VAT Penalty vs EU International Sanctions — Two Different Concepts, Two Different Obligations

When a Polish company hears the word “sanctions”, it most often thinks of the tax office. That is understandable — for many years a “VAT penalty” was the only meaning of that word in everyday business life. Yet since 2014, and especially since 2022, “sanctions” in an EU context mean something entirely different: restrictive measures imposed by the European Union, the United Nations and the United States on specific countries, individuals and entities. The two things share only the word. Their legal bases, the authorities responsible and the consequences of non-compliance are completely separate from one another.

Legal status as of: 2026-05-20.

TL;DR — what you need to know in 60 seconds

• The word “sanction” in Polish law has two entirely different meanings — one fiscal, the other geopolitical.
• A VAT penalty is an additional tax liability imposed by the tax office for errors in the settlement of value added tax — regulated by the VAT Act.
• International sanctions (restrictive measures) are trade bans, asset freezes and other restrictions imposed by the EU, the UN or the USA on specific countries, individuals and entities — their legal basis is EU Council Regulations.
• A VAT penalty concerns the relationship between your company and the tax office. International sanctions concern the relationship between your company and every counterparty in the world.
• Polish companies must comply with both — but the authorities are different, the penalties are different and the mechanism of operation is different.
• International sanctions are frequently ignored by SMEs outside the financial sector, even though they apply to every business operating in the territory of the EU — without any minimum threshold.¹

Two meanings of “sanction” in Polish business

Polish business language has a problem with the word “sanction”. In legal language it simply means a consequence — every legal norm has its sanctions, i.e. what happens if you fail to comply with it. Hence we have criminal sanctions, disciplinary sanctions, sporting sanctions and — the two categories that can be confused in a business context.

The first meaning is a VAT penalty — an additional tax liability that the tax office may impose on a company for errors in the settlement of value added tax. It is a fiscal instrument — a penalty for irregularities in tax returns.

The second meaning is international sanctions — restrictive measures imposed by supranational organisations (the European Union, the UN Security Council) or states (the United States through OFAC — the Office of Foreign Assets Control) on specific countries, natural persons and legal entities. These sanctions have nothing to do with taxes — their purpose is the political and economic isolation of entities that threaten international security.

This article focuses on explaining both concepts, but the greater weight lies with international sanctions — because that is precisely the area most frequently ignored by Polish SMEs and the one growing fastest in legal and operational importance.

VAT penalty — additional tax liability

“VAT penalty” is an informal but widely used name for the additional tax liability provided for in the Value Added Tax Act. The tax office may impose it when an inspection reveals irregularities in the settlement of VAT — for example, an overstated tax refund or an understated amount due.

The mechanism is straightforward: if the authority finds an error, it adds a further amount specified in the VAT Act to the tax arrears. The size of this liability depends on the nature of the infringement — the Act differentiates the rates depending on whether the error was intentional, unintentional or connected with tax fraud.

Importantly: a VAT penalty is a matter exclusively between your company and the tax administration. There is no question here of sanctions lists, a counterparty from Russia or asset freezes. It is a tax instrument that operates in an entirely different legal space.

Who imposes the VAT penalty and under what procedure

The decision to impose an additional tax liability in respect of VAT is issued by the head of a tax office or the head of a customs and fiscal office (naczelnik urzędu skarbowego or naczelnik urzędu celno-skarbowego) in the course of an inspection or tax proceeding. The company has the right to appeal against that decision through administrative channels and subsequently to an administrative court.

The procedure is formalised, and the company has the option to file a corrective return — in specified circumstances, before an inspection is initiated, this can reduce or eliminate the additional liability. This is a significant difference from international sanctions, where “correcting an error” after the fact does not release the company from liability for the transaction that has already taken place.

International sanctions — EU, UN and US restrictive measures

International sanctions are an entirely different legal world. Their purpose is not to collect taxes or to correct accounting — it is the political and economic isolation of entities deemed a threat to security or the international order.

For a Polish company this means one thing: if your counterparty — a client, supplier or intermediary — is on a sanctions list, you cannot do business with them. You cannot accept payment, send goods or provide services. The obligation does not depend on the size of the company, the sector or turnover.

