VAT deduction in investment projects in Poland: when a loan is not an ancillary transaction

---

VAT deduction and financing during investment projects

VAT deduction in investment projects in Poland may become complex when a company incurs significant preparation costs and, at the same time, performs VAT-exempt activities, such as granting interest-bearing loans to related entities.

Businesses often assume that financing provided during the investment phase is only organisational, temporary or technical. Under Polish VAT rules, this may not be sufficient to classify financial transactions as ancillary transactions. If loans are part of the taxpayer’s business model, interest income may affect the VAT deduction proportion.

---

Supreme Administrative Court ruling of 16 March 2026

The issue was addressed in the judgment of the Supreme Administrative Court of 16 March 2026, case no. I FSK 1210/23. The case concerned a company involved in the construction of offshore wind farms. Its future operating activity was to consist of purchasing electricity from a project company and reselling it, which would generate VAT-taxable sales.

During the investment phase, the company had not yet generated operating revenue. At the same time, it was to finance the project by granting interest-bearing loans to the entity responsible for the wind farms. The interest would constitute VAT-exempt turnover.

The taxpayer argued that the loans were temporary and secondary, served only to finance the investment, and should not affect the VAT deduction proportion. The tax authorities, the Provincial Administrative Court in Warsaw and the Supreme Administrative Court rejected this approach.

---

Why the loans were not ancillary

The courts found that granting loans was not merely incidental. It resulted from the adopted project implementation model and was an important element of the company’s activity during the investment phase.

The temporary nature of a transaction is not decisive. A company may still be preparing its target business activity and, at the same time, perform activities that are a real part of its economic activity.

When assessing whether a financial transaction is ancillary, businesses should consider whether:

• the transaction was planned as part of the business model,
• it is necessary for the investment or the group’s activity,
• it generates significant income,
• it involves organisational, financial or management resources,
• the taxpayer repeats or intends to repeat such activities,
• it is connected with the company’s main business objective.

It is not enough to argue that loans are granted only until operating activity begins or that they support future taxable sales.

---

Practical importance for companies in Poland

The ruling is relevant not only to the energy sector. It may also affect infrastructure, real estate, joint venture and group restructuring projects, as well as investments carried out through special purpose vehicles.

The issue should be reviewed especially where a company:

• finances a subsidiary or SPV,
• grants loans to related parties,
• organises investment financing within a group,
• incurs significant project preparation costs,
• has not yet generated revenue from its core activity,
• receives VAT-exempt financial income.

If interest turnover must be included in the VAT proportion calculation, it may reduce input VAT deduction on investment expenditure.

---

How to reduce VAT risk

Companies should analyse VAT consequences before implementing the financing structure. The review should cover the right to deduct VAT, the distinction between taxable and VAT-exempt activities, the possible ancillary nature of financial transactions, and the impact of loan interest on the VAT deduction proportion.

Documentation should be consistent with the adopted tax treatment. Loan agreements, resolutions, financing documents, business plans and management documentation may all be relevant. In high-value projects, obtaining an individual tax ruling in Poland may also be worth considering.

Read the full article here: VAT deduction in investment projects in Poland: when a loan is not an ancillary transaction.

---

If you have any further questions or require additional information, please contact your business relationship person or use the enquiry form on the HLB Poland website.

Contact us »

***