court of Justice’s ruling was that the provision of fuel cards was considered a supply of services, not a supply of goods. The issuer of the fuel card – in light of the aforementioned ruling – provides a kind of credit, thus financing the purchase of fuel for the cardholder. The transaction therefore met the requirements to benefit from VAT exemption, which meant that those involved in the transaction could not deduct tax on it.
For the next few years, the case remained in limbo – at the time, the only logical solution seemed to be to send requests for individual tax interpretations, as there was a lack of guidelines to systematize knowledge and apply general principles to similar cases.
After a long period of public consultation and work by the Ministry of Finance, there was finally a breakthrough – on February 15, 2021, the MF issued a general interpretation clarifying how to qualify fuel card transactions for VAT purposes. As of today, this is the latest document issued on the matter.
General interpretation on qualifying fuel card transactions for VAT purposes
The main purpose of issuing this interpretation is to facilitate the correct qualification of fuel card transactions. What’s more, the document is primarily concerned with transactions in the three-party model, and therefore those that raise the most questions.
The parties in a three-way transaction are:
- The first entity – the lessor or parent company – which provides fuel cards to the contractor, but is not the issuer;
- The second entity – the lessee or subsidiary – the counterparty that uses fuel cards to purchase goods (fuel);
- a third party – a supplier who operates gas stations (usually a fuel company in this role), from which the contractor buys goods.
The MF’s interpretation points to a specific set of prerequisites, the fulfillment of which means that financial services were provided during the transfer of fuel cards. Let’s make it clear: meeting the following conditions is equal to exempting the transaction from VAT, which means that a business using a fuel card cannot deduct tax on transactions with a gas station. Such a situation is encountered when:
- The cardholder (recipient) purchased fuel directly from the fuel station supplier;
- The cardholder (recipient) was the only one to decide how to acquire fuel, including where to acquire it, the quantity and quality of fuel, when to purchase it and how to use the fuel;
- The cardholder (recipient), excluding the intermediary entity, bore the entire cost of the fuel purchase;
- the role of the intermediary entity was merely to provide the recipient with a financial instrument in the form of a fuel card so that the recipient could purchase fuel.
An extremely important element of the MF’s interpretation is the information according to which the provision of Art. 7 paragraph. 8 of the VAT Law, making the protective power of individual interpretations issued within the scope of this provision extinguished. As of now, the general interpretation is valid. You can read the full document by clicking here – the link takes you to the PDF download.
The most important conclusion from an analysis of the Finance Ministry’s position is that standard fuel cards issued by fuel companies and independent issuers are still eligible for VAT deduction. Subsequent parties involved in the transaction can therefore invoice and deduct tax. When using cards issued by lessors or parent companies, the vast majority of situations will qualify as a financial service without the possibility of VAT deduction.
