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

VAT deduction in investment projects in Poland may be more complex than it initially appears, especially when a company incurs significant investment costs while also carrying out activities exempt from value added tax (VAT), such as granting interest-bearing loans to other entities within the same group.

In practice, businesses often assume that financing provided during an investment phase is merely organisational, temporary or technical in nature. Under Polish VAT rules, however, this is not always enough to classify financial transactions as ancillary. If granting loans forms part of the taxpayer’s adopted business model, the interest income may affect the VAT deduction proportion.

This issue was addressed in the judgment of the Supreme Administrative Court (NSA) of 16 March 2026, case no. I FSK 1210/23. The court confirmed that financial transactions cannot be treated as ancillary merely because they are temporary, occur during the investment phase or support future core business activities. The key question is whether they form a genuine element of the taxpayer’s economic activity.

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Why ancillary transactions matter for VAT deduction in Poland

As a rule, a taxpayer in Poland is entitled to deduct input VAT where purchases are connected with activities giving the right to deduct VAT, in particular taxable activities. If a business performs only taxable activities, the VAT position is usually more straightforward. The issue becomes more difficult when taxable sales are accompanied by VAT-exempt activities.

In such cases, the taxpayer may be required to apply a VAT deduction proportion. This means that the company does not deduct all input VAT, but only the part corresponding to the share of annual turnover from activities giving the right to deduct VAT in the total turnover used to calculate the proportion.

For businesses implementing large investment projects in Poland, this can have a direct financial impact. During the preparation phase, a company may incur high costs for advisory, legal, technical, design, financial or management services. If VAT on these expenses cannot be deducted in full, the actual cost of the investment increases.

The Polish VAT Act provides that turnover from certain ancillary transactions, including selected financial transactions, is excluded from the calculation of the VAT deduction proportion. This is why it is essential to determine correctly whether a given financial activity is ancillary or forms part of the taxpayer’s core economic activity.

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What is an ancillary transaction under Polish VAT rules?

The Polish VAT Act does not provide a simple, comprehensive definition of an ancillary transaction. As a result, each case must be assessed individually, taking into account the actual role of the activity in the taxpayer’s business.

In general, an ancillary transaction is a side activity which is additional, secondary and not embedded in the basic operating model of the company. It should not significantly involve the taxpayer’s resources or constitute a regular, planned element of its business activity.

It is not enough to state that the transaction is not the company’s main source of revenue. The number of transactions is also not decisive. A single transaction may have major economic significance, while several transactions may still be ancillary if they are not genuinely part of the taxpayer’s core business model.

In practice, the analysis should focus not only on the formal description of the transaction, but above all on its economic function. Relevant factors include whether:

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

Only such an assessment makes it possible to determine whether a transaction may be treated as ancillary for VAT purposes in Poland.

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The case before the Supreme Administrative Court

The case decided by the Supreme Administrative Court (NSA) on 16 March 2026 concerned a company participating in a project involving the construction of offshore wind farms. The business model assumed that, in the future, the company would purchase electricity from a project company and then resell it. This was intended to be the company’s operating activity and would generate VAT-taxable sales.

At the investment stage, however, the company had not yet generated revenue from this activity. The project was still in the preparation and construction phase. At the same time, the company was to finance the investment by granting interest-bearing loans to the entity responsible for building the wind farms.

Interest on the loans would constitute turnover from VAT-exempt activities. The taxpayer argued that granting the loans was secondary and temporary. In its view, the loans served only to finance the investment and should not affect the VAT deduction proportion.

This approach was favourable for the taxpayer because it would allow the company to exclude interest turnover from the VAT proportion calculation and, as a result, retain a broader right to deduct input VAT on investment expenditure.

The tax authorities disagreed. Their position was later upheld by the Provincial Administrative Court in Warsaw (WSA) and finally by the Supreme Administrative Court (NSA).

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Why the loans were not treated as ancillary transactions

The courts found that, in this case, granting loans was not a side or incidental activity. It resulted from the adopted project implementation model and constituted an important element of the company’s activity during the investment phase.

Importantly, the financial activity was not assessed only through the lens of its temporary nature. The Supreme Administrative Court indicated that transactions performed as part of a taxpayer’s business activity cannot be regarded as occasional or ancillary merely because they take place for a limited period.

In other words, a temporary character does not automatically make a transaction ancillary. A company may still be in the investment phase and yet perform activities that form a real part of its economic activity. If financing other entities is a planned mechanism for implementing an investment, it may be difficult to treat it as merely secondary.

For practical purposes, taxpayers should not rely only on arguments that the loans:

• are granted only until operating activity begins,
• support future taxable sales,
• do not represent the company’s target business profile,
• are connected with an investment project,
• are not the primary purpose for which the company was established.

These factors may be relevant, but they are not sufficient on their own. What matters most is whether the financing is a genuine and planned element of the taxpayer’s business activity.

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What the ruling means for companies carrying out investments in Poland

The Supreme Administrative Court ruling is important not only for the energy sector. It may also be relevant for many companies carrying out large investment projects in Poland, especially within capital groups.

This applies in particular to situations where a company:

• finances a subsidiary or special purpose vehicle,
• grants loans to related parties,
• organises investment financing within a group,
• incurs significant project preparation costs,
• has not yet generated revenue from its core operating activity,
• plans future VAT-taxable sales but currently receives VAT-exempt financial income.

In such cases, the impact of financing on VAT deduction should be assessed carefully. If interest turnover must be included in the VAT deduction proportion, it may reduce the right to deduct input VAT on expenses incurred during the investment phase.

