The judgment of the General Court of the European Union of 11 February 2026 in Case T-689/24 concerned the interpretation of Council Directive 2006/112/EC as regards the moment at which the right to deduct input VAT arises and may be exercised.
The case was referred to the General Court following a request for a preliminary ruling submitted by the Polish Supreme Administrative Court (Naczelny Sąd Administracyjny), which examined the compatibility of Article 86(10b)(1) of the Polish VAT Act with EU VAT legislation. Under that national provision, the right of deduction arises no earlier than on the date of receipt of the invoice. The issue under consideration was whether requiring the taxpayer to possess the invoice in the same tax period in which the substantive conditions for deduction are met is consistent with the principles of the VAT system as established under EU law.
The proceedings were initiated by I. S.A., a VAT taxpayer engaged in the purchase and resale of gas and electricity through a clearing and settlement house mechanism. The company applied for an individual tax ruling, indicating that although the taxable transactions were carried out in one reporting period, the corresponding invoices were received in the subsequent period—albeit always prior to the submission of the relevant VAT return. The tax authority held that the formal requirement of possessing an invoice determines the point in time from which the taxpayer may exercise the right of deduction. In its view, this requirement did not infringe the principle of VAT neutrality, as the right to deduct was not denied but merely deferred. This position was upheld by the Voivodship Administrative Court in Warsaw.
However, when examining the cassation appeal, the Supreme Administrative Court expressed doubts as to whether attributing decisive importance to a formal requirement (i.e. possession of the invoice) in determining the moment when the right of deduction arises is compatible with Articles 167, 168(a), and 178(a) of Directive 2006/112/EC. It therefore asked the General Court whether those provisions permit the exercise of the right of deduction in a given tax period to be made conditional upon possession of the invoice in that same period, even where the taxpayer received the invoice prior to filing the VAT return. The Supreme Administrative Court emphasised that such an approach results in an unjustified deferral of the deduction, notwithstanding the fact that the transaction has been carried out and the VAT has become chargeable on the part of the supplier.
The General Court reiterated that the fundamental principles of the VAT system are based on a distinction between substantive and formal conditions. Substantive conditions relate to the very basis and scope of the right of deduction and include, inter alia, the acquisition of goods or services by a taxable person acting as such and their use for the purposes of taxable transactions. Formal conditions concern the manner in which that right is exercised and include, among others, the obligation to hold an invoice which, pursuant to Article 178(a) of the Directive, constitutes a necessary document for the exercise of the right of deduction. The Court further stressed that, under Article 167 of the Directive, the right of deduction arises at the time when the deductible tax becomes chargeable, which, as a rule, coincides with the supply of goods or the provision of services.
In its reasoning, the Court relied on established case-law according to which failure to comply with formal requirements that may be remedied cannot lead to refusal of the right of deduction where the substantive conditions have been satisfied. In particular, reference was made to judgments concerning invoice corrections and to cases emphasising that the right of deduction must, in principle, be exercised in the same period in which it arises. The Court concluded that the Polish provisions, by making the emergence of the right of deduction conditional upon possession of the invoice, introduce an additional requirement not provided for in the Directive and consequently defer the exercise of that right to a later period, thereby temporarily imposing the economic burden of VAT on the taxpayer.
The Court also addressed the arguments advanced by the Polish Government concerning the need to ensure effective control of VAT settlements by requiring possession of the invoice in the period in which the right arises. It held, however, that measures adopted by Member States pursuant to Article 273 of the Directive must not go beyond what is necessary and must not systematically undermine or render excessively difficult the exercise of the right of deduction. In the present case, the taxpayer was in possession of the invoices at the time of filing the VAT return, enabling the tax authorities to verify the correctness of the deduction; consequently, there was no risk of abuse.
In the operative part of the judgment, the General Court unequivocally held that Articles 167, 168(a) and 178(a) of Directive 2006/112/EC, as well as the principles of neutrality and proportionality, preclude national legislation which prevents a taxpayer from exercising the right of deduction in the VAT return for the period in which the substantive conditions were fulfilled solely on the ground that the invoice was not held in that period, even though it was received prior to the submission of the VAT return. Accordingly, Article 86(10b)(1) of the Polish VAT Act was found to exceed the limits permitted under EU law.
The judgment underscores the overriding importance of the principle of VAT neutrality, pursuant to which a taxable person should not bear the economic burden of VAT in a manner inconsistent with the structure of the EU VAT system, provided that all substantive conditions are fulfilled and the required documentation is held at the time of reporting.