Use of the Input Tax Deduction Mechanism in the VAT System for the Purpose of “Tax Carousel” Fraud

Abstract

The article discusses the phenomenon of "tax carousels" in the tax on goods and services, which is a specific abusive practice and is used for VAT refund scam purposes. A discussion on the jurisprudential doctrine of the abuse of law and good faith as offered by the Court of Justice of the European Union is followed by an analysis of the judicial decisions (case-law) issued in this area, which proves that taxable persons involved in value-added tax fraud practice have no right to a tax deduction. Meanwhile, those taxable persons who have fallen victim to tax fraud practices may quote the good faith doctrine and exercise the right to a tax deduction. The judicial decisions of the Court of Justice of the European Union have had a significant impact on the judicial decisions issued by administrative courts in Poland. The Supreme Administrative Court (SAC) tries to define the notion of a "tax carousel" in its decisions, as the notion is quite broad.