The source of the obligation — legal basis

Two EU Council Regulations are key; they apply directly in Poland — without any need for implementation by the Polish legislature¹:

• Council Regulation (EU) No 269/2014 of 17 March 2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine². It requires the freezing of all funds and economic resources belonging to entities listed on the sanctions list and prohibits making any funds available to them.
• Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine³. It introduces an embargo on dual-use goods and technology, a ban on certain services and numerous sector-specific restrictions.

On top of these comes the Polish sanctions act — the Act of 13 April 2022 on special solutions for countering support for aggression against Ukraine and for protecting national security (Journal of Laws 2022, item 835)⁴, which, among other things, creates the Polish national sanctions list maintained by the Minister of Internal Affairs and Administration (MSWiA — Ministerstwo Spraw Wewnętrznych i Administracji)⁵ and provides for financial penalties imposed by the Head of the National Revenue Administration (KAS — Krajowa Administracja Skarbowa)⁶.

For more on how the EU has imposed successive packages of sanctions against Russia — from the first measures in 2014 through to the 20th package of April 2026⁷ — see the article What sanctions are in force against Russia and what do they mean for your company?.

Which sanctions lists you must check

In practice, Polish companies must take account of several parallel lists:

• EU Consolidated List — maintained by the European Commission on the basis of EU Council Regulations; after the 18th package (July 2025) it contained more than 2,500 individual listings⁸. Following the 19th and 20th packages, that number is higher.
• Polish MSWiA list — maintained by the Minister of Internal Affairs and Administration⁵ under the Act of 13 April 2022. The current list is available at gov.pl/web/mswia⁹.
• OFAC SDN List (Specially Designated Nationals) — maintained by the Office of Foreign Assets Control, U.S. Department of the Treasury¹⁰. It applies to companies with any connection to the USA — for example, transactions in US dollars or goods of American origin.

The ownership rule: an entity is treated as subject to sanctions if a person listed on the sanctions list owns more than 50% of its shares¹¹. This means you must check not only the company name but also its ownership structure.

Directive 2024/1226 — sanctions become a criminal matter

Since May 2024, the Directive of the European Parliament and of the Council (EU) 2024/1226 of 24 April 2024 on the definition of criminal offences and penalties for the violation of Union restrictive measures has been in force in the EU¹². The deadline for transposition by Member States was 20 May 2025¹³. Poland is in the course of legislative work on the implementing bill.

What this means in practice: intentional violation of EU sanctions is to become a criminal offence. The Directive requires EU Member States to introduce a maximum term of imprisonment of at least five years — where the violation concerns financial funds or economic resources with a value of at least EUR 100,000¹⁴.

This is a fundamental change: we are moving from the area of administrative liability into the territory of criminal law — the details are discussed in our analysis of Directive 2024/1226 and the criminalisation of sanctions violations. For more on the consequences for non-financial companies, see Penalties for violation of EU sanctions in Poland.

Comparison table — VAT penalty vs EU international sanctions

Why a company must understand both — and why international sanctions are so often ignored

A VAT penalty enters an entrepreneur’s awareness naturally: it is there at every return, every inspection, every conversation with the accountant. Tax offices conduct proceedings, issue decisions, companies appeal — the entire system is visible and familiar.

International sanctions work differently. There is no annual sanctions return, no automatic notification when your counterparty appears on a list. The obligation to check falls on you — and it is you who must demonstrate that you have exercised due diligence.

Why SMEs outside the financial sector ignore this

Three main reasons:

First, sector association. Sanctions are associated with banks, brokerage houses, insurance companies — obligated institutions within the meaning of the AML Act. That is a mistake. EU Regulations 269/2014 and 833/2014 have direct effect¹ — they apply to every company in the EU, regardless of sector.

Second, conflation of concepts. If someone in the company hears “sanction” and thinks of a VAT penalty — the problem seems familiar and manageable. In reality, two entirely different legal universes are being discussed.

Third, invisibility of consequences. Until now, penalties for sanctions violations for non-financial SMEs were rare and little publicised. That is changing: Directive 2024/1226 criminalises intentional violations¹², and the Head of KAS can impose a penalty of up to PLN 20 million¹⁵.

If you want to check whether your company has an obligation to carry out sanction screening, go to the article Does my company need to carry out sanction screening?.

