The AI that lied: fake Polish VAT rulings loses company PLN 15.5 million contract
Artificial intelligence is being hailed as a revolution in how businesses process information, prepare documents, and handle compliance.
Yet the recent case of Exdrog in Poland shows the financial and legal risks of relying too heavily on machines for VAT and other taxes without proper oversight.
What was intended to be a clever shortcut in a public tender turned into a spectacular misstep, costing the company exclusion from a contract worth PLN 15.5 million (just under €4m) in a National Appeal Chamber (KIO) ruling.
The case is a warning of the real financial threats of using raw AI with VAT or other taxes – contrast this with VATCalc’s human-oversight of AI in areas like item classification for rates and VAT advice generation.
Public works tender comes in cheap
The tender in question related to road maintenance in the Małopolska region. Exdrog submitted a bid of PLN 15.5 million, but the Kraków Provincial Roads Authority had concerns that the offer might be “abnormally low.” In public procurement, such doubts trigger a formal requirement: the bidder must provide a detailed justification proving that the pricing is realistic, compliant, and sustainable.
Exdrog responded with a weighty, 280-page explanation, intended to demonstrate that its offer could indeed be delivered at the stated price. At first, the documentation appeared convincing, and the contracting authority even considered the bid to be the most advantageous.
The discovery of false VAT rulings
The turning point came when a rival bidder scrutinised the justification. Buried in the analysis were references to Polish VAT rulings that supposedly supported the company’s calculations, particularly regarding how VAT rates applied to road maintenance.
But these rulings did not exist. They were fabrications. The company had relied on an AI system to generate supporting material, and the technology had “hallucinated”—producing plausible-sounding but entirely false documents.
The Chamber finds AI VAT used to mislead customer
The matter went before the National Appeal Chamber (KIO), which ruled that Exdrog had misled the contracting authority. The Chamber stressed a crucial principle: responsibility for the accuracy of documents rests solely with the submitting company. The use of AI is not an excuse and does not lessen that obligation.
By presenting fabricated VAT interpretations, Exdrog failed to provide a lawful and credible justification of its bid. The penalty was severe but inevitable: exclusion from the tender and the loss of a multi-million contract.
KIO is Poland’s specialist administrative body that hears disputes in public procurement. When a contracting authority or bidder is challenged, the case goes to KIO, which issues a decision (orzeczenie/wyrok) that can uphold, amend, or overturn the contracting authority’s actions.
Why human oversight over AI is essential
For VAT in particular, the lesson is sharp. Tax authorities demand absolute precision, and a single misinterpretation or fabricated ruling can lead not only to lost tenders but also to penalties, audits, or reputational damage. The Exdrog case highlights why curated, codified tax engines are fundamentally different from uncontrolled AI chatbots.
A platform like VATCalc does not rely on probabilistic text generation. Instead, it encodes global VAT law and tax authority guidance directly into its tax engine. This legislative coding ensures that every determination, whether for an invoice, a return, or a procurement submission, is grounded in verifiable law rather than machine guesswork. That means real-time compliance with zero tolerance for hallucinations—exactly what regulators and public bodies require.
In practice, this distinction is what separates a risky shortcut from a trusted system of record. Unsupervised AI can fabricate VAT rulings; a legislative-coded engine like VATCalc delivers determinations that can be instantly traced back to the underlying legal source. For businesses navigating reforms like EU ViDA, mandatory e-invoicing, and digital reporting, this controlled approach is the only sustainable path.
And that is why the future of VAT compliance belongs not to unchecked chatbots but to controlled, codified engines like VATCalc—where automation is built on law, not imagination.
Read more about how tax authorities VAT adoption is progressing.
