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

VAT deduction and investment financing in Poland

VAT deduction in investment projects in Poland may depend not only on the company’s future taxable activity, but also on the way the investment is financed. This is particularly important when a company incurs substantial preparation costs and, at the same time, performs VAT-exempt activities, such as granting interest-bearing loans to related entities.

For companies planning investments in Poland, a loan granted during the investment phase should not automatically be treated as merely incidental. If financing is part of the adopted business model, interest income may affect the VAT deduction proportion and reduce the amount of input VAT that can be deducted.

Supreme Administrative Court judgment 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 target activity was to purchase electricity from a project company and resell it, which would generate VAT-taxable sales.

During the investment phase, the company had not yet generated operating revenue. At the same time, it planned 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 only supported the investment, so they should not influence the VAT deduction proportion. The tax authorities, the Provincial Administrative Court in Warsaw and the Supreme Administrative Court disagreed.

When is a loan not ancillary?

The courts held that the temporary nature of a transaction is not decisive. What matters is its economic function and its role in the adopted investment model.

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

• the loan was planned as part of the investment structure,
• financing is important for the project or the group’s activity,
• the interest generates significant turnover,
• the transaction involves organisational, financial or management resources,
• similar activities are repeated or intended to be repeated,
• financing is connected with the company’s main business objective.

It is therefore not enough to claim that loans are granted only until operating activity starts or that they support future VAT-taxable sales.

Importance for investors and capital groups

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.

Particular caution is recommended for companies doing business in Poland that:

• finance subsidiaries or SPVs,
• grant intra-group loans,
• incur significant project preparation costs,
• have not yet generated revenue from core activity,
• receive 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 input VAT, the distinction between taxable and VAT-exempt activities, and the possible impact of interest income on the VAT deduction proportion.

Consistent documentation is also important. Loan agreements, resolutions, financing documents, business plans and descriptions of the investment model may all be relevant. For high-value projects, obtaining an individual tax ruling in Poland may be worth considering.

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