In practice, this issue may arise in infrastructure, energy and real estate projects, as well as in larger group reorganisations, joint ventures or investments carried out through special purpose vehicles.

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Temporary transactions are not always ancillary

One of the most important conclusions from the ruling is that the temporary nature of a transaction does not determine whether it is ancillary.

Many investment projects include a preparatory phase during which the company has not yet started its target operating activity. This does not automatically mean that all activities performed during that period are ancillary.

If, during the investment phase, a company grants loans, manages financing, receives interest income and treats these activities as part of the project implementation model, the Polish tax authorities may consider them part of the company’s economic activity. As a result, the related turnover may affect the VAT deduction proportion.

It is therefore important to distinguish between two situations.

The first is where the financial transaction is genuinely incidental. This may be, for example, a one-off activity that does not result from the business model, does not involve significant resources and is not connected with the company’s main operating structure.

The second is where financing has been planned as part of the investment structure. Even if it is expected to last only for several years, it may be treated as an important part of the taxpayer’s business activity. In that case, the argument that the financing is temporary may not be sufficient.

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How to analyse the impact of loans on the VAT deduction proportion

A business that grants interest-bearing loans while also incurring expenses connected with VAT-taxable activities should analyse several areas.

First, it should determine whether granting the loan is an activity performed as part of the taxpayer’s economic activity. If the loan is provided for consideration and the remuneration takes the form of interest, it may generally be treated as a supply of services for VAT purposes, although loan-granting services are generally VAT-exempt in Poland.

Second, the company should assess whether interest turnover should be included in the VAT proportion calculation. This requires determining whether the transaction is ancillary. This should not be assumed automatically.

Third, the company should analyse the connection between investment expenditure, future taxable activity and VAT-exempt activities. If the expenses serve both taxable and exempt activities, partial VAT deduction may be required.

Fourth, the adopted settlement approach should be consistent with the business documentation. Relevant documents may include loan agreements, resolutions, financing documents, investment model descriptions, business plans, management documentation and correspondence with entities financing the project.

Fifth, the company should consider whether its position should be secured, for example by applying for an individual tax ruling in Poland. In high-value projects, even a small change in the VAT deduction proportion may have significant financial consequences.

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What should capital groups pay attention to?

Tax risk is particularly visible in capital groups where intra-group financing forms part of a broader investment structure. A parent company, holding company or special purpose vehicle may grant loans to other entities while also incurring costs connected with investment management.

In such cases, the Polish tax authorities may examine not only a single loan agreement, but the entire economic context. It will be important whether financing is part of a permanent function performed by the company within the group or merely a secondary activity with limited relevance to its business.

For businesses, consistency is also essential. If corporate documents, agreements, financing policies and actual practice show that the company performs a financing function, it may be more difficult to argue that granting loans is purely ancillary.

This does not mean that every intra-group loan automatically restricts VAT deduction. It does mean, however, that each case requires analysis. A safe VAT position should not be based solely on the assumption that, because the loan is not the company’s main business activity, the related turnover can be ignored in the VAT proportion calculation.

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Practical conclusions for businesses in Poland

The ruling confirms that the assessment of ancillary transactions for VAT purposes requires an economic approach, not only a formal one. The key practical conclusions for businesses are as follows:

• financing an investment may affect VAT deduction if it generates VAT-exempt turnover and is not ancillary;
• the temporary nature of loans does not determine their ancillary status;
• transactions performed only during the investment phase may still be treated as an important element of business activity;
• the Polish tax authorities may analyse the taxpayer’s business model, not only the number, value or frequency of transactions;
• companies carrying out large projects should assess VAT consequences already at the financing planning stage;
• transaction documentation should be consistent with the adopted tax treatment. If a taxpayer argues that a transaction is ancillary, it should be able to demonstrate that the activity is not a significant element of its economic activity.

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How to reduce the risk of incorrect VAT deduction

For larger investments, a VAT analysis should be carried out before the financing structure is implemented. This is particularly important where a company is expected to grant loans, receive interest, manage financial flows within a group or act as the financing entity for an investment.

Such an analysis should cover in particular:

• the right to deduct VAT on investment expenditure,
• identification of taxable and VAT-exempt activities,
• assessment of whether financial transactions may be treated as ancillary,
• the impact of loan interest on the VAT deduction proportion,
• review of financing agreements and documents,
• verification of how expenses are documented,
• assessment of whether an individual tax ruling should be obtained.

A well-prepared analysis may reduce the risk that VAT settlements are challenged by the Polish tax authorities. This is especially important where input VAT amounts are high and the investment will generate revenue only in the future.

getsix® supports businesses in analysing VAT settlements, assessing the tax consequences of financial transactions and planning tax treatment for investment projects in Poland. More information is available here: tax advisory in Poland.

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Financing an investment through interest-bearing loans may have a direct impact on VAT deduction in Poland. If loans form part of a planned business model, interest turnover may need to be included in the VAT deduction proportion.

The Supreme Administrative Court ruling of 16 March 2026 shows that a financial transaction does not become ancillary only because it is temporary or takes place before the target operating activity begins. Its actual economic significance is decisive.

For companies carrying out large investment projects in Poland, this means that VAT planning and documentation should be addressed early in the project. In practice, analysing the tax consequences of financing at the beginning of the investment may help avoid the risk of incorrect input VAT deduction.

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Legal and interpretative basis

• Polish Act of 11 March 2004 on Value Added Tax.
• Judgment of the Supreme Administrative Court (NSA) of 16 March 2026, case no. I FSK 1210/23.
• Judgment of the Provincial Administrative Court in Warsaw (WSA) of 24 March 2023, case no. III SA/Wa 2471/22.

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