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Are subsidies for RES and asbestos removal implemented by the municipality subject to VAT? Recent judgments of the CJEU and their consequences

On 30 March 2023, there were two judgments of the CJEU in which it ruled on the taxation of activities carried out by Polish local government units. The judgments concerned the installation by a municipality of renewable energy sources on residents’ properties (C-612/21) and the implementation by a municipality of a programme to remove asbestos from residents’ properties (C-616/21). The substance of these judgments calls into question much of the tax ruling practice of the Polish tax authorities.

A fight with the tax authorities (or perhaps a fight between the tax authorities and local governments?)

The first case concerned the taxation of EU subsidies earmarked for the installation by the Ciechanów municipality and partner municipalities of photovoltaic panels, heat pumps and solar collectors on residents’ properties. The value of the investment amounted to over PLN 11 million. Residents who joined the project undertook to cover 25% of the value of the installation, with the rest of the costs covered thanks to EU funding.

The second case involved the municipality implementing an asbestos removal programme. The municipality, using the services of a selected contractor, undertook the removal of products and waste containing asbestos from buildings. In this situation, property owners did not bear any costs, as the municipality received funds for this purpose from the Provincial Fund for Environmental Protection and Water Management.

The attorneys applied for an individual tax ruling on behalf of the municipalities, claiming that with regard to the implementation of RES, the municipality is not a VAT taxpayer, as these activities cannot be considered to be business activities. For this reason, the amounts due from the subsidy and from residents are not subject to VAT. The Director of National Fiscal Information in both cases disagreed with the position presented by the applicants. In the opinion of the tax office, municipalities are VAT taxpayers when implementing the aforementioned initiatives. The Provincial Administrative Court in Warsaw dismissed each of the complaints filed against the tax ruling, and as a result of the cassation complaints filed, the Supreme Administrative Court referred preliminary questions to the CJEU.

The CJEU agreed with the municipalities

In case C-612/21, the Court stated that the implementation by local authorities of projects for the installation of renewable energy systems is not an economic activity and therefore their activities are not subject to VAT. The installation of RES systems cannot be qualified as a taxable supply of goods and services if the activity is not intended to generate regular income and most of the costs are covered by public funds.

In Case C-616/21, the Court also held that it is not an economic activity for a municipality to contract out to an undertaking the removal of asbestos and the collection of products and waste containing asbestos. This does not constitute a supply of services and is paid for entirely out of public funds, so no VAT is payable here either.

Both rulings have important consequences for local authorities. Since activities performed by them within the framework of this type of projects are not subject to the provisions of the VAT Act, neither the subsidy nor the surcharge of residents will be subject to taxation (it should be remembered that the amount of the subsidy, as a rule, affects the VAT taxable base). As a result, local government units may lose the right to deduct input VAT on investment expenditures incurred by them, and on the part of those units which originally made the taxation, an overpayment in output VAT may arise and they may have the right to claim an overpayment. In such a situation, it will also affect the obligation to make a VAT adjustment, and there may also be an opportunity on the part of residents to recover the tax included in the fee for the installation of RES installations. It should be taken into account that these issues were not directly subject to the Court’s decision, so they should be analysed on a procedural and financial level on a case-by-case basis.


The rulings of the Court of Justice of the European Union proved to be symptomatic of the approach of the Polish tax authorities, breaking the long-standing interpretative line presented by them. The case has again returned to the Supreme Administrative Court, which will issue a judgment taking into account the position of the CJEU. The ruling is very important for local government units, which should thoroughly analyse their investments in RES or asbestos removal, both future and current ones. Some of them obtained individual interpretations and followed them, but a significant part did not. Depending on these circumstances, as many as four different scenarios for dealing with past investments are possible:

  • Exercising the protection of one’s own interpretation and maintenance of VAT settlements
  • Correction of deducted and input VAT in view of practical (in assessment proceedings) illusory use of the protection of established interpretation practice (Article 14n Op)
  • Undermining negative VAT assessment decisions for those TSUs, which did not apply VAT and received such a decision – for which, however, there is only one month from official publication of judgments
  • Leaving the status quo for those TSUs, which did not apply VAT and this was not challenged in inspections and tax assessment proceedings.

We invite you to contact Advicero Nexia if you have any questions regarding the above issue or if you would like to examine together the investments undertaken or planned in this area.