POLAND: Polish regulations on VAT

The very famous and discussed recently in all media a story of a baker revealed and popularized in a society the existing problem of VAT from in-kind donations; i.e. that all Polish corporations have to pay VAT on donated products. This is a story of a baker who had to close his bakery and was asked by government tax agencies to return 150.000 zl. ($50.000) of overdue VAT for the years he was distributing bread for free to the poor and hungry. A baker, who for years was feeding the needy, now is on the dole himself. The Polish tax agencies got interested in the baker when he was receiving the award of a sponsor of the year 2004. The existing law clearly impedes the work of many Polish NGOs (particularly food banks) and discourages many companies and individuals from acts of charity. It creates a situation in which it pays off more to sell or even discard products than to give them away. When the products are destroyed, the producer does not pay any VAT at all. When he sells the products, he pays the VAT on the value of products at the moment of selling. But when he gives the products away, he must pay VAT on the value of product at the moment of production. In case of a baker it means that giving away almost stale bread he would have to pay VAT on fresh bread, while if he was selling it for a fraction of the price, he would have to pay VAT only on this fraction. It is worth to note that Polish regulations on VAT from in-kind donations are the most disadvantageous for the needy solution in the whole European Union. There is some hope that this case will show Polish law-makers the nonsense of such regulations and encourage them to modify them. On the other hand, however, it is believed that this wide coverage of the story of a baker has discouraged many people who do not distinguish individual and corporate tax laws from any in-kind donations.