What happens if you treat international sanctions like a VAT penalty

Conflating these two concepts has concrete operational consequences. A company that understands “sanctions” purely as a tax problem does not implement a procedure for verifying counterparties against sanctions lists. The result: a transfer to an entity on the OFAC SDN List, the sale of goods subject to the embargo under Regulation 833/2014, the provision of services to a company whose owner is on the 269/2014 list¹¹.

In each of these cases the company faces an administrative penalty of up to PLN 20 million¹⁵ and — where the violation is intentional or concerns an amount of at least EUR 100,000 — criminal liability arising from Directive 2024/1226¹⁴.

FAQ — frequently asked questions

Can a VAT penalty and international sanctions apply to the same transaction?

Yes, in theory — if a company understated VAT on a transaction that simultaneously violated EU sanctions, the tax office may impose an additional tax liability while the Head of KAS may impose a financial penalty for the sanctions violation. These are two separate administrative proceedings, conducted by different authorities on the basis of different legislation.

Does a small company — a sole trader — have to check sanctions lists?

Yes. EU Regulations have direct effect throughout the European Union¹ — without any revenue or headcount threshold. If you run a sole-trader business and issue an invoice to a counterparty on the sanctions list, you are in breach of the Regulation.

Who monitors compliance with international sanctions in Poland?

The financial penalty for breach of asset-freezing obligations is imposed by the Head of the National Revenue Administration (KAS) (Art. 6(2) of the Act of 13 April 2022)⁶. The Polish sanctions list is maintained by the Minister of Internal Affairs and Administration (MSWiA)⁵. GIIF — the General Inspector of Financial Information (Generalny Inspektor Informacji Finansowej) — is the AML authority, not the primary sanctions authority for the non-financial sector¹⁶.

Do EU sanctions apply to companies in all sectors, or only to the financial sector?

They apply to all companies operating in the territory of the EU — regardless of sector. Travel agencies, insurance agencies, property companies, e-commerce businesses, lessors — anyone who enters into transactions with sanctioned entities is at risk of liability. For more on the obligations for the tourism and insurance sectors, see the relevant industry pages.

Is it enough to check a counterparty at the point of signing a contract?

No. Sanctions lists are updated regularly — after the 18th package of sanctions against Russia (July 2025) individual listings already exceeded 2,500⁸, and the 19th and 20th packages added further entries. An entity that was “clean” yesterday may be on the list today. Checks must be repeated on a cyclical basis, not only at onboarding.

What is the 50% ownership rule and how does it apply?

An entity is treated as subject to sanctions if a person or entity listed on the sanctions list owns more than 50% of its shares¹¹. This means that verification should cover not only the direct counterparty but also its ownership structure — particularly where the counterparty comes from a high-risk country or has a complex holding structure.

How Sanqto can help

If verifying counterparties against EU, MSWiA and OFAC sanctions lists sounds like a complicated, manual process — Sanqto automates it. The software runs within your company’s own infrastructure (on-premise), data never leaves your network, and the result of verifying each entity appears in one of three states: MATCH, POSSIBLE or CLEAR. The system helps reduce the risk of missing a hit on a sanctions list and builds due diligence documentation that you can present to supervisory authorities.

Whether you operate in tourism, insurance or another sector — ask us about a fit tailored to your scale and risk profile.

Legal basis

• Council Regulation (EU) No 269/2014 of 17 March 2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine — CELEX 32014R0269
• Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine — CELEX 32014R0833
• Act of 13 April 2022 on special solutions for countering support for aggression against Ukraine and for protecting national security (Journal of Laws 2022, item 835) — ELI
• Directive of the European Parliament and of the Council (EU) 2024/1226 of 24 April 2024 on the definition of criminal offences and penalties for the violation of Union restrictive measures — CELEX 32024L1226
• EU Consolidated List of financial restrictive measures — webgate.ec.europa.eu
• List of persons and entities subject to sanctions (Ministry of Internal Affairs and Administration) — gov.pl/web/mswia
• OFAC SDN List (Specially Designated Nationals) — ofac.treasury.gov
• Act of 1 March 2018 on countering money laundering and terrorism financing — ELI

Footnotes

Information, not legal advice. This article is informational and educational in nature. It does not constitute legal advice. Legal status as of: 20 May 2026. The specific obligations of your company depend on its activity profile and require individual assessment — if in doubt, consult a lawyer or compliance adviser.